What is energy deregulation in the U.S.?

Energy choice. The power to choose. Deregulated electricity. Whatever you call it, if you live in any of the states where the electricity market has been deregulated, you’ve probably had to deal with it at some point. So what is energy deregulation? Put simply, deregulation means you have the power to choose your electricity provider.

In regulated energy systems, your area’s utility company sells you energy and delivers it to your home. It has a monopoly because there’s only one utility company per ZIP code. In deregulated systems, the energy market has been opened to competition. This means that independent energy suppliers can now sell you energy, too. They often offer more plan options at different prices than the utility company, which leaves you with a lot more choice for your energy supply.

Sixteen states and the District of Columbia currently have some level of electricity deregulation – but that doesn’t necessarily mean residents in all those states can choose their energy provider. As is typical of energy deregulation, it’s complicated, with some states offering more options than others.

Most states that are deregulated made the legislative move at the turn of the century, somewhere between 1996 and 2002. Here’s the deregulation timeline for states across the country:

1996

Rhode Island: Rhode Island is deregulated for residential consumers, though customers also have the option to stay with their utility company under default offer service.

1997

Illinois: Illinois is deregulated for residential and commercial customers. Energy choice began with residential service and extended to commercial in 2002.

Maine: Maine deregulated its market in 1997 after a long process and many killed proposals.

New York: Energy deregulation in New York is more widely used than in many other states, with retail electric providers being called Energy Service Companies (ESCOs).

Pennsylvania: The Electricity Generation Customer Choice and Competition Act opened up the market in Pennsylvania, leading it to become the largest energy choice program in the country at the time.

1998

Connecticut: In Connecticut, consumers can choose to purchase electricity from an independent supplier or the state’s two utility companies.

Massachusetts: Electric customers have had energy choice since 1998, giving them an alternative to utility companies National Grid, Eversource, and Unitil.

Michigan: The restructuring of Michigan’s energy market gave both residents and businesses the option to choose their electricity provider.

New Hampshire: In addition to the four utility companies in New Hampshire, consumers can now choose from many independent providers (or remain with their utility company).

1999

Delaware: In Delaware, customers in the Delmarva Power and Delaware Electric Cooperative service areas can choose a third-party electric supplier, if they wish to.

Maryland: The Electric Customer Choice and Competition Act established energy deregulation in Maryland, with price freezes in effect until the market readjusted.

New Jersey: Residential customers in New Jersey have the power to choose, though only about 20 percent have currently done so.

Oregon: Oregon currently has very limited electric choice – available only to business customers. Residential customers have some choice within the offerings of their utility company.

Virginia: Virginia deregulated the electricity market in 1999 but rolled back the changes in 2007. Energy choice is currently only available for commercial customers or customers who don’t have a 100 percent renewable option with their local utility company.

2001

Ohio: In 1999, Senate Bill 3 – also known as the Ohio Electric Restructuring Act – called for deregulation by 2001.

Washington, D.C.: Electricity was deregulated in D.C. with the option for customers to stay with their utility company under standard offer service, if they do not wish to choose an alternate provider.

2002

Texas: One of the most popular states for electricity deregulation, about 85 percent of Texas consumers – residential and business – can choose a retail electric provider. In fact, it’s the only state where deregulated customers must choose an alternate provider and cannot purchase energy from their utility company.

A note on natural gas deregulation

In addition to electricity deregulation, some states have also deregulated part or all of the natural gas market. We’ve chosen to focus on electricity for this guide, but the following states all have some level of natural gas choice. Keep in mind that many limit this choice to industrial and commercial customers.

As with any specialized industry, there is some specific vocabulary you’ll encounter when you live in a deregulated electricity state. This includes terms to describe the companies you’ll buy energy from, the documents that explain how a plan works, and more.

Energy utility companies and suppliers

Let’s start with the companies you have the choice to buy energy from. Often called energy providers or suppliers, these are the companies that entered the market when it became deregulated. Examples include TXU Energy, Direct Energy, and Constellation. When shopping for an energy plan, you may see energy providers listed under any of these names, which all mean the same thing:

• Retail Electric Providers (REPs)
• Alternate Retail Electricity Suppliers (ARES)
• Certified Retail Electric Suppliers (CRES)
• Energy Service Companies (ESCOs)

In deregulated systems, energy providers sell electricity plans to consumers – that’s you. The delivery of this energy, however, is the responsibility of your area utility company. What’s the difference between a utility company and an energy supplier? That’s one of the most common questions about deregulation, and thankfully the answer is pretty simple.

If a utility company can also sell energy plans, why have both utilities and providers? The answer lies in competition. In regulated systems, utility companies have a monopoly on their areas and can raise electric prices as they see fit. In deregulated areas, providers compete amongst themselves and with utility companies to offer the best prices, options, and plans for the consumers.

State utility regulators

Is anything regulated in a deregulated electricity system? Yes, and that responsibility falls to your state’s utility regulator. This organization, too, has many different names depending on your state. Your utility regulator may be called:

• Public utility (or utilities) commission (PUC)
• Utility regulatory commission (URC)
• Public service commission (PSC)
• Public utilities regulatory authority (PURA)

Utility regulators are government bodies tasked with setting delivery charges utility companies are allowed to charge you (you’ll see this as UDC, TDU, or TDSP charges on your bill), managing complaints against utility companies and providers, and overseeing the energy system.

Energy plan documents

Moving on from the companies you’ll encounter, let’s talk more about energy plans and their documentation. As with all the other terms in this list, your state will determine what exactly these documents are called of the below choices (confusing – we know). But rest assured that all the names mean the same thing. There are two main documents to keep an eye out for when shopping as they’ll help explain what you’re signing up for:

• EFL, Terms of Service, or Disclosure Label
• Consumer Bill of Rights or YRAC Disclosure

The Electricity Facts Label (EFL) is also called the Terms of Service or a Disclosure Label. This document tells you your rate, what energy sources the plan uses, and all the other details of the plan you’re considering. Make sure to take a good look at this document before you sign up, so you understand what you’re getting.

The Your Rights as a Consumer (YRAC) Disclosure or the Consumer Bill of Rights is exactly what it sounds like. You have specific rights and responsibilities set by your state’s utility regulator. This document tells you what they are so you know if your rights have been violated. Among these rights are fair and non-discriminatory service, privacy protection, and clear contract terms, as well as slamming and cramming.

• Slamming happens when your electricity service is switched to a different plan or provider than you signed up for without your consent.
• Cramming happens when your energy provider adds an extra charge on your bill without notifying you in advance.

The main argument for energy deregulation is that it opens the electricity market up to competition, which is usually a good thing for the consumer. In regulated systems, utility company monopolies leave residents with little say in their energy bills and plans. A few ways in which deregulation has benefited consumers includes:

• Better access to green energy. Providers now offer 100 percent green plans, renewable energy add-ons, and solar and wind power options.
• Better plan options. If you work from home, you can now find a plan that rewards you for that. If you mostly use energy on the weekends, there are plans that have designated weekend “free periods.” If you’re a high usage customer, your energy needs no longer have to break the bank.
• Better provider choices. If you don’t like the company you’re with, you can switch and get service that agrees with you.

All of that said, deregulation doesn’t automatically mean you’ll pay less for energy. According to the EIA, areas with energy choice can see higher prices from energy providers than the utility default price, which defeats the purpose of choosing an alternate supplier. The only place where this is not true is Texas, which is the only state where energy choice is not optional.

What does this mean? In most states, residents can choose to purchase energy from the utility company or an alternate provider. In Texas, residents in deregulated areas (about 85 percent of the state) must choose an alternate provider. They cannot choose to stay with the utility company.

This means that Texas’ consumer choice program is the most utilized out of all the deregulated states. It also means that we can really see the effect of deregulation when people buy into it. According to the latest EIA statistics:

• The average price of electricity in Texas for residential customers in January 2021 was 11.39 cents per kilowatt hours (kWh) compare with a U.S. average of 12.69 cents/kWh. That means Texas residents paid nearly 10.3 percent less.
• The average price in Texas for commercial customers was 7.58 cents/kWh compared with a U.S. average of 10.31 cents/kWh. That means Texas businesses paid more than 26 percent less.
• The average price in Texas for industrial customers was 4.88 cents/kWh compared with a U.S. average of 6.35 cents/kWh. That means Texas manufacturers paid about 23 percent less.
• The average price of electricity in Texas for all sectors combined was 8.22 cents/kWh compared with a U.S. average of 10.35 cents/kWh. This means that Texas, in general, pays nearly 20.6 percent less for its electricity.

Depending on where you live and how many people buy into the idea of deregulated energy, it can have a big effect on electricity prices throughout the state and across all sectors.

So what’s the bottom line? Can you make the most of energy choice in your area? That’s where platforms like Choose Energy come in.

Deregulation makes electricity more complicated precisely because of all the choices it introduces. Deregulated customers can now choose from fixed and variable rate plans, solar and wind power, bill credits, usage tiers and so much more. With endless providers and plans to decide between, it can be hard to see which will benefit you the most.

Many online energy marketplaces have popped up to help consumers navigate these choices, but they aren’t all created equal. What makes the biggest difference in choosing the right plan is having the right information in front of you and answering the questions:

• How much will this cost me right now? How much will this cost me in five months?
• How will hot summers and cold winters affect my energy bill?
• Does this match my needs – for usage, household habits, green energy values, and more?
• How does this compare to every other plan on the market?

That’s where Choose Energy comes in. We show you pricing and bill estimates to help answer those questions. We help do the math so you can make a decision and feel confident that it’s the right one. Enter your address above to map your path to energy choice.

The Choose Energy Expert opinion

“Deregulated energy is better for consumers – but only when they understand their options. Before shopping make sure you know the rules of you state and how to make the most of your power to choose.”

Updated: 3/29/2021