Before we can understand deregulation, we need to know why there is regulation.
In the early 1900’s, it became accepted that there were certain industries that were better suited for what would be called “natural monopolies”. Industries such as the railroad and electric utilities were business models that displayed incredible economies of scale and/or required a huge capital investment, thus creating an environment where only one company would dominate the market.
Once this consolidation started taking over, the question of the day for our legal system was how can society benefit from the economies of scale produced from these natural monopolies while avoiding the abuse that seems to closely follow the private interests of any company that enjoys the status of a monopoly? Municipal ownership and state regulation were the two answers to arise. The overall purpose being to enforce the duties and rights of both the consolidated companies and their customers.
Municipal ownership meant that cities purchased some of these consolidated companies to take advantage of the economies of scale and customers would receive lower rates. Cities don’t have stockholders and therefore don’t have to pay a return on investment.
State regulation was the second method for combating the greed of a monopoly. Many worried that a city could be just as corrupt, fail to continually maintain the infrastructure as a way of minimizing costs or even feared that municipal ownership was an attempt to socialize America. Through state regulation, legislature originally used in the railroad industry was extended to include electric companies and later legislation was created for other commodities like natural gas.
With regulation in place, all aspects to providing energy to customers (including setting prices) are overseen by a governing body and only a customer’s local utility can sell its product directly to the consumer. Although this helped stabilize a growing market and allow for the market to speed up the adoption of new and necessary technology, we have come a long way in 100 years. Today, this means that customers don’t have a choice nor control when it comes to their energy.
As it turns out, there were still many problems with the solutions found in regulation. Beginning in the 1990’s and moving through the 2000’s, U.S. policy began to shift some of the power back to the consumer. In many states, legislation has now allowed competition to enter the market.
The supply of electricity and natural gas has been separated from the delivery, allowing consumers to pick a supplier while still taking advantage of the local utility’s infrastructure.
How does this affect you?
Like other household and business services, you now have the ability to shop for your supplier. Competition creates a fair market as it motivates the suppliers to offer better prices, better products and better service.
- The utility is still responsible for delivering the commodity to you and you still pay them for this.
- Energy suppliers all use the same utility infrastructure (wires and pipes) and therefore your energy supply will not be interrupted.
- Switching suppliers is free
- Your new energy supplier will not need to visit your home or change your metering equipment
- Your new energy supplier will arrange the switch, including contact your current provider.
- Your new energy supplier will send you details of your new agreement and account.
- If there are problems with your switch, 326 or your supplier will contact you as soon as possible
- Following your switch, you will either receive one bill from your utility with the new supplier charges included on the bill or two bills: one from the utility for the delivery of the commodity and one from the supplier for the supply of the commodity.