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Energy Deregulation Goals and Reality


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Throughout our history, many industries have been deregulated. The point of deregulation is to bring consumers lower prices and provide more competition and more choices.

Whether deregulation of electricity has been successful thus far is still very much in question. One must look at the reasons/goals of deregulation and then examine the actual effects before drawing a conclusion about the success or failure.

The original goals of deregulation included, but were certainly not limited to:

  1. The industry needs to become more efficient. The idea here was that more efficiency would be equivalent to lower prices or costs. However, the deregulation has removed much of the incentive to become more efficient.
  2. The electric power company was the last large monopoly remaining in the United States after the successful deregulation of the airline industry, telecommunications, trucking, and natural gas. Okay, that makes sense. There are those who might argue that this deregulation has not gone as smoothly, nor will it for quite some time.
  3. States vary in prices. Industries in one state may have been paying much lower prices than the industries in the state right next door. The industries wanted the opportunity to take advantage of lower prices through the freedom of choice. The goal was to give them this choice.
  4. Non-utilities have proven to be able to produce power at a significantly lower price. For instance, advanced gas turbine technologies are cheaper than the use of fossil fuels or nuclear technologies.
  5. Laws for deregulation should lay the groundwork for competition, thus driving down prices.

Higher levels of competition, higher productivity, higher efficiency, and lower prices are all lofty, but admirable goals. Between 1996 and 2000, 24 states plus the District of Columbia passed legislation to deregulate electricity. California was the first to do so. The results have been mixed. While it has been a disaster in California, it seems to be working in Texas.

One hindering problem for deregulation’s success is the fact that the competition is scarce. It costs a great deal to buy or build a new power plant. In addition, there is a lack of flexibility in the ability to respond to supply and demand. It’s impossible to store electricity once it has been produced. It must be consumed immediately. Therefore, a company cannot build up a large inventory and sell it at lower prices once demand sky rockets. A final issue has been that there have been some locations experiencing a limited electricity supply.

Advocates for deregulation say that reducing government control will lower consumer costs. The more accurate result has been that few residential customers have experienced that benefit. There have been multibillion bailouts to the utilities. This could be one reason that in many of the deregulated states the prices are much higher than the national average.

Successful deregulation is possible. The big question is, “How?”

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