The complete guide to energy deregulation in the United States.
So, you may have heard that some states across the nation have deregulated their electricity markets. Today, certain energy users in the United States can choose where their energy comes from. However, this wasn’t always what happened.
You may be asking questions like; what exactly is energy deregulation? Why did it happen in only certain states across the country? How does it impact consumers?
In our guide to USA energy deregulation, you’ll find out all you need to know. Let’s dive right in.
What Is Energy Deregulation?
Energy deregulation allows customers to choose different energy providers from their utility companies, offering better rates and offerings in a more competitive market.
To get a better understanding of what energy market deregulation is, we need to talk about the various stages of how energy is brought to your home or business.
Energy companies that produce energy will offer to sell their energy to independent agencies. Independent agencies predict what the demand for energy is, then set a price for consumers.
The energy is then delivered through the utility infrastructure, however, the utility companies that own the infrastructure aren’t responsible for the prices that consumers pay, only for the transmitting of energy.
In the past, back when the markets were more regulated, utility companies were responsible for all processes, such as generating, delivering, and selling energy.
This process gives energy users the same service, but at a better, more competitive price. Today, consumers in the United States can choose their own energy supplier, paying their utility for the transmission and distribution of energy only. These retail suppliers are also known as alternate suppliers, retail suppliers, or ESCOs.
Quick Overview Of Energy Deregulation In The United States
Utility companies ruled the energy market in the early stages of natural gas and electricity usage. The markets were not regulated, meaning prices were kept down as different utilities were competing for customers.
As there was an increase in energy demand, bigger power plants were built, creating more reduced energy costs. To stay competitive, utility companies tried to improve their efficiency, however, due to rapid expansion and poor management, it had a negative impact.
Without a standard method of delivering energy, consumers were often left without any service.
| Year | Population affected by outages |
| 1965 | 30 million |
| 1977 | 9 million |
| 1982 | 5 million |
| 1985 | 4.5 million |
| 1989 | 1.4 million |
| 1991 | 1 million |
| 1996 | 7.5 million |
| 1996 | 2 million |
| 1998 | 3.5 million |
| 1998 | 3.5 million |
| 1998 | 2 million |
Furthermore, very few utility companies provided all three main responsibilities they had: generating, transmitting and distributing energy.
The solution was the Public Utility Holding Company Act. The act created the North American Electric Reliability Council (NERC), breaking up the United States into 10 energy regions, all assuming responsibility for their own area.
This improved energy delivery, however, local energy monopolies emerged, reducing competition and overcharging consumers. During the 1970s, prices soared due to the energy crisis. With oil price spikes, utility companies started expensive construction projects, switching to coal and uranium power plants.
Thanks to the expensive construction projects, many utilities were close to bankruptcy. To combat this, in 1977, the federal government introduced the Federal Energy Regulatory Commission (FERC). They stepped forward and deregulated the energy market, allowing states to decide how they supply energy to consumers.
In the states with deregulated energy states, utility companies still owned the delivery infrastructure, meanwhile, energy users had the choice of selecting which provider generates or purchases the energy delivered to them.
What Are The Benefits Of Energy Deregulation
| More choice of energy companies for consumers | Consumers have a better selection of energy companies to choose from with energy deregulation, rather than sticking to one utility in a regulated market. There is more flexibility, as well as being able to pick a supplier that suits your needs and requirements. |
| Lower energy prices through competition | With more companies on the market, this leads to more competition, with suppliers fighting for customers, therefore having to provide better products or services. This also drives prices down, allowing customers to spend money on the things they enjoy. |
| Fewer energy monopolies | Energy monopolies can be harmful to customers, with prices soaring, as well as incentives to improve not being there as there is no competition on the market. With private companies entering the energy market, monopolies can be avoided. |
| Improved service | With companies trying to entice customers to use their services, more suppliers will offer improved service, a good thing for all customers. You’d rather use a company that has better service, so this is a unique selling point for new suppliers to boast. |
| Better selection of plans and products | Another benefit to competition is an improved selection of plans and products. To give customers the best experience, companies will need to create new packages that match the needs and demands of customers. Therefore, customers have a selection of packages, rather than paying for something they don’t need or use. |
What Are The Disadvantages Of Energy Deregulation
| There is a chance prices don’t lower | If there are large energy companies that have control over the local market, competition may not be enough to lower prices to the predicted level. |
| Reduced energy supply security | The power that is controlled by the government will likely be more stable than being run by private companies. The energy supply may be less secure this way. |
| Different regions, different effectiveness | Countries with a lesser economy may struggle by putting energy into the hands of private companies, due to a lack of knowledge or even corruption. |
| Taxpayers money used to bail out failed suppliers | As seen in the UK recently, taxpayers’ money has been used to rescue failed energy companies. Private energy corporations can get into financial trouble, taking risks to gain a competitive advantage. |
| Less service in rural areas | For those in remote rural areas, it may be costly to supply these locations. Therefore, energy shortages may be common unless other forms of power are used. |
What States Have Deregulated Energy?
Electricity Only
Across the United States, electricity markets are currently deregulated in the following states:
Connecticut: Connecticut Power & Light, United Illuminating.
Delaware: Delmarva Power & Light Company (Delmarva Power), Delaware Electric Co-op (DEC).
Maine: Emera Maine, Central Maine Power (CMP).
Massachusetts: Eversource, Unitil (Fitchburg Gas & Electric), National Grid.
New Hampshire: Public Service Company of New Hampshire (PSNH), Liberty, Unitil, New Hampshire Electric Cooperative, Inc.
Texas: American Electric Power (AEP) Central, AEP North, CenterPoint, Oncor, Sharyland, and Texas New Mexico Power (TNMP).
Natural Gas Only
Across the United States, natural gas markets are currently deregulated in the following states:
Florida: Central Florida Gas (CFG)
Georgia: Atlanta Gas Light (AGL)
Indiana: NIPSCO
Kentucky: Columbia Gas
Michigan: Consumers Energy, DTE Energy, Michigan Gas Utilities, and SEMCO Energy Gas Company.
Montana: Northwestern Energy, Energy West Montana.
Virginia: Columbia Gas, Washington Gas (WGL).
Wyoming: SourceGas.
Both Electricity And Gas
Across the United States, states with both deregulated electricity and natural gas markets are as follows:
Illinois: Electricity: Ameren, Commonwealth Edison Company (ComEd).
Natural gas: Nicor, North Shore, Peoples Gas.
Maryland: Electricity: Baltimore Gas and Electric (BGE), Choptank Electric Cooperative, Delmarva Power and Light, Potomac Edison, Potomac Electric Power Company (Pepco), SMECO.
Natural gas: Baltimore Gas and Electric Company (BGE), Washington Gas Light (WGL) (gas).
New Jersey: Atlantic City Electric, Jersey Central Power & Light, PSEG, Rockland Electric.
Natural gas: Elizabethtown Gas, New Jersey Natural Gas, PSEG, South Jersey Gas.
New York: Electricity and gas: Central Hudson, Consolidated Edison (ConEd), National Grid, New York State Electric and Gas (NYSEG), Orange & Rockland, and Rochester Gas & Electric (RG&E).
Natural gas: Corning Natural Gas, National Fuel Gas Distribution, St. Lawrence Natural Gas.
Ohio: Electricity: AEP Ohio, Dayton Power & Light (DP&L), Duke Energy Ohio, the FirstEnergy companies Ohio Edison, The Illuminating Company, Toledo Edison.
Natural gas: Columbia Gas, Dominion East Ohio, Duke Energy, Vectren Energy Delivery.
Pennsylvania: Electricity: Citizens’ Electric, Duquesne Light, Met-Ed, PECO Energy, Penelec, Penn Power, Pike County Light & Power, PPL Electric Utilities, UGI, Wellsboro Electric, West Penn Power.
Natural gas: Columbia Gas, Peoples Natural Gas – Equitable Division, National Fuel Gas, PECO Gas, Peoples Natural Gas, Peoples TWP, Philadelphia Gas Works, UGI Utilities, UGI Central Penn Gas, and UGI Penn Natural Gas.
Rhode Island: National Grid.
Has Energy Deregulation In The United States Been A Success?
Over the past decade, the United States energy policies have taken their fair share of criticism as electricity prices continue to rise, even with the deregulation policy in place.
There has been a rise in inflation, as well as an increase in the price of natural resources, oil and gas. However, electricity prices in deregulated states are lower in comparison to the whole of the United States.
There was an increase of 41% in the retail price of electricity for residential customers across the whole of the United States between the years 2001 and 2013. Meanwhile, during this period, there was only a 34% increase in the 16 deregulated states.
However, it is tough to judge and measure the true impact of deregulation due to there being huge variations in electricity prices between states.
There has been an increase in customers signing up with alternate suppliers, with the number of customers buying from alternate suppliers increasing by 35% per year.
So, what is next for energy in the United States? Well, for customers living in one of the deregulated states, there are plenty of options to choosing an energy supplier. Each year, there are more innovations in the energy market, with better sustainability projects and improved products becoming available.
In conclusion, energy deregulation is a positive movement, aiming to improve customer experiences. For more information about how important it is, as well as how it impacts your home or business, check out Energy Choice.