Who Wins With Energy Industry Deregulation?

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Are you wondering what the deregulation of the energy industry is all about? Let’s say that you love hamburgers. One particular hamburger joint you visit has frozen hamburgers, terrible service, and poor hygiene practices. We’re willing to bet that you never return to that establishment. Instead, all your future hamburger needs are supplied by a hamburger provider who makes good-quality food and gives you good service. But, for the sake of this example, let’s say that the only hamburger stand you can go to also produces all of the hamburger meat in your area. No other businesses can compete with the terrible hamburger stand because they are the only ones who can who have access to the hamburger supply. You have no choice but to rely on the terrible hamburger stand for all of your hamburger needs, and at whatever cost the hamburger monopoly considers fair. This sounds unfair, right? Well, this is exactly how our utility industry is run.

Most power companies produce and distribute all of the energy in their area. Since both the power supply and distribution is provided by the same energy companies, consumers do not have control who they get service from. While energy suppliers are governed by a regulating board that oversee the rates charged to customers, the rates vary from one region to the next, making it apparent that the costs a utility company is able to justify to the regulating board are subjective. This is where energy industry deregulation comes in.

Supporters of energy industry deregulation point to the numerous inconsistencies in the monopoly market of power suppliers to make their case. With energy industry deregulation, the entity that creates the electricity is separate from the company who distributes and sells it, leaving room for new energy providers, and giving consumer is a choice between who they purchase their energy from.
So who stands to benefit from energy industry deregulation? The answer to that question is, other than the utility companies who profit from the monopoly infrastructure, everyone. Let us count the ways:

  1. Consumers benefit from the development rivalry and competition. Currently, the rates that we pay for electricity are inflated by any costs that that utility company can justify adding in. If a utility company builds a brand-new, cutting-edge building, the entire cost is considered an “operating expense” that gets added to the consumers’ bills. Since we don’t get to choose who supplies our electricity, we have no choice but to pay it. If an energy company ran the risk of losing customers’ business if they charged too much, they would be forced to keep their rates competitive.
  2. Deregulation means better quality services. The base rate for electricity is only the tip of the iceberg on how the deregulation of electricity markets benefits consumers. Just like in our hamburger example, utility company would be incentivized to invest in more reliable infrastructure and equipment, since poor service would drive our business elsewhere. Creating a competitive energy market would make utility providers more in-tune with customer satisfaction, eager to keep overhead costs down, and would encourage them to be innovative about providing superior service.
  3. Lower utility costs would help small businesses thrive and the economy prosper. Utility expenses are generally a small business’s greatest operating expense. The high cost of electricity gets rolled into the cost of goods and services that the consumers pay. Having lower energy costs would enable small businesses to charge lower prices, increasing their sales. Likewise, paying less for goods and services would enable consumers to buy more, which would accelerate the local economy exponentially.

  4. Deregulation would create fair pricing across the regions. Currently, the average price per kilowatt hour of electricity is about seven cents. In some states, consumers pay five cents per kilowatt hour, and then some states they pay ten cents. Consumers in expensive states pay literally twice as much for the exact same amount of power as others. The factors that can be included in a base rate vary from one regulation board to the next. In the case of deregulation, utility companies would no longer charge their rate based on what they can get away with from their regulating board, but what is competitive.

How do you feel about energy deregulation? Please continue this discussion below!

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