For those who have not been paying attention, electricity deregulation is a major topic of discussion these days. This is because many believe that it can be great for humanity, while others, such as large electricity companies, are very against it.
Yet, as much as we understand the concept, we still seem to be a long way away from achieving electricity deregulation. This is because many people do not yet fully understand what electricity deregulation means. With that in mind, here is a summary of everything you need to know about it.
What is a REP (Retail Electricity Provider)?
Before we dive into the topic of electricity deregulation itself, we need to review some important terms.
A retail electricity provider (REP) is a company that provides electricity to people and companies. They are the last step in the supply chain of electrical energy.
There are several steps needed to make electricity available to the general public. First, retail electricity providers form contracts with single clients, families, and professional groups. They make it possible for customers to access the “on/off” switch in exchange for payment. This often includes signing a contract for months or years at a time.
There is no way for an REP to be sure about how much electricity will be needed by their clients each month. So, they simply estimate how much will be used and store that amount of electricity for their customers.
In the past, most areas have been controlled by electrical monopolies. This means that one company controls most or all of the electricity being used in an area. While there are still plenty of states in which this is still going on, some have started the process of electricity deregulation.
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How Do REP’s Win the Competitive Advantage?
If you live in a market where electricity deregulation exists, the government is allowed to control electricity costs. This gives most people and groups little to no power to secure electricity service. So, either you want to purchase it, or you don’t. And if you choose to purchase it, you will have to pay what they are asking.
While this has been a great way to keep costs down while providing reliable electricity, this may also be bad for customers. This is because without competition there is no reason for electrical companies to lower prices or drive innovation. But it may be a great way to provide everyone with quality electrical services. This means that a regulated area will often have more reliable electrical services.
However, this is also at the cost of having the same prices and services for decades at a time. Either way, customers who live in areas that have electricity deregulation can pick and choose which companies they work with and why. This means that they can choose the best service for their money.
Also, by offering fixed rates and short-term contracts, REPs have become trusted across the country.
Does This Vary From State to State?
Electricity deregulation varies from state to state. As mentioned, most states have not yet started electricity deregulation. However, here is a list of the states that have deregulated both gas and electrical services:
- New York
- New Jersey
- Washington D.C.
This means that we have made some progress on electricity deregulation, but we still have a long way to go.
Electricity Deregulation in the News
Electricity deregulation is a debated topic that states seem to be totally for or against. Although deregulation can be great for some states, there are plenty of things to consider. For instance, the demographics of the area and the most common weather and elements can play a major role.
Texas is one state that learned the hard way. Regardless of experts warning the state of the danger, the state chose to ignore them. So, when a serious winter storm hit the state, they ended up going weeks without power. As a result, millions of people were forced to deal with freezing temperatures and circumstances without power.
This is because the state has supported electricity deregulation and has very limited regulations. They are in an area that is isolated from most of the country. While reps of the state offered plenty of excuses as to why this occurred, many people believe that the state’s power grid was simply not strong enough to weather the storm.
Electricity deregulation played a major role in this. Without government regulation, there is plenty of room for companies to take advantage of customers. So, when it comes to things such as updating equipment and other parts of the business, there is no way for the government to force companies to do this.
Many complained about lawmakers for choosing the free market over the needs of the people. In defense of lawmakers, the state has not dealt with many serious winter storms. However, they have dealt with enough storms to know the importance of winterizing the equipment and the electrical market overall. Winterizing the equipment would have been the best way to reduce issues caused by a winter storm. By failing to regulate the market, they failed their own residents, who ended up suffering for days/weeks because of it.
What Does Deregulated Electricity Mean For Renewable Energy?
Some people believe that renewable energy cannot thrive in a deregulated market; this is not the case. In fact, governments have been using renewable energy as a way to boost the support for deregulation. This is because electricity deregulation opens up the market and makes it possible for companies to provide alternative services, such as renewable energy.
But there are also experts who believe that electricity deregulation has too many unknowns. So, why it may seem promising for renewable energy lovers, it may be too soon to tell. This is because some may be scared that renewable energy will become the dominant type of energy. This is something that could cancel out the need for general electrical companies. This makes many people unwilling to support electricity deregulation because they fear that jobs and money will be lost by many states and that they may also end up in a similar situation as Texas.
What are the Pros and Cons of Electricity Deregulation?
Electricity deregulation is a topic that most people believe in or they are against. There are good reasons for supporting either side. Each state reviews the facts and decides based on how it will impact their area.
There are pros and cons of electricity deregulation. Some of the most common ones are the following.
- More Services Offered: As mentioned, allowing more companies to enter the market is a great way to fuel innovation. In addition, by deregulating the market, customers will benefit from companies constantly offering more innovative products to gain and maintain more customers.
- Cost Reduction: Similarly, electricity deregulation can also help with cost reduction. This is because being forced to compete causes companies to lower prices and offer better deals to win over their customers.
- Open the Conversation: Electricity regulation is something that opens up the conversation of energy in general. Focusing on and passing these laws causes people to discuss electricity, and to think about topics such as green energy, and others.
- Can Cause Financial Crises: Electricity deregulation can also result in financial crises. This is because the introduction of new competitors could destabilize the local economy. For this reason, many are very reluctant to embrace deregulation.
- Predatory Practices: Without government regulations, you may have to deal with shady companies and business practices. This is because there is no one watching or overseeing these companies to make sure they are in compliance.
Need More Information about Electricity Deregulation?
Overall, there are plenty of pros and cons to electricity deregulation. While there are plenty of reasons why some states are in favor of deregulation, there are also plenty of reasons why some never will. Either way, be mindful of the laws in your state and understand that there are positives on both sides of this argument. Those who are interested in electricity deregulation and going green can contact us today. Here at ONIT, we provide affordable solutions, such as solar energy, to help you reduce your carbon footprint and save money. Connecting with us is the best way to take control of your energy preferences.
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