Are More States Deregulating Energy?
What is energy deregulation?
Energy deregulation is the “restructuring of the existing energy market.” It allows users to choose from multiple energy providers based on different rates that suit their personal needs and specializes in various product offerings. According to sparkenergy.com, it’s essentially, the “simplification of government rules and regulations that constrain the operation of market forces.”
Why is energy deregulation important?
The purpose of this process is to decrease the company monopolies by increasing the competition.
How did energy deregulation originate?
The deregulation of energy, both natural gas and electricity, started when the Federal Energy Regulation Commission (FERC) decided it should limit its authority to wholesale transactions. This made it possible for each state to decide what it wanted to do, regulate their natural gas and electricity, or allow competitive companies to determine their prices.
The state of Texas has the most deregulated energy with 85 percent (sparkenergy.com). That means Texas has the largest choice for energy providers, whether it be for business or residential purposes. That being said, the majority of the residents and business owners of Texas are required to pick an energy retail provider.
The decision for states to deregulate are based on their current energy consumption and if the energy providers offer intriguing incentives to help cut back the consumer usage of natural gas and electricity.
Businesses made a large impact on deregulating energy. According to an article from the New York Times, “businesses led the campaign to deregulate electricity in the mid-1990s, convinced that introducing competition to the generating and sale of power would drive down electric bills.” This article was published in 2001 and it’s current that out of the three states listed, only California has failed to deregulate energy.
Pennsylvania recently started the deregulation aspect of energy consumption. January 2011 was the start of the open energy market. “I’ve regulated under the old way and under the new way, and this is so much better” because “you don’t make your customers captive to the inefficiencies and cost overruns of the power plants,” says James H. Cawley, chairman of the Pennsylvania Public Utility Commission.
How does energy deregulation work?
First, companies that generate or produce natural gas or electricity gather their product, either by generating electricity or producing natural gas.
Then, an energy retail provider gets the order from their customers and meet their needs all while competing in an open market.
These companies rely on the local utility companies to maintain all of the necessary hardware to keep an efficient flow of gas or electricity to your home or business.
Why do some states not want to transition to an open energy market?
Arizona for one is an energy regulated state. The residents of Arizona have voted against energy deregulation in favor of their current energy provider, Arizona Service Co. APS has broadcast the negative effects of energy deregulation, stating its residents need “to reflect on the stable, reliable and increasingly clean framework for the provision of electric service that exists in the state today, much of it attributable to the Commission itself, before moving too quickly down an alternative path.” The company states that energy reliability will be jeopardized and it can cause a number of problems with existing law, and clean energy policies.
Some states, like California, Alaska, and Hawaii have high energy rates. One reason for such high rates is that the energy companies get a certain percentage of the energy they sell from different sources, such as wind and solar energy.
California, in particular, uses a different tiered model to ensure they get the most from their consumers and also give them a fair shot. Large homes in warmer regions of the state spend more money on their energy, typically labeled tier three. Smaller homes in regions with a more temperate climate spend less, labeled tier one and two depending on the energy consumed. “California’s average retail rate in 2018 was 16.7 cents per kilowatt-hour, as compared to a national average of 10.6 cents, and almost double the state’s total average rates two decades ago,” according to data from American Public Power Association.
Oklahoma has a fixed, regulated energy process. This state also has one of the lowest energy rates in the country. Therefore, Oklahoma isn’t looking to deregulate its energy because of this. Deregulating energy is for the states that have higher rates and for residents that need a better deal than what is given to them.
Other states such as Washington, produce a large chunk of their electricity from water, which is cheaper, sustainable and less harmful than burning coal or gas.
According to utilitydive.com, “the American Public Power Association’s annual review of retail rates in deregulated and regulated states shows that average total rates in regular states have increased by almost the same amount as in deregulated states since 1997.”
The same article from utilitydive.com says, “between 2008 and 2012, the weighted average rates in the deregulated states declined by 0.7 cents, compared to a 0.6 cent increase in regulated states. But since that time, rates have increased by a higher rate again in the deregulated states, from 11 cents to 11.9 cents, versus 8.9 to 9.6 cents for regulated states.” This implies those deregulated states had better rates within these four years compared to energy regulated states.
The same article states that “rates for residential properties have increased about half a cent more in deregulated states overall than they have in regulated states.”
What are the benefits of deregulated energy?
While there are some drawbacks to have deregulated energy, there are still many positives for governments to deregulate it.
Consumers are able to choose their own plans and products that are able to fit their budget and monetary concerns. Users are also able to choose what kind of energy they would prefer, different companies offer different types of energy to use if they care enough about the environment.
Purchasers are allowed to switch energy providers and not suffer from a lack of energy during the transition. It is an easy and convenient process because you do not have to change or replace any hardware.
Currently, 56 percent of the United States has some form of deregulated energy, whether it’s electricity, natural gas, or both. Most states are still debating on if they should deregulate energy or not in the future.
nytimes.com. N.p., n.d. Web.
pennlive.com. N.p., n.d. Web.
sparkenergy.com. N.p., n.d. Web.