Energy Deregulation Reduces Your Costs

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In the late 1990s, the federal government and 22 states began implementing energy deregulation. That meant consumers would be able to choose their electricity and natural gas suppliers. In theory, competition would bring down prices and make the energy system more efficient.

That didn’t happen.

Prices rose and many states backtracked. Now, 20 years later, some states are achieving those original goals.

One way to see how your household can benefit is to use Digital Landing to find energy services for your household.

Why Energy Deregulation?

The U.S. started deregulating industries in the 1970s. The idea was to promote competition and the results were often very positive. “Electricity Deregulation” by Barbara S. Haskew and Reuben Kyle from the Middle Tennessee University website, gives some background. Banking, telephone, airlines and broadcasting are examples of deregulation where prices decreased and customers received more choice.

TemelinBy the 1990s, energy prices were soaring and energy deregulation seemed to be the answer. Authorities realized that consumers could not easily change their connections to the electric grid or the gas pipelines, but power generation and gas supply could be deregulated. The distribution system would stay a public utility, but customers would still be able to choose their power or gas wholesalers. The wholesalers would buy energy in large quantities and send it through the distribution networks to their customers.

Why It Didn’t Work

At first, prices rose. Power generation and gas supply were already fairly efficient and introducing wholesalers as new middlemen increased costs. The Electricity Forum’s “Electricity Deregulation Explained” discusses some of the problems on the electricity side, but similar concerns applied to natural gas. Many states backtracked from energy deregulation and started imposing restrictions and limits, effectively re-regulating the industry.

The energy market was highly structured and adapted to its regulatory regime. States found that removing the regulations didn’t automatically result in a free market. The huge investments required, together with existing debt loads, hampered real competition. Some wholesalers engaged in anti-competitive practices.

Gas pipesA further complication was that the infrastructure for competitive distribution did not exist. The power grid and gas pipelines were designed to get energy from one particular source to a group of consumers. If some of these consumers decided to buy energy from another source, the distribution networks could not handle the volume and bottlenecks developed. The whole concept needed more work.

States took different approaches with varying results. Some were successful in implementing energy deregulation policies that allowed free choice in both gas and electricity. Some have not deregulated at all. Many are at some stage in between, with some consumers having a choice in either gas or electricity.

Present Trends

Since 2010, the tendency has been for more successful energy deregulation. Forbes describes why in the article, “Electric Deregulation Finally Takes Off.” One reason has been the recession of 2008 and 2009, which reduced energy consumption. With excess energy in the system, competitive forces finally came into play to cut prices in many areas.

Technology has played a big role. With smart meters and flexible supplies, customers can tailor their electricity use to consume less power during peak periods. This frees up more expensive peak power and drives down the price. Suppliers offer rate packages matching the customer use profile. Technology is creating and taking advantage of system efficiencies that were previously unavailable to residential consumers.

States learned from their negative experiences early in energy deregulation and have put in place structures that promote competition while keeping an orderly market. They can recognize when the pre-conditions for effective deregulation exist in a particular area and many are deregulating in stages.

How You Can Benefit

Energy use is a major expense for many households. Heating, air conditioning, hot water, cooking, washing and drying make up the major energy loads of a typical home. The cost of these activities varies greatly, depending on where you live and who supplies your energy. The cost of gas is going down due to increased supplies. Electricity costs vary depending on how the supplier generates power. You may live in a deregulated state with free choice, with some choice in a partly deregulated area or your energy suppliers may still have monopolies.

Overall, as of September 2012, the northeast and southwest is mostly deregulated to varying degrees. In the south, only Georgia and Florida have deregulation and they only have it for gas. The rest of the country is a patchwork of deregulation. But the situation is changing rapidly. As energy prices drop in states with deregulation, more states will add more free markets.

One way to find out whether you have a choice for electricity and natural gas suppliers is to check the Digital Landing Shop page, which details who your energy suppliers are, based on the address of your home.

When some areas first receive free choice in electricity, up to one-quarter of customers rapidly change suppliers with price as a big reason. You might be able to save substantial amounts by talking with the suppliers in your area. One may offer a good fit for your pattern of energy use — and at a reduced price.

1 COMMENT

  1. As an observer of Electric and Gas Market since 1994 – I am mesmerized by your article. Here are some data-points, which could have influenced your faith in deregulation.
    1) No article eschewing history of energy industry in US, especially folks advocating deregulation – can be complete without
    a.Reference to ENRON and its allies that bilked deregulated electric market. Worst part was – they were “The proponents of Deregulation” and they literally black mailed Southwestern states in US.
    b.Brownouts in California (first in its history) due to retailer manipulation of market.
    There is long list – rt?

    2) Reference you have sighted on Deregulation, “from Middle Tennessee University – – “, well Tennessee is “regulated” state. Interesting question – why they did not embrace it?
    3) All Electric Industry conferences from 1990 – talked incessantly about benefits of deregulation. Some compared it with “cellphones”. Just like cell-phones revolutionized Telephone Industry, deregulation was going to make electricity cheap – cheap-cheap. Some of them were so convincing that, I still have copies of those futuristic articles” – They all contended that “Competition will bring price down to pennies” Well – in last 10+ years we did not see anyone claiming how “Deregulation” befitted USA. Not one.
    4) In Electric Deregulation – Consumers were ultimate losers.
    Check price/kWh in any deregulated state. They are HIGHEST. Here is link that shows summer 2013 prices Vs summer-2012 prices, in US. http://www.eia.gov/todayinenergy/detail.cfm?id=11831
    (Source: U.S. Energy Information Administration, Summer 2013 Outlook for Residential Electric Bills, June 11, 2013) They show consistent decline in prices for States that are NOT Deregulated. Only increases in prices were in DE-REGULATED states.
    5) Cost of doing business in de-regulates states was higher (not sure how that makes prices for consumer lower in cost+ tariff structure used in US)

    So in short, consumers lost when it came to electricity prices, Distribution companies lost as cost of doing business went up dramatically with no ROI in sight with deregulations. Over years some large distributors continue to withdraw from Retail market as investment in IT and infrastructure has gone up several folds – but industrial demand has not – as we outsourced everything to India and China..

    What is really confounding is – Industry stalwarts like yourselves – “who do not want Regulation and government out of business” – then turn around and ASK FOR FEDERAL $$$ (grants) to update your infrastructure/Grids/Meters.
    Are we, the taxpayers – just bunch of idiots or just demented?

    We saw what happened when we de=regulated Banks in late 1990.
    Lately, after 20+ years, we the consumers/Tax payers forked out Trillions to rescue them

    On Electricity, we have already suffered from devious corporations like ENRON and its allies
    Do we really want re-start that process of deregulation, without learning from “our history in deregulation “ ?

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