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Energy Deregulation in North Carolina

Energy Deregulation in North Carolina

 

Today in the United States, sixteen states have deregulated electricity and twenty-two have deregulated natural gas. This map by Quantum Gas shows deregulation by state. As states continue to vote to enact or repeal deregulation, it remains a controversial issue nationwide.

 

Why was energy regulated in the first place?

In a regulated electricity market, only the utility can sell electricity directly to the consumer. Consumers who want to buy electricity can only buy from the local utility. There is no competitive pricing because a regulatory body sets the electricity rates.

Energy regulation began soon after electricity and gas started becoming available to consumers. The necessary infrastructure to create and transport energy was not well formed yet. Lots of companies building small pieces of infrastructure meant that electricity service was spotty and unreliable.

The government granted utilities monopolies in their areas in response to these coverage issues. The catch? The utilities were legally obligated to provide energy to all consumers at all times.

Now that the transmission infrastructure exists, some states are voting to deregulate their electricity markets.

 

What is a deregulated electricity market?

In a deregulated electricity market, approved providers can sell energy to consumers. These approved providers are called Retail Electricity Providers, or REPs. Consumers can choose from which REP they buy electricity.

There is no set price for electricity, so in theory a deregulated system functions as a free market. Deregulation allows competition between energy suppliers, but keeps the utility’s transmission and delivery infrastructure. Though the local utility does not have guaranteed returns, it is still responsible for maintaining that infrastructure.

 

What’s going on with deregulation in North Carolina?

North Carolina has not deregulated electricity or gas and deregulation in the immediate future seems unlikely. The North Carolina legislature has not been receptive to recent proposals to allow non-utility companies to sell energy.

Last year the legislature voted down House Bill 245, the Energy Freedom Act. The bill would have allowed companies to install solar panels on homes and sell the electricity directly to the residents.

North Carolina has debt from building expensive nuclear plants, which could prove problematic for deregulation legislation. Michael Walden, an NC State researcher, says that debt would make electricity rates initially rise under deregulation.

Walden also predicts that energy prices would later fall by 15 to 20%. However, paying off the debt in a free market would put Duke Energy at a disadvantage. Debt issues aside, existing monopolies like Duke are likely to use their political power to keep the regulated system and their monopolies.

 

So which one is better for me?

Ah, this is where it gets tricky. Proponents of deregulation maintain that the resulting competition will drive down prices. They also argue that deregulation will pave the way for increased renewable energy use.

Those against deregulation cite a lack of responsibility for long-term energy projects. Since no company is legally accountable for providing electricity, they are likely to operate with short-term gains in mind. Additionally, companies want to make the most profit possible and may focus on more lucrative big electricity users.

So your opinion might depend on how well you think the free market works for smaller energy consumers. Competition could potentially bring your electricity prices down and increase use of renewables. But with no responsibility for providing energy, companies could also focus on the more profitable large customers instead of average consumers.

 

References:

  • “Deregulation,” Just Energy, 2015
  • “How Electric Choice Works,” AEP Energy, 2016
  • “How Energy Deregulation Works,” American Power and Gas, 2016
  • “Electricity Regulation Doesn’t Work in the Real World,” The Arizona Republic, 2013
  • “Game-Changing Energy Freedom Bill,” NC Warn, 2015
  • “Deregulation Ahead for NC Power Companies?” WRAL News, 1999.
  • “Top 10 Things You Should Know About Energy Deregulation in the United States,” Electric Choice, 2015
  • “AEP, Sierra Club Back Profit-Plan Guarantee,” The Columbus Dispatch, 2016
  • “In Texas Power Market, Flighty Customers Pose Challenge,” The Dallas Morning News, 2015
  • “Electric Shadyland: How Power Companies Rip You Off,” Mother Jones, 2014
  • “Electric Restructuring,” Customers First! Coaltion, 2016