What is Energy Deregulation?
PriceToCompare.com is your simple and seamless online energy marketplace, here to help homeowners compare and choose the best local energy rates.
How many states are
deregulated for energy?
Currently, 30 states and the District of Columbia have a deregulated energy market. Some states allow you to switch both gas and electricity suppliers, while others allow one or the other. Still others limit energy choice to only commercial energy consumers.
How does energy deregulation work?
To understand the deregulation of energy markets, it’s important to understand how energy is delivered to you.
Getting electricity and natural gas into your home is a three-step process.
Generation or production:
In states that have regulated energy markets:
In states with deregulated energy markets:
The History of Energy Deregulation
Dawn of first centralized utility companies.
Little-to-no regulation. Price caps introduced.
First acts introduced. These acts laid groundwork for energy choice, combat shortages, and lessen the strain on the market.
Energy Policy Act of 1992. Energy efficient programs, and also created competitive market for electricity suppliers
The full story of energy deregulation is a long and complicated one, beginning all the way back in the mid-to-late 1800s during the dawn of the first centralized utility companies.
But to understand energy deregulation, it’s important to understand how and why the energy industry was regulated in the first place.
In the early 1900s, electricity and gas suppliers faced little-to-no regulation, and unethical business practices began to crop up, costing consumers a fortune in energy bills. To combat these practices, regulations were introduced to put price caps on electricity and natural gas.
These price caps served consumers well in the short term. However, the 1973 OPEC oil crisis forced the U.S. to reconsider both its electricity and natural gas markets in a major way – one that would pave the way to allowing energy deregulation at the federal level.
In the 1960s, oil had overtaken coal as the number one energy fuel source in the United States. Due to this shift, many electric utilities had become reliant on oil to fuel their plants because it burned more cleanly than coal.
However, when petroleum costs skyrocketed during the oil crisis 10 years later, electricity rates did too. The average cost per kWh more than doubled during this time, devastating many of the country’s manufacturing industries in the process.
This increase in electricity prices posed major issues, both for electricity consumers and the economy as a whole. But one thing was clear: the country needed to reduce its dependence on foreign oil by improving its own energy generation processes
The Public Utility Regulatory Policy Act
In response to the growing energy crisis, the Public Utility Regulatory Policy Act was passed with the goal of creating a market for alternative, non-utility power suppliers. This act laid the groundwork for providing energy choice within the electricity sector, and was also a major driver of the concept of renewable energy.
The Energy Policy Act of 1992
In the decades after the oil crisis, the push to reduce the country’s dependence on foreign oil continued.
This, coupled with the rise in awareness around fossil fuel emissions, led the country to explore alternative fuels, as well as renewable and efficient energy generation methods. Thus, the Energy Policy Act of 1992 was penned and passed in October of that year.
The act incentivized business owners to take part in energy efficiency programs, created efficiency standards for home appliances, encouraged the exploration of alternative fuels like methanol and ethanol, and authorized tax incentives to produce renewable energy technologies, among many other things.
In addition to these measures, it also opened the competitive market even further to new electricity suppliers.
This act has contributed to many major leaps in efficient and renewable electricity generation methods, and allowed consumers to make decisions about where their electricity comes from.
Natural Gas Deregulation
The natural gas industry was also majorly impacted by the oil crisis. Energy consumers, desperate for a more affordable energy option than electricity or petroleum, turned en masse to natural gas. This sudden shift caused major shortages in natural gas markets across the country.
Eventually, the Natural Gas Policy Act of 1978, which was introduced to combat these shortages. The act removed federal price regulations that had prevented the industry from expanding and innovating, and consolidated smaller, local gas markets to achieve economies of scale. This change motivated industry players to improve their existing infrastructures and production methods, and helped balance natural gas supply with its increased demand.
This partial deregulation of natural gas rates helped to lessen the strain on the market and propel the country’s natural gas technology and policies forward in a big way.
The Final Restructuring Rule
Several other important orders and policies, including the Federal Energy Regulatory Commission’s (FERC) Order No. 436 and the Natural Gas Wellhead Decontrol Act, would further set the stage for natural gas deregulation at the federal level. But the final push would come in 1992 with FERC Order No. 636 – also known as the Final Restructuring Rule.
This order required natural gas pipelines – who had traditionally charged customers for the production, transmission and distribution of natural gas – to unbundle their services to allow consumers to choose their own suppliers.
Because of this order, homeowners who live in states deregulated for natural gas can shop for their own natural gas suppliers.
Ready to switch?
Explore local supplier rates today:
Not sure where to begin?
Not sure where to begin?
Talk to an energy consultant today.