What is Energy Deregulation and What Does It Mean For You?
In a society that is obsessed with couponing and BOGO specials, we sometimes don’t talk enough about one of the best tools for saving money: shopping around.
With the internet providing rapid access to a large number of vendors for every possible good or service, it’s easier than ever to find the best price on a pair of shoes, a car, or a new water heater.
One area that was notably absent from this option of shopping around used to always be utilities. Electricity, water, gas, telephone, and other services were provided from a single source rarely grant the opportunity to seek out the best deal. You simple take what you can get with a limited ability for the consumer to save money.
Deregulating the Energy Market
Things have changed. Certain provinces and U.S. states have deregulated the energy business, allowing customers to do some comparison shopping, just as they can for most other goods. They even have websites now where you can shop around for your electricity! For instance, if you happen to live in Canada you can review Alberta energy providers and see who offers the best deal.
What is Energy Deregulation?
Deregulation simply means that there is no restriction on market areas for utility providers. They simply contribute to the electrical grid and are paid for the kilowatt-hours that are consumed by their subscribers.
The obvious benefit is that you have the opportunity, as a single consumer among millions, to leverage the best possible price for a good/service from a group of providers that outsize and outnumber your local choices. You will be able to lower your energy costs with more than just your own improvements.
But there are other benefits as well, some of them long-term and some in a shorter time frame.
Energy Deregulation Benefits
For example, the utility providers must purchase their electricity from an electricity generator. That plant uses some form of fuel–coal, natural gas, hydroelectric, or something else–to generate the electricity. The providers, who are now living in a far more competitive market, will apply pressure to the generating firms to give them a better deal so that they providers can be more competitive.
As a result, the generating firms must also be more competitive. They will subsequently apply pressure to fuel vendors, if they have them, to get prices down for generation purposes. And when the overall cost of these fuels is lower, it also creates downward pressure on things like crude oil. Cheaper crude oil allows you to fuel up your car for less money, so ultimately, the deregulated market for electricity will also show up at the gas pump.
Energy Deregulation and the Environment
Energy deregulation can also lead to environmental improvements as well. For instance, failure to follow environmental regulations can lead to costly fines for utility providers. In a more competitive market, the motivation is higher than ever to avoid these fines and comply with law. This results in plants often taking proactive measures to prevent environmental “no-nos”. Providers know they no longer have that monopoly power to pass on the cost to consumers, so they will do their best to avoid environmental related fines that will price them out of the market.
So over the long term, the companies that generate and provide power will work very hard to avoid environmental fines, which not only saves you money but also gives you a cleaner environment. It also lowers the cost of government regulation.
Deregulation and Monopolies
The death of monopolies in utilities pays benefits in other ways. The companies will be much more motivated to enact all kinds of cost-saving measures, such as better worker safety standards, improved equipment, and stronger employee benefits packages. They know that safe, healthy workers who are happy and well-paid will stay with the company. The economic losses accrued from the resignation of unhappy employees will impact their bottom lines as the companies hire inexperienced new people to fill in.
Deregulation and “Fat Cat” CEOs
All kinds of wasteful spending will fall by the wayside with deregulation. Companies know that they must minimize overhead and inefficiency if they are to remain competitive in the market. The days of frivolous expenses, excessive bonuses, and all the other financial dead weight of a wasteful company will be gone. The companies will face a market more like those for most other consumer products, and they’ll have to be competitive to survive!
What is Energy Deregulation and What Does It Mean For You? – Final Thoughts
The obvious benefit of electricity deregulation is the opportunity to lower your bill. But over the decades to come, there will be other advantages coming to light as I’ve outlined above. Many improvements won’t even require any action from the consumer, but the savings and benefits will be undeniable.
