Energy Deregulation 101

Energy Deregulation 101As early as a few decades ago, energy deregulation was unheard of.  Electricity and natural gas companies had formed natural monopolies in each state, where they controlled both the power generation and the distribution channels for energy delivery.  This meant that consumers were stuck receiving their energy from the only source available at the price it was offered.  The introduction of energy deregulation has given the power of choice back to the consumers.

Energy deregulation is the breaking up of these natural monopolies by removing or reducing any state regulations with the intent that it will lead to an increased level of competitiveness and therefore provide higher productivity, better efficiency, and lower prices overall.  It is used to introduce competition into the energy market.  Because it introduces competition, it gives consumers the option to decide from whom they want to buy their electrical power.  Traditionally, consumers tend to like options when they are spending their money.

Deregulation of energy is a state issue.  As such, the ways in which it is handled vary from state to state.  Some states have written legislation and have implemented full energy deregulation for both electric and natural gas.  While other states have begun deregulation and may be only partially deregulated.  Still other states have failed to embrace the idea and have not begun to implement any kind of deregulation at this time.

One example of energy deregulation is in California.  Not only do consumers have the choice between companies but they also can choose between the types of companies they want to do business with.  Investor owned, local publicly-owned, and independent electric service providers are all available in California.  In Pennsylvania deregulation, which was enacted in 1998, has been widely successful.  More than eleven percent of taxpayers have taken advantage of deregulation as reported by The Washington Post.  In Philadelphia consumers were seeing an average savings of about $10 per month.

There are a number of pros to energy deregulation.  It gives consumers the ability to choose the provider and the type of company they want to spend their money on.  It also gives consumers the ability to consider environmental issues.  For example, consumers who are against the use of coal could choose to go with a company that uses wind or hydro power.

Having options provides an additional means of recourse if a consumer is unhappy with their current provider.  This tends to force companies to offer better customer service.  The alternative is that consumers can simply take their business elsewhere.

Deregulation offers viable options to the issue of national energy security.  By decentralizing the power grid through additional options of energy, national security is strengthened.  However, this benefit may not be fully realized for a few more decades.

Opposition to deregulation typically involves apprehension and concern that by deregulating energy there will be an increase in environmental pollution and a decrease in environmental quality standards.  There is also concern that by constraining monopolies it will force financial uncertainty in the market.

Regardless of individual opinion on energy deregulation it has resulted in consumers becoming more knowledgeable about the energy industry.  People know more about electricity generation, transmission, and pricing.  This increase in awareness and knowledge has opened the door for increased conversation about energy and energy practices.

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