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What is Energy Deregulation?

by Sep 30, 20190 comments

Whenever you get your utility bill every month, do you ever ask who you are actually making these payments to? Yes, we know the government oversees the industry and there is just the one local energy company, right?

Or, do you have a choice as to where you will get your energy?
Most of these questions hardly ever get asked by homeowners and businesses that make these payments every month to the energy companies. For quite a while now, people have really only ever had one source to go through to get their energy needs fulfilled, their local utility. You end up paying what you pay because there really isn’t any alternative.

However, just as it is with just about every facet of our lives, the energy sector has been going through some phase of evolution, and changes have been made to accommodate the desires of consumers and the needs of the environment as well. One of the consequences of this comes in the form of deregulation; more and more states have begun to deregulate their energy industries, and this has provided enough space for new entrants to make their way into the industry.
All of these have made it very important for consumers to know their choices when it comes to energy regulations. In the piece below, we will break down the concept of energy deregulation, show how it works, and help you understand it clearly so you can be clear about the options available to you.

Regulation: How did we get here?
Back in the day, when the United States was beginning to see the settlement of modern human communities, electricity and gas weren’t exactly provided for at the time. This caused a bit of a hindrance for lighting, heating, and other associated utilities. So, in order to meet this need, some innovative business people and inventors started to found power companies.

At the time, there was some fierce competition; businesses battled over control of pretty much everything; power lines, sources of natural gas, shipping lines, and more. As long as it had to do with delivering power to the people, companies fought over it.
Ideally, competition is great for every business, especially if the people controlling it thrive under such circumstances and are ready to scrap. However, the problem with this was that the people weren’t seeing much of an advantage. As the competition continued to head up in terms of infrastructure, prices began to rise, and services continued to deteriorate.

In order to resolve this, the federal government stepped in and appointed a utility company per specific area to help control everything that had to do with acquiring, moving, and delivering fuel. Also, all local and federal authorities established standards (including rules concerning price pegs) to help ensure that the provision of power was as streamlined and effective as possible.
While this tactic helped to bring a greater level of stability to the power field, it also created a monopoly; individual firms were allowed to administer every aspect of gas and electricity, and they ran the show however they pleased.

How regulated energy works
If you pay bills regularly, then you most likely already have a sense of how regulated energy works on a daily basis. When you move into a new house in a new location or you establish a branch of your company somewhere new, you will have to get in touch with your local utility to provide power to the building. So, you go looking for competitive cable providers, furniture and equipment companies, and telephone providers, shopping around for all the services you’ll need. With a regulated energy industry, however, you have just one option for electricity and gas, your local utility company.
If you want for your building to have power, lights and heat, then you have to work with the local utility to get your energy. The local utility company sets the price you pay, and it is based on a set of State Government standards.

Deregulation and how it works
We gave definitely come a long way since the early days of the energy industry, when competition was the driver of the status quo. However, now that the infrastructure for gas and electricity has been put in place, some states have decided to deregulate their energy sectors, essentially putting competition back into the picture again.

Now, keep in mind that deregulation doesn’t necessarily mean that the federal and local governments will give up the control that they have over the industry. Rather, the process provides an avenue for competition to enter into the energy sector, while ensuring that the current delivery and transmission systems are kept in place as well.
In a deregulated market, every consumer will still get the gas and power through the infrastructure provided by the local utility. However, you get to choose where you can get your energy from. You can choose to keep your current setup, and you can also choose an alternative company. The only catch is that whichever company you chose will need to be approved and get a license from the government, in accordance to specific standards that govern the quality, pricing, and structure of your energy.

Think about energy deregulation as similar to the deregulation of the land line telephone industry a few decades ago. Up until the 1980s, the telephone industry was controlled almost completely by American Telephone & Telegraph (AT&T). Its regional subsidiaries created monopolies, and they held rights that restricted the entry of many competitors.

However, deregulation eventually came in the mid-80s, effectively ending the AT&T monopoly.

Now you have a choice when it comes to your telephone. Many companies vie for your business and that competition drives prices down, innovation up, and allow the consumer to choose their preferred provider.

As things stand, there are millions of homes and businesses across the U.S. in states such as New Jersey, New York, Ohio, Texas and more which have made the switch from their local utilities and which are now using alternative energy suppliers. Reasons for these switches vary; some see it as a way to save money, others go green because it helps the environment, and others just believe that they could get much better customer service from any of the alternative supplier.

Essentially, deregulation provides customers with the power of choice. In the long run, this freedom provides an additional incentive for energy companies to optimize their operations and care more about the consumer.

How does energy deregulation help?
So far, a lot of jurisdictions have seen the positive effects of deregulation in the energy sector. Environmental consciousness has increased on the part of energy companies, and they have been forced to ensure proper customer relations as well.

The freedom that it provides to customers is also great, as people are now able to take control of their destiny and make energy choices that they are more comfortable with.

Essentially, deregulation is a concept that is bringing an end to the mandated control of the energy industry by a handful of companies. As it has been seen with other industries, it will provide energy consumers with alternatives and force companies within the industry to adopt operational best practices. Really, as long as the consumer is educated about their energy use so they can learn how to recognize a good deal, there isn’t much of a downside.

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