To understand energy deregulation, it’s crucial to understand how and why the energy industry was regulated in the first place. The whole story of energy deregulation is a long and complicated one, beginning in the late 1800s when the dawn of the first centralized utility companies.
In the early 1900s, electricity and gas suppliers faced little-to-no regulation, and unethical business practices began to crop up, costing consumers a fortune in energy bills. To combat these practices, regulations were introduced to put price caps on electricity and natural gas.
These price caps served consumers well in the short term. However, the 1973 OPEC oil crisis forced the U.S. to reconsider both its electricity and natural gas markets significantly – one that would pave the way to allowing energy deregulation at the federal level.
Natural Gas Deregulation
The natural gas industry was also heavily impacted by the oil crisis. Desiring more affordable energy than electricity or petroleum, energy consumers turned en masse to natural gas. This sudden shift caused significant shortages in natural gas markets across the country.
Eventually, the Natural Gas Policy Act of 1978 was introduced to combat these shortages. The act removed federal price regulations that had prevented the industry from expanding and innovating and consolidated smaller, local gas markets to achieve economies of scale. This change motivated industry players to improve their infrastructure and production methods and helped balance the natural gas supply with its increased demand.
This partial deregulation of natural gas rates helped to lessen the strain on the market and propel the country’s natural gas technology and policies forward in a big way.
The Final Restructuring Rule
Several other necessary orders and policies, including the Federal Energy Regulatory Commission’s (FERC) Order No. 436 and the Natural Gas Wellhead Decontrol Act, would further set the stage for natural gas deregulation at the federal level. The final push would come in 1992 with FERC Order No. 636 – also known as the Final Restructuring Rule.
This order required natural gas pipelines – who had traditionally charged customers for producing, transmitting, and distributing natural gas – to unbundle their services and allow consumers to choose their suppliers.
Because of this order, business owners who live in states deregulated for natural gas can shop for their own natural gas suppliers.
How Many States Are Deregulated for Energy?
Currently, 30 states are deregulated for energy at some level. Fourteen states are deregulated for both electricity and natural gas, 21 states are deregulated for just electricity, and 24 states are deregulated for just natural gas. Deregulated states include: