What Is Energy Deregulation & Which States Are Deregulated?

Colby Ezell / Utility / July 8, 2021

Instead of having to work with a single regulated energy supplier, energy deregulation gives consumers the opportunity to choose who their energy supplier is based on their unique energy needs. Deregulation aims to eliminate energy monopolies, which increases competition and also brings better service to consumers.

Though most of the states in America still function in a regulated energy market, perhaps surprisingly, many states offer some form of deregulated markets for natural gas and there are a growing number of states that are moving towards a fully deregulated one.

As you can imagine, this has implications for how much your business spends on energy if you are in a deregulated market, and it makes sense to better understand how these markets function.

In this article, we will explore the history of deregulation, how deregulated energy markets function, the benefits of deregulated markets, and which states currently operate in deregulated markets.

What Is Energy Deregulation?

Energy deregulation gives consumers the opportunity to choose their energy supplier based on their individual energy needs. Deregulation is aimed at eliminating energy monopolies to increase competition which results in better services for consumers.

The History of Energy Deregulation

When energy first started to be delivered to consumers at a mass scale in the US, energy markets were deregulated. This allowed for open competition and typically low rates for customers. As competition in the energy industry increased, many utility companies aimed for increased efficiency and rapid expansion to deliver the best energy services.

Though this deregulated system worked for a time, the scale of expansion led to poor management of the infrastructure and distribution in the industry. With no real standard for how to distribute energy to customers, many of them were often under-served by the utility companies. Additionally, most utility companies didn’t perform all the functions within the supply chain of energy delivery, leading to even more chaos for customers.

With these complications that early energy deregulation caused, there was a push to better regulate the energy industry. After the Great Northeast Blackout of 1965, the energy industry created the North American Electric Reliability Council (NERC) which divided the US into ten energy regions. These regions would be responsible for improving the infrastructure and efficiency of energy delivery within their own regions. NERC did end up improving energy delivery, but it was at the cost of energy monopolies rising to the top and increasing rates for consumers. This created its own crisis that would need to be addressed.

To combat the unreasonable price increases, the government created the Federal Energy Regulatory Commission (FERC) which would allow individual states to determine if they wanted to regulate or deregulate their energy markets. This opened up competition but with a much more standard approach to delivery and infrastructure this time around. Today, utility companies still maintain ownership of energy infrastructure, but customers have the choice to decide which providers they work with.

How Deregulated Energy Markets Function

If you live in a state with a deregulated energy market, you have the option to get your energy from a Retail Electricity Provider (REP) or you can choose to use the state-appointed utility provider. Though REPs and the state-appointed utility providers typically get their energy from the same source, REPs are able to sell and package the energy in a variety of different ways based on the customers they are serving. Since there is much competition between REPs, they all strive to offer the best rates and loyalty programs.

In a deregulated market, you’re not only able to choose from a variety of providers, but you can pick a unique energy plan to fit your business’s needs. These plans come in a number of options including variable-rate plans, short-term plans, fixed-rate plans, and long-term ones. In most cases, you’ll have to sign a contract with your REP, which typically ranges from six months to two years, and breaking the contract without good reason often results in some sort of fee.

It’s important to remember that though your energy plan is with an REP, your state-appointed utility provider is still in charge of maintaining the infrastructure supporting the energy delivery. If you have a power outage or other service interruption, you would contact the state utility and not your REP.

Another thing to remember is that not all states’ deregulation laws are the same. In some cases, a portion of the state could be deregulated while the other portion is still regulated. In other cases, natural gas may be deregulated while electricity is still regulated, and vice versa. It’s up to you as the customer to research the laws in your area and to move forward with an energy plan accordingly.

How Tariffs Impact Deregulated Energy Markets

Though there is more freedom within a deregulated energy market, both regulated and deregulated markets still function under energy tariffs regulated by the government. The state-appointed utility provider in a deregulated market has to submit its pricing guidelines and protocols to the government for approval. Once these prices are set, the REPs can then create their pricing packages within these guidelines.

This might not seem that important on the surface, but tariffs are extremely complex and play a key role in how much you’ll spend on energy based on which tariffs you qualify for. In many cases, people in a deregulated energy market think that shopping around for the best rates is all they can do to save on costs. But, what they don’t realize is that they may be overpaying on energy due to not knowing which tariffs they function under.

Since tariff documents are so complex and hard to understand, it’s rare that the average customer is able to optimize spending by auditing their contracts and vendor tariffs. In almost all cases, it takes the help of utility industry experts to take a thorough look at how you could be overspending in this cost category.

The Benefits of Energy Deregulation

The Right to Choose: Every business in a deregulated market has the power to find a provider and plan that fits their needs and demand.

Option of Using Green Energy: In some deregulated states, you can incorporate green energy options within your energy supply contract. You could also partner with other organizations to aggregate demand in order to reduce the use of non-renewable energy.

Better Service and Rates: Since there’s more competition in deregulated markets, REPs are motivated to bring customers the lowest prices while also ensuring they provide top-of-the-line delivery and customer service.

More Awareness about Energy Costs: When customers have the opportunity to shop around for the best plans and rates, they are able to gain more insight into their own energy usage and spending.

Innovative Services: Another advantage of increased competition is that suppliers work harder to bring new technologies and services to the industry.

States with Deregulated Energy Markets

As touched on previously, many states are only partly deregulated, some are only deregulated for natural gas, some are only deregulated for electricity, and some are deregulated for both. There are also certain rules and limitations for customers based on where they are located. You have to contact your local utility to find out your eligibility to participate in a deregulated program.

Here is a map and list breaking down which states offer what type of deregulation.

Deregulated energy states

Main* Deregulated Electricity States

  • Connecticut
  • Delaware
  • Maine
  • Massachusetts
  • New Hampshire
  • Texas

Main* Deregulated Natural Gas States

  • Florida
  • Georgia
  • Indiana
  • Kentucky
  • Michigan
  • Montana
  • Wyoming
  • Virginia
  • Colorado

Main* States With Both Deregulated Electricity and Gas

  • California
  • Connecticut
  • Delaware
  • Illinois
  • Massachusetts
  • Michigan
  • New Jersey
  • New York
  • Ohio
  • Pennsylvania
  • Rhode Island
  • Texas
  • Virginia

States With Natural Gas Deregulation (but subject to minimums**)

  • Arizona
  • Arkansas
  • Alabama
  • Iowa
  • Louisiana
  • Minnesota
  • Mississippi
  • Nebraska
  • North Carolina
  • North Dakota
  • Oklahoma
  • South Carolina
  • Tennessee
  • Utah
  • Wisconsin

States with No Deregulation

  • Alaska
  • Idaho
  • Vermont
  • Washington

* These are the states that are most well known for having deregulated gas, electric or both

** Many people do not know that natural gas is deregulated in these states. There are minimums (Dekatherms) that you must reach to qualify for deregulation in these states, but you do have natural gas choice if you qualify.

Optimize Spending in Your Deregulated Energy Market

As we’ve seen, operating in a state with a deregulated energy market gives you more freedom and options when it comes to managing your energy costs. You are able to choose which energy provider you work with and can find a plan that fits your needs. It’s also likely that you’ll receive better service due to the competition in the market.

Although having these choices is a great first step in reducing costs for utilities, there’s much more that can be done to optimize your spending. Considering how complex utility pricing is, it’s not until you take a look under the hood of your invoices that you’ll be able to know if you’re overpaying.

Without expert-level knowledge around utilities, you’re probably overpaying or have overpaid in the past for a variety of different reasons.

This is why P3 Cost Analysts exist. We help you reduce your utility spending in a variety of different ways.

We have the expertise needed to uncover errors in utility billing and also know how to negotiate with utility companies to get the best rates possible for our clients.

In fact, we are able to find savings for nine out of ten clients.

A great part about our service is that you don’t pay a dime until you see real savings.

If you’re ready to start saving on utility costs in a risk-free way, reach out to P3 Cost Analysts today.

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