“Energy Deregulation” simply means
. . .
The consumers–in other words, you and I–have a choice as to which electricity provider we use (it extends to other energy sources, but we’ll be discussing electricity here). Believe it or not, there are still plenty of state governments in the USA that limit utility companies to selling in their own restricted area (think of each company as having a designated territory), thus eliminating competition.
Deregulation therefore introduces electricity to the free market. Consumers in Texas can choose from several different vendors–this is called “retail choice,” like buying shoes–and arrive at a decision based on price, customer reviews, and service plans. Competition has always been healthy, and the history behind deregulation will explain why. . .
So where did this “energy deregulation” idea come from?
Thanks to our good friend Thomas Edison (and other brilliant scientists, we should add), electricity came to be a household commodity in the late 1800s. Other than candle-makers and gas lamp manufacturers, people were thrilled about the new availability of electricity.
However, with the advent of household electricity came a flood of businesses providing it, and these businesses began to monopolize the market, charge exorbitantly high prices, and provide poor service. Here is an over-simplified timeline of the next 20-30 years:
- Electricity started trickling into households in the late 1800s.
- Companies raced to control portions of the electricity market.
- Some of these companies established a monopoly in certain regions; this led to poor service and pricing on their part, since there were no competitors for customers to turn to.
- State governments got tired of the electricity companies abusing customers, so the Public Utility Holding Company Act (1935) came into being. This assigned each utility company to a restricted area and mandated that it be regulated by the state government of that area (for both service and price).
In short, government regulation of electricity came into being this way. The path to “deregulation” can be summarized with equal over-simplification:
- The federal government gradually implemented changes to open up electricity to the free market, starting in the late 1970s.
- In Texas, the government passed legislation in 1995 that would overhaul the entire way electricity was sold in the state, and in 1999, Texas launched its first deregulated energy market.
- It simply stands to reason that when there is competition in the market, electricity providers will ultimately lower prices and raise the quality of their service.
