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Things You Need to Know about Energy Deregulation

Things You Need to Know about Energy Deregulation
Energy deregulation is the process of direct supply of electricity via individual providers. Buzzle here enlists some of the things you need to know about energy deregulation.
OpinionFront Staff
Last Updated: Jun 3, 2018
Quick Fact
10% of the electricity usage in the state of Michigan comes from the deregulated markets. However, to allow the small percentage of deregulated markets to function, more than 99% of Michigan's population pays more than USD 300 million annually for maintenance.
Supply of energy, particularly electric energy, is a fairly simple process to understand. Normally, what people use is regulated power (at least, that is how it was years ago), in which case, there is only one electricity provider, called the 'utility'. The utility is the sole market of electricity supply. That said, they take care of everything - the entire infrastructure, supply management, capital, etc. What they do is purchase energy from the power generating companies, and provide it to the public. Quite the contrary, a deregulated market consists of more than one provider, who sell energy to the public. The concept has been widely publicized, and while it has gained approval, it has been subject to its fair share of criticism as well, given that it has some over-reaching negative effects. The paragraphs below tell you what energy deregulation means.
Working Procedure
  • You must be wondering how energy deregulation works, basically.
  • The government or the utility is the one that purchases power from the companies.
  • Individual energy providers buy this power from the utility and sell it to the public.
  • In a regulated market, the public is forced to buy power directly from the utility, which is not the case here.
  • Also, it is the utility which decides everything - sets the prices, decides the transportation, and sets the associated distribution costs.
  • In a deregulated market, these responsibilities are governed by the independent provider.
  • Thus, the prices, transportation, schemes, etc., are different with each provider, which allows the consumer to choose one based on their level of comfort and satisfaction.
  • Though the marketing procedures are still regulated, there is no force on the consumers to stick to one provider.
  • This also gives the retailer a chance to set his own plans, different from those of his competitor, and to develop other innovative schemes.
The Positives
  • The procedure of energy deregulation thus gives complete power and freedom to the consumer to select his commodity service.
  • As a consumer, the first consideration would be price, for which you now have options.
  • If you are price-sensitive, then, irrespective of the service offered, you can choose one that offers power at a low cost.
  • That would certainly mean that you might have to compromise on a few other entities, depending on the company.
  • If you are not a creature of habit, you might be willing to try out newer, innovative schemes that the individual services provide. This is something that is not possible in a regulated market, you have to use whatever is supplied to you.
  • There is one important factor you must never forget - even though your provider is different, your distribution source will still be the utility; after all, the providers purchase power from them, therefore, your power supply will be without any hindrance or interruption, if this is one aspect you are concerned about.
  • Certain retailers have really innovative and environment-friendly options of supplying energy. If you choose the same, you will contribute something to the society too.
  • Suppose you do not trust the new energy service and are reluctant to take the leap, you also have the choice of working with energy consultants.
  • They work with credible suppliers, and will conduct an auction. The providers will then put forward their best service.
  • For this, you need to fill out a bid request and submit it to the consultant.
The Negatives
  • First and foremost, not all states have deregulated markets.
  • If you live in a state that has one, well and good; if not, you are going to have to use the regulated supply.
  • If you are eager to be serviced by an individual provider, you might consider moving out, which honestly seems like a foolish option, to say the least.
  • The next in line is the quick customer service.
  • You are now dealing with a new company, so you are not completely accustomed with their service, or how they help during emergencies, how the termination will be handled in case you decide to switch companies, etc.
  • For all you know, there is a very high chance that you could be easily conned by a misleading company; even if you conduct a background research, you could be taken advantage of.
  • Unless you sign a deal with your provider, you are subject to a fluctuating price-changing cycle, which occurs as a result of all that competition between companies.
  • For the sake of convenience, assume that the new company is not a fraud; yet, if its new schemes and policies crash in the market and it is shut down, it is the consumer who receives the worst end of the stick.
  • Excess competition may lead to lower prices, but there is a strong possibility of degraded quality.
  • If the company lowers its cost to supply, employs staff, builds newer infrastructure, isn't it obvious that it will compromise somewhere? There might be a less-maintained grid, substandard supply, etc.
The Importance - Pertaining to Effects
Consumers
  • As already mentioned, certain pros outweigh the cons, at least for consumers.
  • With deregulated markets, they have the power to choose their service provider, weighing the essential options.
  • If you are dissatisfied, you can change your provider.
  • You have the options of lower prices, which will lessen your electricity bills; this is because there will be more competition and more jobs available.
  • If you sign an agreement with your provider regarding the low rate, you will not be affected with fluctuating prices, the cost will remain the same for you until the contract ends.
  • You do not have to bother much about your bill changes either - nothing will change except the name of the provider.
  • You may be offered attractive bonuses in new companies, and some reportedly even offer gift packages after choosing their service pack.
  • The advantages though, may also switch gears; they may work against you.
  • You may be vulnerable if you sign a bad deal or you may be conned as well.
  • The power supply and distribution from the main utility may cause a problem for people who do not use deregulated supply.
  • Certain states that ventured into deregulated markets faced a lot of problems, when the retail prices were different from the wholesale ones.
  • If the state's utility faces a financial crisis, prices will begin to soar and electric bills may cost a lump sum.
  • In many other states, limited and unequal power supply has raised the question of the reliability of deregulated markets.
Providers
  • The businesses may be at a loss or profit depending on how they structure their policies and measure risk.
  • They have the choice to carve out innovative schemes to offer to the public, by means of which they can stay ahead of their competition.
  • As per reliable sources, certain interest groups are concerned about being pushed into minority due to the existence of the huge investment companies in the electricity market.
  • Companies have the choice to increase the profit margin when necessary, and decrease the prices to offer services.
  • Then again, extremely low prices may cause them to run at a loss, and compromise on the infrastructure.
  • Maintenance could be a potential problem for businesses, given their policies and risk assessment.
America's Power Supply
  • Research has shown that deregulated markets have contributed to the nation's energy infrastructure.
  • Since this concept hands over the power to the consumers, they are more than willing to try out new plans, pay higher premiums, etc.
  • Many new providers have included renewable energy as a part of their schemes, and using green power has successfully lured many customers, ultimately benefiting the country.
  • As per recent news, almost 3/4th of the states for smart grid development have partly deregulated the grid, which, less than a few years ago, did not support renewable and distributed energy.
Choosing Deregulated Markets
  • In this section, you will find some important points you need to keep in mind when you go about choosing you energy provider, in case you reside in a deregulated state.
  • First of all, understand that your delivery is different from the supply, in your energy bill. In a regulated market, your utility is responsible for the supply, as well as emergency response.
  • Your pricing may be fixed or variable, depending on the market conditions.
  • Beware of door-to-door sales or telephone sales.
  • If you encounter any of the two, ask them all the personal details - the company they work for, their identification, contact details, etc.
  • While switching providers, consider pricing and value-added services.
  • Your provider must be registered with the Department of Public Services (DPS) of the state.
  • You must ask your supplier about the pricing modes - fixed, variable, or hybrid.
  • Go through the contract carefully - the taxation, extra charges, extra usage, contract length, guarantee, price offer limit, penalties, etc.
  • You must call the provider and obtain a cancellation number if you want to terminate your service.
  • You will need a third party verification (TPV) in case of any sale.
List of Deregulated States
  • In this section, you will have a list of states that have energy deregulation.
  • The word 'energy' here encompasses electricity as well as natural gas.
  • Some states use only deregulated electricity, some use only deregulated gas, and some use both.
  • In some states, the supply is limited.

State Electricity Natural Gas
California No Yes (Limited)
Connecticut Yes No
Colorado No Yes (Pilot)
Delaware Yes No
Florida No Yes (Pilot)
Georgia No Yes (Pilot)
Illinois Yes Yes (Pilot)
Indiana No Yes (Pilot)
Kentucky No Yes (Pilot)
Maine Yes No
Maryland Yes Yes (Pilot)
Massachusetts Yes No
Michigan Yes Yes (Pilot)
Montana Yes Yes (Pilot)
Nebraska No Yes (Pilot)
New Hampshire Yes No
New Jersey Yes Yes
New Mexico No Yes (Limited)
New York Yes Yes
Ohio Yes Yes (Pilot)
Oregon Yes No
Pennsylvania Yes Yes
Rhode Island Yes No
South Dakota No Yes (Pilot)
Texas Yes No
Virginia No Yes (Pilot)
Washington No Yes (Partial)
Washington DC Yes Yes
West Virginia No Yes (Limited)
Wyoming No Yes (Pilot)
The Conclusion - An Open Question?
  • A myriad of varying statistics have raised the question of whether deregulation is beneficial or not.
  • In the year 1996, California was the first state to use deregulation.
  • The plan did not work out as intended, with prices increasing and causing financial crisis.
  • This caused a unanimous public criticism of deregulation, and the state scraped the plan altogether.
  • Somewhere around the same time, Pennsylvania enacted the plan, which was a major success, with consumers being able to save a sufficient amount every month.
  • Complaints about electricity providers in Texas have apparently reduced by nearly 50% since 2009.
  • Thus, it is a mixed bag of pros and cons, further clarifying that a more structured plan would bring about more benefits and lesser drawbacks.
There are always two sides of a coin. While energy deregulation may have provided convenience to selected consumers, a majority of them may have to put up with the discomfort. If you are living in a deregulated state, you have to choose the best provider; and if you are not, you have to pay extra money for your electricity. Unless an equality is established in the energy supply, unhealthy practices are scraped, and everybody (at least a majority) benefits from the deregulation of energy, it will remain an ongoing subject of debate.