About Deregulation

Regulation of public utilities by federal and state governing bodies dates back to the 1930s and was instrumental in forming the vast infrastructure we have today. Without this federal and state oversight, the nation would not have the reliable systems that now span the continental U.S. Through the years, a number of regulations (Federal Power Act of 1935, Public Utilities Holding Company Act of 1935, Natural Gas Act of 1938, Public Utilities Regulatory Policy Act of 1978, Energy Policy Act of 2005, et. al.) have helped shape the relationship between utilities and customers. Although the rules have changed over time to allow deregulation of the natural gas and electric industries, two things remain constant: Federal regulation of interstate commerce is performed by the Federal Energy Regulatory Commission (FERC), and regulation of intrastate affairs is handled by the respective state Public Utilities Commissions.

The electric and natural gas industries are similar in their structure and operation in that each is made up of three distinct components (i) the commodity SUPPLY portion (ii) the long-distance TRANSMISSION of the commodity and (iii) the local DISTRIBUTION of the commodity to our homes and businesses. Early on, the local utility handled all three phases of the operations in a vertically integrated manner. Growth, construction, and the entry of new providers to the scene prompted deregulation in the natural gas and electric industries. Ultimately, the three phases—supply, transmission, and distribution—were separated, rearranged and in some cases sold to regional transmission organizations or other companies.

Deregulation of the electric and natural gas markets came on the heels of deregulation in the airline, trucking and telephone sectors. Airlines, trucking, and telecom underwent drastic swings in expansion and contraction. Today, airfare and phone rates (adjusted-for-inflation) are considerably less than they were in the 1980s and exponential new products and services exist. Conversely, the deregulation of natural gas and electric industries changed only the price of the commodity supply.

The increased competition by providers means consumers in many states served by investor-owned utilities are now able to choose a supplier of natural gas and/or electricity. The transmission and distribution of natural gas and electricity are not open to choice, and the price for those services continues to be set by the state-and federally-approved tariffs. The push for deregulation of natural gas and electric came when FERC decided it should limit its authority to wholesale transactions clearing the way for individual states to determine if and how they should allow retail price competition.

Electric and Natural Gas Deregulation by State

The table below shows commodities that have been deregulated for each state. In deregulated states, retail consumers are able to shop for a utility supplier. The utility continues to deliver the natural gas or electricity regardless of who is chosen to supply the commodity. The utility also continues to maintain the distribution system, respond to emergencies and read meters. The reasons for choosing an alternate supplier vary: Consumers tend to seek (i) lower prices (ii) price stability not available with variable utility rates (iii) longer-term contracts or (iv) energy produced by environmentally-friendly sources. Note that not all areas of a deregulated state are open to competition, or active at all times. Contact Independent Energy Consultants with questions about deregulation of electric and natural gas in your particular market.

States link to State Utility Commissions