Does your current utility company leave a lot to be desired in terms of price or customer service? Has your electricity consumption stayed relatively stable while prices continue to soar? And have you heard about the benefits of deregulated energy but are unsure what a deregulated market is or how you can take advantage of it?
If any of this sounds familiar, you have come to the right place. The team at Vault Electricity has created this crash course on deregulation in the energy industry. We cover everything from how deregulation impacts customers to which states give you options when choosing electric utilities. Let’s dive in.
- “Deregulation” is the process of reducing or eliminating state regulations on energy companies.
- Several states offer energy deregulation, including Texas.
- Deregulation incentivizes competition between electricity companies.
- You can access lower prices and better service quality in deregulated areas.
How Does Deregulation Work?
Energy deregulation involves reducing or eliminating regulatory requirements that govern the production, sale, and distribution of power. Consumers in many markets now have the freedom to pick their energy providers. This freedom encourages private companies to offer competitive prices and provide better quality service to customers.
In a deregulated market, power plants will negotiate with independent entities to sell their power. Power plants must offer competitive terms to these entities so that the latter can provide consumers with fair and affordable rates. These independent providers can source energy from multiple power plants based on predicted demand.
In a deregulated market, energy providers still deliver power through the existing infrastructure. This infrastructure is typically maintained by the utility companies that own it. While utility companies are tasked with transmitting electricity, they don’t set the rates. This responsibility falls on the independent provider.
To recap, at least three parties are involved in delivering energy to consumers in a deregulated market. These parties are:
- Independent power producers
- Retail electric providers (REPs)
- Transmission and distribution utilities (i.e., utility companies)
As a customer, you will not be able to choose your local utility company. This is because a single entity controls the power infrastructure surrounding your home. However, you can select which provider to source your electricity from. You can also choose the energy supplier that offers the best rates and benefits based on your individual needs.
What Are the Incentives for Energy Deregulation?
By creating an open market, energy deregulation offers many benefits to consumers like you, such as:
The Freedom to Choose
If you reside in one of the many regulated states, you are stuck using the energy provider that services your area. You have no recourse when prices rise or service quality dips.
On that same note, your provider has no real incentive to do better. It knows that you have zero alternatives and must rely on it as your electricity supplier.
However, if your state has adopted electricity deregulation, you have more options. You can shop around until you find a provider that offers lower rates and better service.
One of the biggest differences between a deregulated and a regulated state is competition. If you reside in a deregulated area, energy providers are constantly competing for your business. Providers know that if they don’t live up to expectations, you will find another company to meet your energy needs.
When you don’t have options, it is easy to view your monthly utility bill as an unchangeable fact of life. As such, you may not pay much attention to monthly fluctuations in consumption habits.
Conversely, a deregulated market encourages you to closely watch your usage habits. By understanding your bill and average consumption, you can better choose a plan that suits your needs. You can also proactively work to save energy and use less power.
Are you passionate about renewable energy and reducing your environmental impact? If so, then energy deregulation will help you live out these values.
In deregulated states, you and other consumers can choose providers that embrace renewable energy. You can research potential providers to determine which companies have adopted energy-efficient business practices. From there, you can choose a provider that shares your green energy values.
A Broader Range of Services
Energy suppliers must differentiate themselves to thrive in a deregulated market. When they strive to do so, you win.
Market participants can only drop prices so much before cutting into profitability. That is why participants must work to stand out in other ways. They accomplish this by offering better customer support and auxiliary services. Without deregulation, these companies would have zero incentive to improve the customer experience.
Are There Any Downsides to Energy Deregulation?
The primary downside of energy deregulation is that there are far fewer quality control protocols in place. As such, unscrupulous retail electric providers might try to scam you into a contract by claiming to offer a low rate.
You might be thinking, “If that happens, I’ll just switch providers.” While you certainly can switch REPs, you may be bound for some time by an existing contract.
When you partner with a REP, you will sign a service agreement. That agreement might include language about cancellation fees and early termination. You could be on the hook for some big fees if you try to leave your contract early. Our guide to Texas electric contracts will help you navigate this process if you live in the Lone Star State.
Although you can bail on a bad contract, the easier approach is to find a reputable provider in the first place. Texas and most other deregulated states provide free websites that you can use to shop for an REP. Texas’s site is called Power to Choose, and it allows you to compare rates from providers in your area.
Unfortunately, Power to Choose has become a shark tank where some shady companies advertise deceptive plans that really aren’t all that affordable. However, the state can’t influence the free market, so it has to allow every electric company to list its plans on the site.
The good news is that you can avoid falling victim to these scams by using a reliable third-party site: vaulteletricity.com. Our site is free to use, and we vet providers’ plans before listing them on our platform.
What’s the History of Energy Deregulation?
Until the late 1990s, energy was regulated by the federal government. While the federal government still has a regulatory body known as the Federal Energy Regulatory Commission (FERC), it has far less oversight than it once did. In fact, the FERC played a key role in promoting deregulation across the nation. In the 1970s, President Jimmy Carter and the FERC empowered states to decide how they would provide residents with energy.
However, the most significant steps toward deregulation would not come until the 1990s. The Energy Policy Act of 1992 was the first of several major changes that occurred in the final decade of the 20th century. This act created exempt wholesale generators (EWGs), a new type of producer, and set the stage for private competition in the energy sector.
Four years later, the FERC issued Order No. 888. Under this order, utilities were mandated to allow open access to energy transmitters. This order separated transmitter and power plants, which was pivotal to deregulation. Shortly after Order No. 888, several states started deregulating energy.
What States Have Deregulated Energy?
In the initial wave, the following six states offered energy deregulation:
- Rhode Island
- New York
However, California is not fully deregulated, as consumers have limited options.
Since then, these states have followed suit, along with Washington, D.C.:
- New Hampshire
- New Jersey
Two dozen states don’t offer any form of energy regulation. Others have partial deregulation. Out of all states, Texas’s market boasts the least amount of regulations.
What States Have Limited Choice for Deregulated Energy Markets?
These states offer limited choice options, such as natural gas choice, in their energy markets:
- New Mexico
- West Virginia
For the most part, these states provide energy choices only for certain utilities like natural gas. However, some allow residents to purchase electricity from an alternative provider as long as the provider generates power using renewable energy resources.
The bottom line is that deregulated power benefits you more than a regulated market would. You can access lower electricity rates, shop for top retail suppliers, and support renewable energy use.
If you live in Texas, the most deregulated energy state, Vault Electricity can help you fully reap the benefits of deregulation. Browse our free site to find reputable, carefully vetted providers in your area.
Questions Others Are Asking
Can You Make Money from Deregulated Energy?
Yes, you could make money by investing in deregulated companies. You may even be able to sell power back to REPs if your home is equipped with renewable energy-generating equipment, such as solar panels.