Since the country’s inception, Americans have debated the role of government—and its regulations—in the free market.
There’s little new about the debate, with some arguing that government has a significant role to play in ensuring ‘fair business practices’, and others arguing that ‘unleashed’ entrepreneurial spirit is the engine that drives our economy.
And while that debate rages on, it’s instructive to look at the results of deregulation—or, put another way, the diminution of government oversight—on the nation’s retail energy sector.
A clarification: “deregulation” of the retail energy sector does not mean that there are no laws pertaining to the industry, merely that the government has freed up the sector for competition in an open marketplace; put simply—deregulating the retail energy sector means providing consumers (both commercial and residential) with a choice of which company they’d prefer as their provider of electric power or natural gas.
Of course, this is a topic of considerable interest to our company. Our subsidiary, Sperian Energy, is a fast growing retail energy provider across several states that have deregulated their energy sectors. Sperian’s rapid growth—clearly illustrated by the tens of thousands of new energy customers it has signed up in recent months—is a reflection of the broader consumer acceptance of a deregulated energy industry, wherever that choice is made available.
This change in the energy industry is occurring at a most interesting point in time. In the Information Age, Americans consume more electricity than ever; in fact, the total business generated by the U.S. electric energy sector is estimated to be well in excess of $200 billion.
Most agree that the modern era of the deregulated American energy market began in California in 1996. In the almost two decades since then, several additional states have chosen to deregulate their electric markets; for consumers of power—both residential and commercial—deregulation has meant that they are no longer forced to accept the utilities tariff rate, which may or may not reflect market conditions; the end result of the regulated system often being price uncertainty going forward.
Deregulation provides consumers a choice: they can choose to lock in an electrical rate that meets their budgetary needs, or they can decide to go with a variable market rate that could result in lower costs depending upon the commodity price. As an added ‘bonus’, retail energy suppliers often offer additional add-ons such as rebates, demand response programs and other customer incentives.
Of course, as with any new business opportunity, there are some challenges when entering the deregulated energy business.
When an energy market first opens up for competition, one of the biggest business challenges is educating the state’s consumers. Often, energy customers may not, at least initially, be aware that they now have a choice as to their energy supplier. However, sometimes the state can play a role in educating energy consumers, as was the case in Pennsylvania. Through its ‘Choice Program’, that state proactively informed consumers about the deregulation; utilizing bill inserts, as well as television and radio ads, the state played an important role in creating an educated energy consumer.
The adage that ‘old habits die hard’ is also true in this case, and sometimes convincing consumers to switch to an alternative energy supplier can take time; the fact is, however, that in deregulated markets consumers are really only switching the supply portion of their energy consumption, and the delivery of energy to their home or business is still conducted by the local utility company.
Despite the obstacles, there can be little doubt that the move to deregulate energy markets continues to grow nationwide. Some states are moving slower than others: in Michigan, for example, only 10 percent of consumers can choose their supplier, while earlier this year Massachusetts completed their full deregulation of the energy market. Ohio is yet another state that is currently considering full deregulation of its energy market.
In addition, renewable energy—primarily solar—is providing even more possible choices for consumers. Alternate energy retailers do not have to wait for deregulation to partner with established solar companies; such partnerships enable suppliers to utilize their sales force to market solar installations, even in fully regulated energy markets.
Of course, the larger debate over government’s regulatory role in the business marketplace rages on. However, few on either side of that discussion can deny that deregulated energy–and the resulting added choices that it provides–ultimately benefits the American consumer.
Perhaps more than any other nation, the United States is—at its core—a land of diversity.
The best executive is the one who has sense enough to pick good men to do what he wants