In the U.S., energy deregulation removes governmental restrictions and allows energy consumers to choose who supplies their electricity or natural gas. This process creates greater competition among suppliers, lowering prices and encouraging innovation within the energy industry. Deregulation areas vary between commercial and residential markets.
The first centralized utility companies were formed.
There is little to no regulation in the energy market. Price caps are introduced.
Regulations are slowly put in place. Regulations are designed to combat shortages, lessen the strain on the market and give consumers more choices.
Energy Policy Act of 1992. Energy efficient programs are put in place.
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.
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.
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:
People living and working in deregulated energy markets have the right to select the energy supplier for their home or business. Deregulated markets work like a reverse auction, with suppliers competing to offer the lowest rate. Independent companies purchase this bulk energy based on careful predicted use calculations. Based on the expected supply-demand algorithm, they then provide their customers with the most competitive rate possible.
This energy is transported to homes or businesses through local utility companies. In regulated markets, consumers must use whatever supplier the utility defaults to without the option of shopping the rates offered by independent suppliers.
Because deregulated markets put the power of energy choice into the consumers’ hands, suppliers must win over their customers. This rivalry among suppliers can lead them to offer more competitive pricing and improved energy technologies (including renewable technologies) to earn the business of energy shoppers.
Additional benefits of deregulation include:
A competitive market also benefits businesses seeking renewable energy sources. According to Energy.gov, in the United States, approximately 20% of all energy is powered by renewable sources, with wind power being the most common renewable source of energy. Suppliers seek better, cleaner, and more sustainable energy sources to meet the growing consumer demand for environmentally conscious energy. Consumers are increasingly likely to consider a business’s clean energy efforts and environmental footprint when purchasing.
To best leverage the advantages of the deregulated energy market for your business, it is imperative to shop around for the best rate. At Integrity Energy, we recognize that few business owners have the time or inclination to learn the complicated and ever-changing nuances of the deregulated market. And that’s okay because our energy experts are standing by to partner with you as you navigate the shopping process! It’s our goal to connect you with the best, most cost-efficient suppliers so you can focus on operating and growing your business.
