While deregulation in the energy industry is fairly new, deregulation of other industries, and that of some aspects of the energy industry, has been taking place for the better part of the past 50 years. In general, deregulation occurs once an industry has become established enough for it to govern itself through competition alone. It only works in mature industries where there is less probability of a single entity taking over the market in a monopolistic fashion.
Deregulation has occurred in several large industries in the United States including the transportation industry, the communications industry, the financial sector and the energy industry. Beginning in the 1970s, a focus on deregulation began to gain traction in both the legislative and executive branches of the national government. Since then several pieces of legislation have been passed encouraging and furthering deregulation.
Deregulation does not mean no regulation
Contrary to its definition, deregulation does not mean the abandonment of all regulations in any given industry. Instead, it generally means the abolition of regulations that limit the freedom of new groups to enter the market and price controls set by institutions rather than market competition.
Prior to the Airline Deregulation Act of 1978, all air travel in the U.S. was regulated by the Civil Aeronautics Board, which established fares and routes for all domestic air travel. Once the CAB was dissolved, airline companies had more freedom to determine which routes they wanted to service, and the new openness of the market allowed for the creation of several discount airline companies. These companies, and the competition inherently created by their entrance into the market, contributed to reduced fare costs. However, even after the dissolution of CAB there are still two institutions that have some oversight in the airline industry – the Federal Aviation Administration and the Department of Transportation.
Deregulation can also be represented as the separation of an industry's levels, as with communications and energy. In the energy sphere, deregulation has resulted in three separate entities being created out of what was once all under the control of traditional utility companies. Now there are generation companies that own and operate power plants that harness energy from a variety of resources, retailers that purchase energy from generators and package it in unique ways to attract consumers, and the remnants of the old utility companies that are now purely in charge of maintaining the distribution network.
This separation has allowed energy prices to be determined more by competition than regulated price points set by a state utilities board, but these regulatory boards have not disappeared altogether. There are plenty of regulations still in place to ensure the fair treatment of consumers by the many new industry players. These regulations require transparency on the part of retailers and utility companies when it comes to fees and other so-called hidden costs associated with the sale and distribution of energy.
The underlying value of deregulation
The entire purpose behind deregulation of any industry is to allow for more competition between market players. In that sense, deregulation is a process of bettering the capitalism model by allowing the markets to regulate themselves. While there are still safety nets in place for many of the industries in the U.S. that have already been deregulated, on the whole the process has delivered positive results for consumers and businesses alike.
The more competition for any given product or service, the better the chances are for individuals to receive exactly what they need at a fair price.