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What is Gas Deregulation?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 30 November 2016
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Gas deregulation is a form of utilities deregulation in which regulations on gas suppliers and purveyors are lifted. The practice of removing regulations is known as “liberalization,” and it is viewed by many proponents of the free market as key to the operation of a fully free market. With regulations in place, the market may be restricted to a degree which some critics do not find acceptable. These critics feel that regulation tends to hamper innovation in the industry.

Gas, of several different forms, is used in a wide array of applications. Gas deregulation can include natural gas as well as propane and other gases. One of the most common uses of gas is in the production of heat for heating, cooking, and industrial processes. Gas can also be used to generate electricity which can be used to power refrigerators, washers, and other appliances.

In gas regulation, the government has regulations in place which limit things like pricing, transport activities, and so forth. The stated goal of regulation is to keep gas prices reasonable and fair for consumers, and to maintain certain safety standards in the interest of society as a whole. Gas regulation may also be used as a tool to address utility monopolies and price fixing, by overseeing the gas industry so that it has some accountability and is expected to conform with certain rules. Regulation can also involve business practices, requiring certain disclosures from members of the gas industry, for example.

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In gas deregulation, these restrictions are lifted. “Deregulation” is a bit of a misnomer, because every single regulation which governs the industry is not lifted when gas deregulation occurs. Specifically, gas deregulation usually refers to lifting price restrictions and other barriers to market activity. Regulations such as safety and labeling requirements remain in place, in the interests of protecting consumer safety and ensuring that safety procedures remain uniform across the industry in the interests of protecting gas workers, first responders, and other people who may have reason to interact with gases in their work.

Energy deregulation in general became very popular in many regions of the world at the close of the 20th century. In some regions, deregulation actually created problems in the market which led to irregular supplies, skyrocketing prices, and other issues. Supporters of deregulation argued that such problems were the result of pushback, and that eventually the industry would settle back onto an even keel, with the market regulating itself.

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NathanG
Post 4

@Charred - There are some positive results from keeping price regulations in place. Contrary what you might expect, they could actually cause companies to become more efficient.

If you place price ceilings on the sale of natural gas, then those companies will have to resort to cost cutting to stay profitable within those restrictions.

If you lift the ceiling, well then, the sky is the limit. There’s no need to cut transportation costs or other expenses incurred in the distribution of the gas, because you can just keep raising your prices. So regulation is not all a bad thing in my opinion.

Charred
Post 3

@MrMoody - I believe that the jury is still out on electricity deregulation. I used to live in Pennsylvania and they implemented deregulation there, to great success.

People left their old utilities to alternative suppliers and prices began to drop. But the key in my opinion is whether or not there is enough supply.

If you live in a large state like California, and you implement deregulation, and you have few suppliers, you will make the problem worse. You will have all this pent up demand and not enough supply to meet it. So you see it depends on the market.

That’s why I don’t believe in blanket endorsements of regulation or deregulation. It all depends on the location.

MrMoody
Post 2

@nony - I used to work in the energy industry. The utilities were heavily regulated. Of course a lot of those regulations involved safety measures, which is out the scope of the regulation that the article talks about.

Still, people complained about prices for energy costs. In principle I think that electric deregulation would work to curb those prices, but there is one problem.

As you point out, many of the utilities operate in a near monopoly framework. So even if you completely deregulate them, there is little competition – at least in the regions where the utilities operate.

Without competition, there will be no downward pricing pressures. The only pressures on pricing will come from reduced demand, and that is not likely to happen. Demand stays pretty constant for electricity.

nony
Post 1

Normally I am a big fan of deregulation and the free market. However, when it comes to the utilities and gas prices I would have to reconsider my position. These companies operate from a position of virtual market dominance.

In a deregulated state, there is no telling how they can manipulate prices and gouge consumers. Yes, there are laws in place against price gouging but I am sure that companies can find workarounds.

If you want a clear example of how deregulation can lead to higher prices, just look at gasoline at the pump. This is transportation gas, I know, not the kind the article talks about.

But the principle is the same. Operating in the context of the “free market” gas prices can just climb higher and higher, forcing consumers to pay more at the pump and suffer for it. I see the same thing happening with natural gas deregulation.

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