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What We Mean When We Say “Deregulation”
In regulated markets, consumers have no choice but to purchase electricity and natural gas from the local utility at prices regulated by the state and federal government.
The government deregulates energy by reforming old laws and passing new ones that change who can produce and sell energy. When multiple suppliers compete on the market, prices can be determined—and ideally remain lower—because of competition.
Energy Deregulation Is Great for Your Pocket
With the deregulation, in most states in the U.S consumers now have the ability to compare prices through several different suppliers. Customers can also choose variable-rate and fixed-rate plans and has stimulated competition between providers. Deregulated energy opens every consumer a variety of energy options by allowing them to choose their preferred electricity providers. Retail electric and gas providers like Crystal Global Energy provide electricity supply to power consumers across the state that is open to retail consumption. A retail electric provider is the first point of contact for all other questions related to residential and commercial electricity supply.
Minimize your Costs – Speak with Our Energy Consultants
With Crystal Global Energy, our energy consultants can teach everything about retail electricity, gas providers available to the market and also alternatives like solar energy. Energy consultants can help consumers compare electricity, gas and alternative like solar energy and order from the best electric, gas and solar providers in Texas, New York, New Jersey, Ohio, Pennsylvania, Illinois, Connecticut, Washington, DC, Maryland, New Hampshire, Massachusetts, New Hampshire, Florida, Georgia, Indiana, Delaware, Michigan and California. We believe in strong relationships and long-term partnerships are fundamental to our sustained success. We want to help customers improve their energy efficiency, provides green energy solutions, and offers incentives for customers for smart energy usage.
If you have any questions or enquiries, please feel free to contact us via phone or email, or simply complete our online enquiry form. We will get back to you as soon as possible.
How the U.S Flipped the Energy Market
Electricity and natural gas were regulated across the United States until the late 20th century. Described by some as the last large government-sanctioned monopoly, utility companies controlled the retail energy industry and were the sole suppliers of electricity and natural gas in the areas they served. But energy, which powers the lights, computers, refrigerators, HVACs, equipment and more in our homes and businesses, was too great a public importance and too large a financial expenditure to remain so wholly regulated by the government.
For deregulation to succeed, three things had to occur:
- Independent suppliers had to win the right to sell energy on the open market, side-by-side with utility companies.
- Governments had to reform the laws that dictated energy retail prices.
- Utility companies had to open access to the power lines and gas pipes used to transmit electricity and natural gas to customer’s homes and businesses. (Governments collectively recognized that it would be impractical and wasteful for suppliers and producers to build redundant power lines and gas pipes along similar routes.)
Problems with natural gas regulation came to a head during the 1970s. The country was experiencing extreme shortages due to government regulations that incentivized retail in gas-producing states, but not consuming ones. As a first step in restructuring the natural gas market, Congress passed the Natural Gas Policy Act (NGPA) in 1978. The act created a single natural gas market while allowing the market to establish wellhead prices up to a defined maximum. With wellhead prices going up, natural gas producers had a new incentive to invest in exploration and production, which helped to level the playing field across state markets. The act also transferred regulatory authority to the Federal Energy Regulatory Commission (FERC).
In the wake of the NGPA, natural gas prices rose significantly. Consumers, and particularly large industrial companies with significant natural gas spends, began to lobby for changes to how natural gas was sold. They wanted the natural gas production and supply to be sold separately from its transportation through interstate pipelines.
Consumers had to clear two hurdles before natural gas markets would be open and deregulated. The first regarding natural gas pipelines, split wide open in 1985 when FERC Order 436 allowed pipelines to offer transportation-only services with competitive prices. That meant pipeline owners could offer transportation on a non-discriminatory, first-come, first-serve basis to all customers, without favoring their own natural gas customers. Transportation could be entirely separated from natural gas purchases.
Although pipeline owners weren’t required to participate in Order 436, all major pipelines eventually began to offer transportation-only services. Participation was ultimately mandated in 1992 with FERC Order 636. Together, these orders created the “open access” pipelines we know today. Transportation is now the primary function of pipelines and sellers have equal footing to move natural gas from the wellhead to their customers.
With pipelines open, there was one more leap to accomplish deregulation: independent suppliers had to win the right to sell natural gas side-by-side with utility companies in an open market. Consumers cleared this hurdle in 1989 with the Natural Gas Wellhead Decontrol Act. The legislation removed federal price regulations and opened the sale of natural gas to distribution companies and consumers.7 And that meant market competition would encourage affordable prices and flexible choices for consumers.
Since the 1930s, utilities have operated as a single integrated system, providing electricity to all customers within their territory at regulated rates determined by the state.8 But this monopoly system left utilities unprepared for fuel price shocks in the 1970s caused by the OPEC oil embargoes. Many utilities responded to the price spikes by replacing their oil-fired plants with nuclear power plants, passing off costs to their electricity customers who were already squeezed by rising prices.
With natural gas prices also high and spurring advocacy for change, consumers began to rally for electricity reforms, believing that a deregulated model could reduce costs. High-consumption businesses that depend on utilities to power factory machinery and large corporate buildings are extraordinarily sensitive to changes in energy prices, and therefore had much to gain.
Congress took the first step of electricity utility reforms in 1978 by passing the Public Utility Regulatory Policies Act (PURPA). Designed to diversify power supply and encourage conservation, the law required utilities to purchase power from new producers when their own supply was low. These new non-utility producers, called “qualifying facilities” were held accountable for meeting efficiency standards and often could supply power at a lower cost than their utility counterparts. The act opened the door for wholesale electricity from small power producers to be successfully integrated with a utility’s own supply. This reform was further cemented in 1992 by the Energy Policy Act, which ushered even more small producers into the power markets.
But it wasn’t until the mid to late 1990s that all power producers received fair access to the power grid with safe and reliable power transmission. FERC Orders 888, 889 and 2000 broke up integrated utilities whose power plants were either sold to a third party or transferred to an unregulated affiliate. To make sure that the shared power grid stayed safe and reliable, the act also initiated formation of two groups: regional transmission organizations (RTOs) and independent system operators (ISOs). These groups continue to control and monitor operation of the grid across many regions of the country today.
Soon after the FERC actions, large commercial and industrial customers began to lobby for retail deregulation at the state level, forming coalitions such as Americans for Affordable Electricity. Several states did quickly open their markets to competition through pilot programs that allowed consumers to buy directly from independent power suppliers.