What is energy deregulation? In simple terms, energy deregulation means that businesses (and residents) are no longer locked into buying electricity from a monopoly utility – instead, you can choose among competing suppliers for the best rates and services. Starting in the late 1990s, many U.S. states passed laws to open up their electricity markets to competition, breaking apart the old utility monopolies. The goal was to drive efficiency and lower costs through competition. In practical terms, deregulation separates the electricity supply (which is competitive) from the delivery (which remains a regulated utility function). You get to pick who supplies your power, while the local utility still handles the wires and distribution to your facility.
Where does it apply? Not every state is deregulated – in fact, it’s a patchwork across the country. As of the mid-2020s, about 17 U.S. states (and D.C.) have adopted some form of electricity deregulation for at least certain customers. Major deregulated states include Texas, New York, Illinois, Pennsylvania, New Jersey, Massachusetts, Ohio, Maryland, and others. Many of these are in the Northeast, Mid-Atlantic, Midwest, as well as Texas (which is one of the most deregulated markets). In these places, you can shop around for your energy supplier. Other states – such as most of the Southeast and many Western states – remain fully regulated, meaning if your business operates there, you generally must buy from the local utility at set rates. Some states are partially deregulated (for example, only large industrial customers might have choice, or only the gas market is open). Bottom line: always check the rules in each state you operate in, because your energy procurement approach will differ if a location is in a regulated versus deregulated market.
Who are the players? In a deregulated market you’ll encounter a few key entities when buying electricity:
- Retail Energy Suppliers – Also called retail electric providers (REPs) or energy service companies (ESCOs). These companies compete to sell you the electricity. They buy power on wholesale markets or from generators and resell it to customers like you, typically via a contract. You pay your chosen supplier for the electricity supply portion of your bill.
- Local Utilities – Even if you switch suppliers, your local utility (sometimes known as the distribution company) still owns the poles and wires and delivers the power. The utility will continue to handle maintenance, outages, and billing for delivery charges. In deregulated areas, the utility generally does not sell you electricity supply (except as a default service if you don’t choose a supplier). You’ll still get a bill from the utility for delivery, and often they administer the billing for the supplier’s charges too. Think of the utility as the delivery service – they ensure reliable power to your meter, but they’re neutral regarding which supplier you buy from.
- Independent System Operators (ISOs)/RTOs – These are regional grid operators that run the high-voltage transmission grid and wholesale markets behind the scenes (examples: PJM in the Mid-Atlantic, ERCOT in Texas, NYISO in New York, etc.). They aren’t directly contracting with individual businesses, but their management of the grid and pricing affects everyone. For instance, ISOs run auctions that set the wholesale price of electricity and capacity; the outcome influences the rates your supplier can offer and certain surcharges on your bill. In essence, ISOs make sure enough power is being generated and transported reliably, and facilitate competition among generators.
Why does deregulation matter to you as a commercial energy buyer? The big advantage is choice. You aren’t stuck with a one-size-fits-all utility rate – you can shop around for a supplier that offers the pricing structure and services that fit your needs. With multiple suppliers vying for your business, you might secure lower rates or more favorable terms than the default utility offer, especially for large usage. You also gain flexibility: want a renewable energy plan? Prefer a long-term fixed price for budget certainty? Need custom billing? In a competitive market, you can often find a supplier product that matches these preferences.
However, with choice comes responsibility. In a regulated setup, the utility’s rate is set by regulators and tends to be stable, and you don’t have to think much about it. In deregulated markets, prices can fluctuate with market conditions – if you pick a variable rate or your timing is poor, you could end up paying more. There’s no state regulator capping the price for large commercial contracts. So, successful energy buying in deregulated states means staying informed and being proactive. You’ll need to compare offers, understand contract terms, and keep an eye on market trends. The rest of our guide (see the pages below) will equip you with the knowledge to do exactly that – from how to choose a trustworthy supplier to strategies for managing price risk and even greening your energy supply.
(For a quick recap: Deregulation = competition among suppliers. You get power delivered by the utility either way, but you have the power to choose who supplies it and on what terms. It can lead to cost savings and customized solutions, if you take an active role in managing your energy procurement.)
[Continue to the Choosing an Energy Supplier page to learn about evaluating competitive offers and picking the right supplier for your needs.]