The Benefits of Energy Deregulation
As regulators and electricity suppliers continue to
sort out the nuances of deregulation, market forces and climate change combine
to make one thing abundantly clear: The idea of a “normal” calendar season is
no longer operative. Summer heat waves are longer and more frequent than ever
and the last two winters were brutally cold.
So, with summer cooling bills upon us and jitters
over what next winter's heating bills might look like, this seems to be a good
time to consider the benefits of energy choice and compare traditional
utilities with competitive energy suppliers.
Although the infamous polar vortex of 2014 and its high energy costs did not make a repeat appearance last winter, there's no way of knowing what the coming winter will bring.
Before the introduction of energy choice programs,
customers had to buy energy from their local utility. The utility set the
prices that customers were required to pay. In recent years, however, a number
of states have introduced competition for energy supply. In these states,
utilities no longer have a monopoly on both energy generation and distribution.
Customers in these states may choose to buy from any number of licensed retail
energy providers (REPs) or their local utility company.
Just because the energy industry has been
“deregulated” does not mean that REPs are “unregulated.” REPs and utility
companies are similar in many respects. Both are licensed and regulated by
state public utility commissions for service and their relationship with consumers.
So, what's the difference between energy supplied by
the utility versus a REP? Unlike utility companies, REPs specialize in
procuring energy. REPs rely upon the utilities to deliver that energy. They do
not maintain the system of meters, poles, pipes and wires required to deliver
it. Customers who choose REPs still have their meters read by their utility,
and in most states, receive their bills from their utility. Most important,
REPs are not bound by the take-it-or-leave-it rate structure that utilities
offer.
The power of choice has enabled REPs to compete for
business by offering flexible options that the utilities never could — such as
rebate programs, rewards and longer-termed “fixed” or “locked-rate” price
programs.
So why did many REPs' prices rise so dramatically in
2014 compared with utilities' prices? The culprit was an unprecedented and
unforeseen confluence of weather and market events that caused wholesale energy
prices to skyrocket. Unfortunately, faced with those immediate costs, many REPs
had no choice but to pass along those sudden price increases without delay. By
contrast, sudden cost increases are not readily apparent in utility companies'
rate calculations.
Thankfully, many REPs realized quickly that customers
could not bear this burden and voluntarily absorbed as much of the cost
increases as they could, issuing millions of dollars in good-will rebates to
customers.
The path to improvement is not always smooth, and the
polar vortex provided a particularly bumpy ride for the retail energy industry.
But with the lessons learned and development of smarter and better controls,
residential and business energy customers are certain to benefit in the long
run.
Michael Stein is CEO of IDT Energy.
