Energy in deregulated states vs regulated states
Summary:
- In the past, one utility company provided all parts of electricity service (generation, transmission and distribution, and retail sales). This created monopolies in each service area. To allow competition, these services are now separated and provided by different energy companies. This is called energy deregulation.
- In many of today’s deregulated energy markets—including Texas, Illinois, Pennsylvania, New York, and New Jersey—energy customers now have the choice to receive their electricity supply from their local utility company or from a qualified, licensed third-party supplier known as a Retail Electric Provider (REP).
- The customer’s energy will still be delivered through the same infrastructure which is owned, operated, and regulated by the utility company; however, the deregulated energy customer now has the option to choose who supplies his or her energy, how it is supplied, and what the cost will be.
Deregulated natural gas and deregulated electricity
In “traditional” regulated energy states, there is one utility for your location, and they cover everything from the the service through the lines and poles to the billing to the customer service. Residents don’t really get any choice in the matter. If your home or business is in their service area, they’re your utility. It’s as simple as that.
Some states, however, have deregulated energy, allowing for competition among various energy providers. In these deregulated energy states, there will still be the one utility that is in charge of transmitting the energy through their lines and poles, but customers can choose from several available providers for the billing and customer service. These different providers, in turn, will each have several available service plans at different rates. This allows you, the customer, to shop around and find the best provider at the best rate.
The power to shop around
The advantages of energy deregulation are easy to see. If you are unhappy with the service you are getting from your current energy provider, you can switch to a new one. If another provider offers you a lower rate, you can switch to that one. When providers have this sort of competition among them, they are more inclined to offer better rates and better service. They are going to do what they have to do to attract and retain customers.
There are also disadvantages of energy deregulation, though. Electricity and gas providers each have various plans they use to attract customers. Some may offer special introductory rates, special rates at “off-peak” hours, fixed rates, variable rates, “all-inclusive” rates, and any number of other plans. None of these is necessarily bad. If you really understand how a plan works and it fits with your specific usage needs, then it may be fine for you. It just might not work for everyone.
It gets complicated when you’re trying to navigate all the options from all the different providers in the deregulated energy market. In the state of Texas, for example, there are nearly 300 different retail providers. Even if all of the state’s providers only offered one single, identical plan, would you want to spend the time calling each one for rates?
So, let’s say there were a simple way to compare energy supplier energy. It’s not quite as simple as just finding the provider who will offer you the lowest rate. Some providers will offer a lower rate per kilowatt-hour but make up for the difference by adding monthly fees and service charges. Some rates will “bundle” various other charges that would typically be on the power bill. These rates might be a little higher, but you could still save money since you wouldn’t have to pay the other line-items. Plus, the rates in July are going to be different from those in March or October. How long is it going to take for you to calculate the overall value of each plan? Energy competition is great, but it comes at a price.
Map of states with deregulated energy
Not all states have deregulated energy. Of the deregulated states, some have only partially deregulated their energy: some have natural gas deregulation but not deregulated electricity (or vice versa), and some have only deregulated certain customers or areas. Currently 29 states have deregulated their electricity and/or gas markets, in whole or in part: California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Texas, Virginia, Washington D.C., West Virginia, and Wyoming. The remaining states–Alabama, Alaska, Arizona, Arkansas, Hawaii, Idaho, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Nevada, North Carolina, North Dakota, Oklahoma, South Carolina, Tennessee, Utah, Vermont, Washington, and Wisconsin–are regulated states.
Electricity deregulation and natural gas deregulation in each state
The table below shows which states have deregulated natural gas and/or electricity and to what extent they are deregulated:
| State | Deregulated Market | Comments |
|---|---|---|
| Alabama | No | |
| Alaska | No | |
| Arizona | No* | *Energy deregulation was placed on hold in 2004. |
| Arkansas | No* | *Energy deregulation laws were reversed in 2003. |
| California | Gas & Electric* | *very limited and is conducted by a lottery system called DirectAcccess |
| Colorado | Natural Gas only* | *At this time, no utilities offer choice programs despite Colorado’s natural gas market being deregulated. |
| Connecticut | Gas* & Electric | *only partially deregulated and very limited |
| Delaware | Electric only | Gas was deregulated on a trial basis and later discontinued. |
| Florida | Natural Gas only | |
| Georgia | Natural Gas only | |
| Hawaii | No | |
| Idaho | No | |
| Illinois | Gas* & Electric | *deregulated for approximately 75% of the state |
| Indiana | Natural Gas only* | *deregulated for NIPSCO customers only |
| Iowa | Natural Gas only* | *limited and available only to a small number of consumers |
| Kansas | No | |
| Kentucky | Natural Gas only | |
| Louisiana | No | |
| Maine | Gas* & Electric | *only deregulated for Industrial and Commercial consumers |
| Maryland | Gas* & Electric | *certain areas not deregulated |
| Massachusetts | Gas & Electric | |
| Michigan | Gas & Electric | |
| Minnesota | No | |
| Mississippi | No | |
| Missouri | No | |
| Montana | Natural Gas only | |
| Nebraska | Natural Gas only | |
| Nevada | No | |
| New Hampshire | Gas* & Electric | *not deregulated for residential customers |
| New Jersey | Gas & Electric | |
| New Mexico | Natural Gas only* | *very limited |
| New York | Gas & Electric | |
| North Carolina | No | |
| North Dakota | No | |
| Ohio | Gas & Electric | |
| Oklahoma | No | |
| Oregon | Electric only | |
| Pennsylvania | Gas & Electric | |
| Rhode Island | Gas & Electric | |
| South Carolina | No | |
| South Dakota | Natural Gas only | |
| Tennessee | No | |
| Texas | Gas* & Electric* | *Gas choice is not available for residential customers, and only for commercial consumers whose annual usage exceeds 3,650 MCF. *Electric choice is available for 85% of state. |
| Utah | No | |
| Vermont | No | |
| Virginia | Gas* & Electric* | *Deregulation of both Gas and Electric is limited for residential consumers. |
| Washington | No | |
| Washington DC | Gas & Electric | |
| West Virginia | Natural Gas only* | *very limited |
| Wisconsin | No* | *Deregulation was tried but discontinued |
| Wyoming | Natural Gas only* | *very limited and only available through one utility |
The origins of the deregulated energy market
In November of 1965, a massive blackout left 30 million people without power throughout northeastern United States and into southeastern Ontario in Canada. This power outage lasted fir 13 hours. In the wake of this event, the National Electric Reliability Council (NERC) was born to ensure that this never happened again.
One of the first steps of the NERC was to divide the nation’s central electrical system into 10 independent grids. The goal of creating separate energy markets was to improve the overall reliability for electricity delivery. However, one result was that in each region, there was now a single utility that provided the energy–a complete monopoly.
The benefits of a deregulated market
In the years since, several states have started deregulation initiatives to eliminate these monopolies. A deregulated market, however, has to be implemented and managed properly for it to work well. Some states have been successful in deregulating their market; others have hit difficulties which caused them to put their plans on hold or even reverse the process after deregulating. When effectively set up, however, deregulation comes with a number of benefits:
- Removing monopolistic feel of electricity market – The utility is no longer the sole providers in the electricity market. Customers have the power to choose a new provider based on what works best for them.
- Lowering energy rates – When providers have to compete against one another for business, rates for both residential and commercial customers decrease.
- Increasing customer service – Faced with competition from other companies, providers have more incentive to focus on customer satisfaction
- Increasing product offerings – To entice and attract customers, many providers come up with an assortment of product offerings instead of offering one-size-fits-all plans.
- Helping the environment – To meet customer demand, many providers have begun offering various options for solar and other renewable forms of energy.
- Stimulating economic growth – To stay ahead of the competition, energy companies now have more incentive to invest in fields such as renewable energy, software development, and infrastructure.
- Creating new jobs – By their nature, competitive markets pave the way for new businesses. Even counting only retail providers, hundreds of companies have been formed across the country to take advantage of deregulation’s opportunities.
How energy deregulation works
- Under the traditional energy delivery system, a network of power plants produce electricity to be released into the energy grid. Utility companies purchase this energy in very large blocks which are then broken up to be supplied to customers.
- Electricity deregulation effectively allows Retail Energy Providers (REPs)—known as Retail Energy Suppliers (RESs) in the Northeast—to enter the marketplace and purchase energy from the generator to sell to the end-user at market prices. Because of strict regulatory control, non-profit status, and the way in which energy is purchased by the Utility Companies, REPs are typically able to purchase and provide the energy to end-users at a lower price.
- Natural gas choice works the same, with one company delivering from the local natural gas supply and other companies providing billing and customer service.
