Deregulating Markets Vs. Deregulating Companies: What’s the Difference

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Deregulating Markets Vs. Deregulating Companies

Over the last few weeks, some stunning and horrifying changes have been implemented by the current Presidential administration. We’re not talking about travel bans or the increasingly horrifying deportation forces (though they are noteworthy). We’re talking about all of the steps the President has taken to walk back all of the strides previous administrations made to protect the environment and protect the planet.

Most of these changes have come in the form of walking back regulations. This isn’t surprising, given the hatred many in the Cabinet and even in the Oval Office have for any sort of restraint on business. The truth, however, is that not all regulations are bad. Some are good!

What nobody in the current administrative branch seems to understand is that there is a massive difference between regulating an industry and regulating companies.

Setting Up The Example

Let’s use an easy example: the energy market. In the United States, some states have highly regulated energy industries while others have deregulated their markets. In states where the energy market is regulated provider choices are slim. Often there is only one provider for entire cities or counties.

Consumers have to buy their energy through that company if they want to have power at all. In deregulated markets, consumers can shop around to compare rates and offerings. In Little Elm, Texas for example, residents can compare Little Elm electric rates based on type of energy offered (sustainable v fossil fuel), origin of the energy (Texas, another state, Canada, Mexico) and cost.

Deregulation Pros

People in deregulated markets appreciate the choices that are afforded to them, especially in terms of price. The state legislatures like the deregulation because it helps boost their local economy. The state can tax out of state (or country) providers, which brings in income while simultaneously driving down prices for consumers.

The deregulation also provides a platform on which the energy companies can work together to lobby for industry-wide improvements instead of allowing one company to dictate the terms for everyone.

Deregulation Cons

The biggest drawback to deregulating the energy market is felt primarily by the companies who provide the power. It is difficult for one company to establish itself as the “go to” provider. This makes it difficult for them to encourage the state government to make decisions based on that company’s preferences. And lawmakers, if we’re being honest, don’t have a lot of love for how much power the energy markets have at the state level.

Industry Vs. Market Vs. Companies

Regulations have different functions depending on what level they are applied.

Industry regulations are applied nationwide and have federal implications. These regulations typically deal with the product being offered. For example, at the industry level, consumer energy cannot be 100% fossil fueled. A fraction of the supply must come from sustainable/eco-friendly sources like solar, geothermal, etc.

Market level regulations have to do with economics–the supply of the product. For instance, energy markets are not allowed to base rate costs on the “flow” or “supply” of power. This is in the consumer’s’ best interest because it prevents the states from reducing power grid capacity as a method to drive up prices.

Company level regulations have to do with behaviors. The best example of this is a regulation that was rescinded recently by the President. The regulation that had been in place forced companies to abide by very strict waste disposal rules or face fines and other penalties. This was to keep the companies from polluting the environment. By rescinding those regulations, coal companies and other industry can now dump their waste materials wherever it is most convenient for them, even if that means dumping them in local rivers and streams.

Regulations often get swept up in the argument against an overreaching government. It is helpful to remember, though, that regulations exist to protect us. They exist to prevent extortion, pollution and to keep consumers safe. CEOs might complain about the inconvenience but imagine what would happen if everything was left to run amok. Could you afford those power bills if prices weren’t regulated? Of course not. Nobody could!

Editorial Team
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One Comment

  1. Deep says:

    Good article. Informative.