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What is Energy Deregulation?

Felicia Dye
Felicia Dye

Energy deregulation is used to introduce competition into the electricity industry. This is done by allowing consumers to decide from whom they buy their electrical power. People generally appreciate a variety of options when they must spend their money.

A few decades ago, options among power suppliers were unheard of. The power market in each state was virtually monopolized. This meant that people had to take the power that they were given, at the price that is was offered, from the source making the offer. The advent of energy deregulation has changed this, giving consumers the power of choice.

Businessman with a briefcase
Businessman with a briefcase

The deregulation of energy is a state issue. As such, the discussions, decisions, and methods for implementing it can greatly vary. Some states have seen the benefits and have written legislation regarding energy deregulation. Other states have not been so eager to embrace the idea, thereby denying their residents the power to choose.

When it is available, the options provided by energy deregulation may go beyond giving consumers a list of companies from which to choose. Consumers may be able to choose between different types of companies. In California, for example, consumers have had the option to choose between investor-owned utilities, local publicly-owned electric utilities, and independent electric service providers.

The right to choose electricity providers can also empower consumers to support their environmental beliefs. Some people, for example, are against the use of coal due to its negative effect on the environment. These people therefore can choose cleaner energy sources, such as wind or hydro power.

Energy deregulation also provides users with an additional means of recourse when they are not satisfied. A consumer may not be happy with the services provided or she may not agree with an energy company’s business practices. Such individuals can take action by spending their money elsewhere.

When there were no options, many people simply paid their bills and usually took no further interest in electricity. Energy deregulation often results in consumers becoming more knowledgeable about the industry. People tend to know more know about electricity generation, transmission, and pricing. This is true even among people who are in states where energy has not been deregulated.

There usually are sources available to help people learn more about energy deregulation and to help them make informed decisions when they are given the right to choose. In Texas, for example, the Public Utility Commission of Texas claims to provide people with unbiased information about their options. In some cases, online sources can provide quick price comparisons between companies.

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Discussion Comments


Does this mean that we can be unchained from Georgia Power soon?


@PelesTears- I would agree that the first attempts at deregulation were horrible, with the rise and fall of Enron, and the absurd energy prices and reliability in states like California.

That being said, deregulation offers viable solutions to the issue of energy security, and the introduction of renewable energy technologies. If the deregulation is done right, it can also help to level demand capacity and increase energy conservation.

While deregulation has its problems, a decentralized grid offers some untold benefits. It will take at least a few decades to create a fully decentralized grid that operates smoothly and increases national security. It may not reduce prices, but the benefits it provides will far outweigh the economic costs of not mitigating the other issues with energy security.


@anon140370- This is very true. Utilities were allowed to form natural monopolies because the capital costs associated with energy were so high, so they own all of the transmission capabilities associated with their portion of the grid. Energy deregulation has some promise for sustainability, but the deregulation of energy utilities have been extremely hard to do successfully.

The biggest issue with deregulation is the fact that utilities have a natural monopoly. They have a lot of political influence, with huge lobbying organizations, so deregulation intrinsically favors the energy producer not the consumer.

Deregulation often results in higher prices because deregulation often meant that smaller producers had a guaranteed market for more expensive energy. In addition, deregulation meant that there were fewer rules for generation capacity, leading to more power outages, and less reliable service. The lobbying power of utilities also meant deregulation lead to higher prices because utilities wanted ratepayers to pay them back for past investments in infrastructure, leading to the creation of a virtual price floor for electricity.


Doesn't the existing utility that owns the local distribution network still make a profit whether or not you buy power from them? You still have to use their network to get the power to the consumer.

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