SaveOnEnergy.com is happy to announce Perrin Thompson of Queens University of Charlotte, N.C., as the recipient of our 2014 Education Scholarship. Her winning essay earns her $1,000 toward school expenses.
Read her essay that examines the history of energy deregulation as well as how it's working in different states around the country.
How Energy Deregulation Works
Energy deregulation is a topic at the forefront of politics and society in the United States today. Although utilities that provide "energy," natural gas and electricity, can be deregulated in select states today, this was not always the case. A few key events led up to energy deregulation in our modern age: from the control of over 75 percent of electric energy by large interstate holding companies during the New Deal Era, to the 1935 Public Utility Holding Company Act that gave energy control to government-sanctioned monopolies presiding over specific territories that we are familiar with today, and eventually the required use of renewable energy sources in 1978, culminating in the 1996 act whereby Congress ruled that energy could be deregulated.
What does this all mean? The main focus of deregulation is getting rid of restrictions and giving individuals the power to choose their energy provider. In energy deregulation, utility monopolies are divided by separating the party that produces energy, manages the transmission, and reads the bill from the party that owns the rights to sell the energy commodity. In the simplest terms, the energy suppliers and deliverers operate separately. This differs greatly from regulated markets where vertically integrated utilities control the flow of energy – from its production to the meter. The competition of deregulated markets supports the ideals of a free market economy because of the supply-demand factors and minimal government regulation in the process of selecting an energy provider.
One of the best ways to analogize energy deregulation is to compare it to the familiar act of purchasing a cell phone plan. Deregulated energy markets allow customers to choose their rate plans, much as one chooses a cell phone plan, by first selecting a company provider and then a specific rate. Similar to choices when purchasing a phone plan, consumers are empowered by having access to different features such as: rate type (fixed or variable), green energy choices, plan term, and reward incentives. Like phone retailers, energy providers create a variety of plans to fit the needs of consumers rather than implementing a flat rate for all.
Some states like New York and Pennsylvania are completely energy deregulated, with natural gas and electricity utilities left up for consumers to individually choose, while eighteen states, including North Carolina, Oklahoma, and Wisconsin, remain regulated with local utilities or regional monopolies controlling power generation and delivery channels. Many states have either natural gas or electricity deregulation, while the other energy component is regulated. Today, over half of the states in the US have enacted some type of deregulation, with more soon to follow.
Other than fulfilling a right to choose energy providers, energy deregulation has the potential to save state residents money, largely due to the competitive nature of providers trying to offer customers the best energy rates. The average American household saves 10 to 20 percent a month on energy bills in deregulated zones compared to regulated markets. Businesses benefit from the cost savings in addition to households. For example, the average monthly bill for 1000-kilowatt hours of energy in Dallas, a deregulated area, is around $85, where the bill in Phoenix, a regulated area, is around $135, according to texaselectricityratings.com. Though energy bills may differ drastically from city to city due to energy needs and supply, deregulated areas have the potential to pay significantly less on average over time than regulated ones.
Energy deregulation is part of the overall big picture shift of our culture in becoming more sustainable and building a better world for the generations that come after us. A key factor to many in choosing energy providers is how environmentally conscious the provider is; providers are not only competing by offering low prices but also in how sustainable they can become. Individuals can save money on energy in deregulated areas, but can also help others by educating them about and advocating for saving energy to benefit the larger community. Saving energy cuts down on personal and business energy bills, and is beneficial to the environment. Becoming more energy efficient is the simplest and most cost-effective way to reduce one’s carbon footprint; for example, replacing three standard light bulbs with energy efficient fluorescent bulbs saves $60 a year and will keep one trillion pounds of harmful carbon dioxide out of the atmosphere collectively. Saving energy can be as simple as turning lights off when leaving the room and unplugging the unused chargers that we all inevitably have lying around to making an effort to take public transportation more often and replacing weather stripping in our houses. It is important to understand and advocate for energy deregulation because it gives you as the customer the right to choose your energy provider and to make a decision that will positively impact our environment.