4 Energy Deregulation Disadvantages (Hint: wait for the Advantages!)
Energy deregulation is often held up as a goal of those who believe the free market can improve any situation, regardless of what it is. However, while it’s true there are potential advantages to the idea of energy deregulation, it’s important to remember there are also risks that come with this strategy and even some energy deregulation disadvantages. Some of those risks include…
#1: The Market is Less Predictable
While there is always going to be some variation in the cost of energy by region and fuel supply, when there is only one option things remain fairly stable. The price might not be great, but because there’s no competition, it tends to remain steady. By deregulating energy, and introducing more options into the mix, that can send ripples through the market. That kind of upset can lead to better prices in the long-term, as well as advantages for customers, but there is going to be upheaval in the short-term which can be hard to ride.
#2: More People Are Involved in Energy Transactions
When there is a regulated monopoly on energy, everything is fairly streamlined. There’s only one company, and it handles everyone’s needs. The more competition that gets introduced, though, the more people who get involved in the process. There’s the supplier itself, the brokers selling the energy, the utility companies, the regulators, and the list goes on and on. The more people who get involved, the more complex the process becomes, and that can have unforeseen consequences in terms of efficiency, cost, etc.
#3: Complexity of Purchasing
When energy is closely regulated, and there is only one provider, it’s simple to decide who to get your power from. It isn’t a decision at all, really. But the more options people have to choose from, the more problematic recognizing a good choice becomes. It isn’t just that there are more options to consider when deciding where to get your energy from, it’s the amount of work it takes to figure out which is a good option, and which isn’t. This can require a lot of savvy from customers, and those who don’t have it may end up with worse deals than they had before.
Healthy competition is a good thing, but it’s important to remember that energy isn’t the latest in jeans, or a new car. Energy is something we all need to survive, and to maintain our lifestyles. As such, it’s important to remember that too much competition, or the wrong type of competition, can create more problems than benefits.
For example, if companies use harmful methods to undercut their competition (such as importing energy across state lines where there are lower standards for pollution), then that is going to have a harmful effect on the market. The same is true if bigger companies use their deeper pockets to stamp out competition, or join together with other providers to create an artificial scarcity. These are the sorts of activities government oversight is meant to prevent.
There Are Benefits, Too
While there are some energy deregulation disadvantages, and also some risks, there are advantages, too. The ability for consumers to choose which energy products to consume can drive the market, and lead to the adoption of new technologies. Healthy competition can keep prices low, and service high, since companies can’t automatically depend on customer loyalty. These advantages aren’t a given, though. Careful planning is required to create a situation where deregulation works, and works for everyone involved.