Energy deregulation was one of Sarah Palin’s topics of discussion in the recent vice presidential debate.

Though I am in favor of energy deregulation, my political opinion is not a factor in this post; I am simply providing educational material on the subject.

“Deregulation” describes a change through which many companies compete to offer products and services that previously, under regulation, were offered through just one government-controlled company.

The Federal Energy Regulatory Commission (FERC) is responsible for regulating interstate transmission services and interstate wholesale power transactions (sales to utilities for resale). The States regulate their investor-owned utilities’ retail sales.

In the past, the supply of electricity within a given geographic area was seen as a natural monopoly, and State public utility commissions awarded utilities exclusive franchise areas. They required utilities to serve all consumers in their franchise area at regulated rates, covering generation and delivery, based on cost of service. Depending on how much a customer was willing to pay, they could get power from cleaner burning natural gas plants, hydroelectric dams and renewable resources such as windmills.

During deregulation, the government does not withdraw entirely from a marketplace. Typically, some part of a service becomes open to competition while others do not. In air travel, for instance, the prices of tickets are unregulated, but many airport services, such as air traffic control, remain under strong government observation. In other industries, like telecommunications, deregulation began with long-distance services and is now expanding to other parts of the system.

The driver behind deregulation is the desire for lower energy prices. In the restructured marketplace, energy companies compete for customers, and consumers choose their power providers. Electricity may become something like gasoline at a convenience store - priced at a level to get people in the door so they will purchase other items with higher profit margins. It might be bundled with utilities such as natural gas, cable television, telephone and Internet access on a single monthly bill.

Many energy and economic analysts believe that companies will find innovative ways to cut costs and drop prices if they must compete for customers. Another reason analysts support deregulation is that they believe it will increase the reliability of the energy supply. Deregulating industries frequently attract new capital. Also, deregulating industries see an increase of the number of companies offering the product or service. Deregulation promotes new technology, and companies have more incentive to develop and introduce innovations because they can profit from those that succeed.

Deregulation in natural gas and electricity, as currently envisioned, does not involve the wires and pipelines through which customers receive services. These will remain controlled by government agencies. Many different companies will compete, however, to sell or supply the product - the actual electricity and natural gas.