Electricity Deregulation

Electricity Deregulation And Its Impact In The United States

Since the 1930s, utilities in the United States have operated as an integrated system, providing electricity to consumers within their region at state-determined and regulated rates. However, the monopoly in how the utilities ran things left them unprepared for the 1970s' fuel price slump attributed to the OPEC oil embargoes. Majority of the utilities responded to the situation by swapping from oil to nuclear power for their plants. They then passed the costs off to their electricity consumers who were also feeling the pinch of increased prices.

At the same time, the soaring prices for natural gas were prompting a change. Consumers soon jumped onto the bandwagon, rallying for energy reforms, believing that deregulation would be the much-needed answer. Energy hungry businesses that rely heavily on the utilities' capacity to deliver uninterrupted electricity to their factories or plants or massive corporate buildings were overly jittery about the energy price changes and had lots to gain.

The first steps towards electricity utility reforms were taken back in 1978 when Congress passed the PURPA (Public Utility Regulatory Policies Act). The act was fashioned for the diversification of the power supply while encouraging conservation. It also required the utilities to supplement their lower power supply by buying it from new non-utility producers known as "qualifying facilities."" The new producers were also expected to meet efficiency standards and often provided power at lower rates than their utility counterparts.

The PURPA open doors to wholesale energy from smaller producers to be integrated with the utilities' supply. The passing of the Energy Policy Act in 1992 further cemented these changes, which saw more small non-utility producers join the power supply markets.

But it was toward the close of the century when energy producers got fair access to the power grid, having safe and reliable electricity transmission. The FERC Orders split the integrated utilities and caused their power plants to be transferred to an unregulated affiliate or sold to a third party. The act created two sectors to ensure a safe and reliable electricity supply from the shared power grid – the ISOs (Independent System Operators and the RTOs (Regional Transmission Organizations). The two control and monitor operations of the power grid across the United States.

After the FERC actions, major industrial and commercial customers started lobbying for State-level retail deregulation. They soon would form coalitions such as the AAE (Americans for Affordable Electricity). A few states quickly opened their markets to encourage competition via pilot programs allowing energy consumers to purchase power directly from independent suppliers.