What does energy deregulation mean for me?

By June 19, 2014energy blog

Deregulation of electricity and natural gas prices created a market in which significant cost savings are available to consumers.

In many states, companies are now able to negotiate directly with utility suppliers to obtain the most competitive pricing structure for themselves. Because it is necessary to understand all the terminology commonly used in utility contracts and be familiar with the frequent volatile market fluctuations in order to negotiate an advantageous contract with a supplier, many companies utilize the services of an independent energy broker.

Prices for electricity and natural gas were stabilized during the Great Depression with the Federal Power Act of 1935, the Public Utilities Holding Company Act of 1935 and the Natural Gas Act of 1938. During the 1970’s energy crisis, a process of deregulation began with the Natural Gas Policy Act of 1978, which attempted to increase American supplies of natural gas by providing new profit incentives for exploration and development. The Natural Gas Wellhead Decontrol Act of 1989 deregulated natural gas prices at the wellhead and the Energy Policy Act of 1992 began deregulation of electric utilities. The Energy Policy Act of 2005 repealed the Public Utility Holding Company Act of 1935 and it also provided new tax incentives and loan guarantees for production of specified types of energy.

The Federal Energy Regulatory Commission is responsible for regulating the interstate transmission of electricity, natural gas and oil. As a result of the new federal laws in 1989, 1992 and 2005, the Federal Energy Regulatory Commission limited its own authority to wholesale transactions and encouraged the states to assume responsibility for regulating or deregulating retail transactions. At beginning of the 21st century, 23 states had deregulated electric power utilities and allowed price competition in the market but some states subsequently instituted new regulations. The good news is that in many states, consumers who are served by investor-owned utilities can select their utility suppliers based on lowest cost for services rendered.

Being able to negotiate the lowest cost for utility services rendered presumes a sufficient knowledge of the energy cost market to know when prices are approaching the low end as well as which utility suppliers are most inclined to negotiate. Most companies will benefit from obtaining the services of an independent energy broker who specializes in corporate contracts, monitors the energy cost market daily and stays well informed about changes in government policies.

Because of frequent fluctuations in the energy cost market, the best time to renegotiate an existing utility contract may not be when a contract expires if prices are relatively high at that time. It is possible to lock a low utility price into a new contract by negotiating with suppliers prior to the expiration of an existing utility contract and thereby take advantage of changing supply vs. demand conditions in the energy cost market.