Energy Regulation and Industry Overview

Regulation of public utilities by federal and state governments began with the Federal Power Act of 1920 and has been a major influence in forming and building out the contemporary energy infrastructure we have in place today. Regulation has provided the decades long build out process with oversight, through the establishment and maintenance of regulatory institutions, and with guarantees of financial returns on investment in order to spur companies on towards creating reliable energy systems.

Over the years, there have been many major federal laws enacted towards this end that have shaped the relationship between consumers and utilities: The Federal Power Act of 1935, The Public Utilities Holding Company Act of 1935, The Natural Gas Act of 1938, The Public Utilities Regulatory Policy Act of 1978 and The Energy Policy Act of 2005, to name an important few. Through all of the regulatory rule changes, creation of new regulatory entities, alteration of responsibilities between federal and state organizations, and the like, there are two things that have remained constant when it comes to the regulation of energy in the United States. The first is that the ultimate responsibility for regulating interstate energy commerce has always been under the care of FERC, the Federal Energy Regulatory Commission (and its predecessor, the Federal Power Commission). And second, the regulation of intrastate energy affairs has always been the ultimate responsibility of each state's respective Public Utilities Commission (or whatever particular name each state has given to this entity).

Under our regulatory structure, power from natural nas and electric power each have the same three basic phases that govern the dissemination of each energy type and their use by the consumer, both in the individual retail sector and commercially on the part of businesses. First, there is the commodity supply component, which entails the actual generation of usable energy, or more accurately, the transformation of energy from its raw state to a state that can be used to heat homes, power streetlights, run electrical appliances, and the like. Second, there is the transmission of that energy over varying degrees of distance from where it was created to regions, towns, cities, etc., where that energy will be used. And third, there is the local distribution of that energy to homes and businesses.

For about as long we can remember, it was your local public utility that handled all three components, in order to provide the necessary stability for the broader market as it was growing in the United States and since it was felt that one supplier in a monopoly market structure could provide service at the lowest cost. But, after many decades of building out and constructing our energy infrastructure, of demand and supply growth, the addition of more and more market participants, etc., it became time to introduce free market competition and consumer choice into the paradigm that governs our energy usage.

In short, it became time to allow for the deregulation of natural gas and electric energy markets. And the groundwork was laid when the FERC decided it should limit its authority to wholesale transactions. And thus, individual states had the autonomy to determine when and how to allow retail price competition. Our hope is that eventually, this will happen in every state. As they say, patience is a virtue, and it is no different when it comes to realizing the benefits of energy deregulation!

Energy deregulation (also commonly known as switching to "transportation service," "restructuring," "unbundling," allowing "direct access," or the creation of "retail choice," among others) basically means that, of the three phases mentioned above, consumers in deregulated states have been given the power of choice over the first one, commodity supply. The distribution and transmission phases remain regulated and the prices for those services are still set by federal and state statutes and tariffs. This means that your local utility continues to deliver the natural gas and/or electricity, regardless of who the consumer chooses to supply the energy. The utility also maintains the power grid and distribution system, responds to emergencies and reads meters. These 'unbundled' services would each be priced separately on a customer's bill.

To put it simply, as consumers, we now have the ability to choose who we receive our energy from, but not who makes it or distributes it to us. Consumers can now shop for their energy! The reasons for choosing an energy supplier are multifaceted indeed, but generally the choice is made in search of:
1.) Lower Prices
2.) Price Stability
3.) Longer Term Contracts (locking in low rates for the long term)
4.) Energy from Environmentally Friendly Sources.