02/ 02/ 2007
State debates expected this year as the energy industry finally becomes deregulated
A decade ago, the federal government opened the electricity-generating business, allowing it to become a competitive, free-market system. In certain states, however, electricity rates were capped to protect rate-payers from drastic increases in prices.
Now, as these caps come off, states such as Maryland and Pennsylvania are bracing for increases of as much as 75 to 80 percent. These rates would be devastating to small businesses, and NFIB will be working for reasonable solutions in the transition to a fully deregulated market.
Why deregulation has taken so long: Although the electricity market was technically "opened up" more than 10 years ago, most states were able to hold on to their rate-setting powers and have imposed cuts, freezes and caps on the electric utility industry.
In 2007, the last of the state-rate protections will expire, and the true free-market system will finally be in place. Proponents of deregulation say that a truly deregulated electricity market eventually will drive down rates and increase choices for energy consumers. Opponents are fearful of initial rate increases and warn that, if the production costs remain high, consumers might not see lower prices.
Deregulation has had a positive impact on the telephone and cell-phone industries. A decade after competition was introduced to the telephone industry, long-distance phone rates have been reduced by half. Opening up the cell-phone market has significantly driven down costs for consumers.
Energy, including electricity, is a major cost for a substantial share of small firms, according to a recent poll by NFIB's Research Foundation. A large majority--70 percent--associate their greatest energy costs with transportation and buildings, typically operating vehicles and workspace temperature control. About one-third of small-business owners say heating and cooling are their highest costs. Slightly more than one in five spend the most for operating equipment or processes, while just under 5 percent consider lighting their main energy expense.
NFIB prepares for state debates: Over the next few months, many state legislatures are expected to try to return to the old system of a fully regulated and price-capped market. Many states have already acted to delay transition to the competitive system, fearing potential rate shocks. Opponents say these decisions may be taking place before consumers are given a chance to see the benefits of a fully deregulated system.
NFIB will vigorously oppose devastating rate increases and support a consistent free market that ensures lower energy costs for small businesses.
