Energy Deregulation in North America

Goals

Provide a non-biased primer on energy deregulation in order to better understand energy deregulation and how it works.

Early Findings

Energy Deregulation: An Overview

When people began settling in the United States, infrastructure for electricity or gas was non-existent. Forward-thinking entrepreneurs began establishing power companies to solve this problem. While competition was fierce, competing interests over infrastructure made it difficult to ensure quality service at a decent price.

The government stepped in by passing the Public Utility Holding Company Act (often referred to as “PUHCA”) and other laws in 1935. One utility company was appointed per area to control every aspect of acquiring, transmitting, and delivering fuel to consumers. Local authorities also established strict standards and rules regarding pricing to further protect the people and make it easier to get or provide power.

Regulation was instrumental in stabilizing the industry. Beyond its positive effects, it created monopolies for the individual firms providing services locally. Since consumers in an area had only the one option for gas and electricity, they would have no choice but to work with the local utility to get the energy they provide at the price point set by the government via North American Electric Reliability Council (NERC) regulators. By the 1970s, many utility companies could not afford to build new power plants. Many almost went bankrupt; others tried to get NERC regulators to approve energy price hikes. It seemed that the problem the government thought they had solved had returned in another form.

This caused the government to respond with the Federal Energy Regulatory Commission (FERC), which set about deregulating the energy industry so that individual states would decide how best to supply energy to its inhabitants. With standard energy infrastructure already available, market competition could be reintroduced into the industry to lower energy costs.

Energy users would make their own energy choices by choosing a provider or source that suited them.

Further Reading on Energy Deregulation in North America

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