Deregulation in Ohio

The power of choice is in your hands!

There was a time when electricity and natural gas were supplied to your neighborhood by just one utility company. Prices were set with a state government's regulatory approval. Consumers had no choice of provider and, therefore, no way to shop around for the best price.

In 1997, 17 states, including Ohio, began to deregulate energy. This allows independent energy companies to supply electricity and/or natural gas to homes and businesses at prices based on current market values. In many cases, these rates are lower than those offered by the government-regulated utility companies. Despite this change, state governments needed a way to ensure all homes and businesses would continue to be served safely and fairly. So local, government-regulated utility companies are still required to deliver, maintain and service all electricity and/or natural gas accounts.

What does this mean for consumers? It means you now have a choice. Several different energy companies can now compete to supply electricity and/or natural gas to your home or business. This translates into lower prices for the very same electricity and/or natural gas — delivered, maintained and serviced in the very same way — as you currently receive. The only difference: it is supplied by an independent energy company at a potentially lower cost.

Energy deregulation has changed the way consumers purchase their electricity in much of the country. In the past, utility providers controlled all aspects of energy production and distribution, but that is quickly changing as states elect to deregulate their utility services. Splitting energy production and distribution services is radically changing the way residential and commercial clients look at their energy consumption.

Proponents of utility deregulation argue that allowing competition in the energy sector will spur advances in both production and distribution that otherwise would not occur. Statistical evidence indicates, in fact, states opting for deregulation have seen reductions in the cost of energy production since deregulation. Increased efficiencies of production have significantly lowered the cost of power entering the grid. However, that does not always mean consumers see reduced electricity rates.

The other half of the energy cost equation is distribution, and industry statistics further suggest that distribution costs, rather than being reduced, have actually increased. The cost of maintaining the infrastructure, as we know it, have increased. Material costs of wire and poles increased dramatically during the same time efficiencies of production have lowered the expense for power generation, negating the positive effect of those efficiencies. The question becomes, how can the costs of distribution be controlled? A logical conclusion is that political pressure may be brought to bear, pushing for additional deregulation of the distribution network to force innovations in the delivery infrastructure.

Deregulation has allowed consumers in many areas to select utility options not available in the past, and those changes have forced energy companies to re-evaluate their production systems. Further, it is likely that market forces will push producers to find even more efficient production practices in the future. However, the distribution half of the cost equation must be better managed if long-term utility costs are to be contained.

Consumers also have a significant part to play in reducing their energy costs. Working with electricity providers, consumers must become better educated about their energy consumption. Most energy companies offer advice for conserving energy in homes and businesses without sacrificing current lifestyle expectations. Upgrading appliances to modern, energy saving models is an excellent first step in reducing energy use. Power providers and organizations focusing on energy use reductions also suggest simple steps like replacing older, inefficient lights and unplugging or turning off any electrical items that are not actually being used. Even the ubiquitous charging devices for phones and laptops consume small amounts of electricity even when not being used for charging, and should be unplugged between uses. Small savings in energy add up quickly, making consumer awareness a goal of energy producers in their quest to reduce waste.

Conservation, although critical, does not address the problems facing the distribution infrastructure. Reducing distribution costs are the next hurdle the country's providers must address. The goal of utility deregulation is to force providers to become more efficient, yet that has not really happened. The distribution system has relied on maintaining the existing system rather than integrating changes to reduce wastes commonly seen in those delivery systems. Investments in new technology needed to reduce losses between production points and the end user have lagged behind those of energy producers. Distribution systems are essentially the same today as they were years ago, and are, by their very nature, inefficient. The Department of Energy, through its Smart Grid Investment Grant Program and other initiatives, encourages power distribution upgrades that serve to improve system reliability. Ultimately, upgrades are designed to reduce operations and maintenance costs of power distribution systems, which should help to contain costs passed on to consumers.

As consumer uses of electricity continue to evolve, the pressure to control generation and distribution costs will also continue. The cost of generating electrical power has already declined, with at least some credit for that reduction being owed to deregulation and competition. Delivery infrastructure cost containment is the next goal to be attained, and it is clear to many industry officials that rethinking the current distribution methodology is essential to meet that goal. Consumers suffering through lengthy outages may well be the catalyst for that change, as they will almost certainly put ever increasing pressure on politicians to push for policies that will enhance utility service reliability for the future.