When you get your utility bill every month, do you ever ask who you are actually making these payments to? We know that the government oversees the energy industry and that there is just one local energy company, right? Or, do you have a choice as to where you can get your energy?

Most of these questions are rarely asked by homeowners and businesses that make these payments every month to the energy companies. Historically,  consumers only had one source to go through to get their energy needs fulfilled – their local utility. You end up paying a price dictated to you because there isn’t any alternative. In this article, we will break down the concept of energy regulation and deregulation, and show  how they work in order to help you understand and make better-informed decisions. 

1. Regulation 

Regulated energy is when the utility operates and owns all of the electricity or natural gas in a given area.  The utility owns the framework and lines that run the electricity across its area and sells it directly to the consumer. In states that have regulated electricity, the utility must follow the set electricity rates that are authorized by the utility commission. The lack of consumer choice essentially gives the utility a monopoly on the market. The cost of operating and maintaining  the transmission lines also pass through the utility company and are included in your bill under “utility”. 

If you pay bills regularly, then you most likely already have a sense of how regulated energy works on a daily basis. When you move into a new house in a new location or you establish a branch of your company somewhere new, you will have to get in contact with your local utility to provide power to the building.  Again, with a regulated energy industry, you have only one option for electricity and gas: your local utility company.

2. Deregulation 

Since the infrastructure for gas and electricity has been put in place, some states have decided to deregulate their energy sectors. Essentially, deregulation provides customers the power of choice, no longer giving a monopoly on gas and electricity rates to the utility. This freedom is what allows energy supply companies (ESCO’s) to compete for and offer better rates than the utility company. Energy companies also compete for the customer and add incentives which the utility does not. ESCO’s take advantage of renewable resources and green energy programs that will reduce dependence on fossil fuels. Another characteristic that differentiates ESCO’s from Utilities is the fact that they offer contracts with fixed and variable rates. This allows the consumer control over which type of plan they want. 

Keep in mind that deregulation doesn’t  mean that the federal and local governments give up total control over the industry. Rather, the process provides an avenue for others to enter into the energy sector, while ensuring that the current delivery and transmission systems are still kept in place.

 3. How deregulated energy works

In a deregulated market, every consumer will still get the gas and power through the infrastructure provided by the local utility. However, you get to choose where you get your energy from. You can choose to keep your current setup or choose an alternative company.  Simply put, energy deregulation allows competitors to buy and sell electricity and gas on the market giving consumers a choice as to where they buy their energy from.  The owners who generate the energy sell wholesale electricity to retail suppliers. Think about it like this: you wouldn’t go to a factory to buy a cell phone. Instead, you would go to a retailer like Verizon or Sprint where you have options and different plans. Similarly, you wouldn’t  go to a power plant and buy electricity, you can go to a supply company or ESCO to get your energy at different rates and contracts.

The retail suppliers have set prices for the consumer to pick. Your chosen rate will appear on the “supply” portion of the bill. The benefit is that the consumer can compare services and rates from different suppliers to see who can give them the best structured contract.  Also, in a deregulated market, the retail suppliers often give options to purchase green products which benefit the environment.

There are millions of homes and businesses across the U.S. in states such as New Jersey, New York, Ohio, Texas and more which have made the energy switch from local utilities and are now using alternative energy suppliers. Some see the switch as a way to save money, others go green because it helps the environment, and some just believe that they can get much better customer service from any of the alternative suppliers.

4.  How does energy deregulation help?

Many jurisdictions have seen the positive effects of deregulation in the energy sector. Environmental consciousness has increased on the part of energy supply companies, who ensure proper customer relations as well. The freedom that deregulation provides to customers is significant because consumers are now able to take control and make energy choices that they are more comfortable with.

Essentially, deregulation brings an end to the mandated control of the energy industry by a handful of utility companies. As it has also been seen in other industries, deregulation provides energy consumers with alternatives and forces companies within the industry to adopt operational best practices.  When the consumer is educated about their energy use they learn how to recognize a good deal.