Across North America, certain areas have a regulated energy providing process, which includes pricing controlled by a government body or a public utility commission. This mandate requires consumers to directly purchase their energy supply products from their local utility company, rather than having the ability to shop around for the best energy prices.
The local energy supplier still owns the power plant and the transmission lines, and they set the prices for the natural gas and electric utilities that they supply. This ownership means that if you have a blackout, outage, or another issue with your power lines, you won’t call your selected retail energy provider — you would contact your local utility.
To gain a thorough understanding of what energy deregulation is and why it matters, read on.
We’ll cover everything from how the first deregulated electricity markets originated to where you can find these energy markets across the United States today. If you have any questions about energy deregulation, you’ll find your answers right here.
What Is Deregulation and What Does It Mean?
Deregulation means to remove restrictions in a given industry, be it banking, airlines, or telecommunications. Energy deregulation, also known as electricity and natural gas choice, is when residential customers have the opportunity to choose their own energy provider.
Deregulation is now common throughout many areas of the United States. Unlike regulated markets, energy choice allows consumers to research their local energy companies to find options.
What Is a Deregulated Energy Market?
A deregulated energy market allows competitive utility companies to buy and sell electricity and natural gas by allowing market participants to invest in transmission lines and power plants. Owners will then sell this wholesale market to retail suppliers.
In deregulated markets, the local utility company maintains responsibility for electricity and natural gas distribution. However, the energy supplier you choose to work with will determine the pricing. Market competition ensures that the pricing will be competitive and fair.
The History of Energy Deregulation
When you see long lines at gas pumps, they may remind you of the energy crisis during the 1970s that hit the United States. Coal, oil, and natural gas shortages were a key contributing factor to price increases experienced by all energy industry consumers during this energy crisis.
President Jimmy Carter, elected in 1976, made sure that creating an energy plan was at the top of his priorities list. In 1977, he signed the Department of Energy (DOE) Organization Act to consolidate departments and agencies. President Carter pushed to grow renewable energy sources like solar and wind power and signed the National Energy Act (NEA78) into law one year later.
The central part of NEA78 was the Public Utility Regulatory Policies Act (PURPA), which affected electric companies. The idea was to allow qualifying facilities to enter the competitive energy market to encourage renewable energy use.
Independent power producers (IPPs) were optimal candidates. IPPs use primary energy sources such as biomass, solar, hydropower, wind, and geothermal. During this time, the Federal Energy Regulatory Commission (FERC) became the agency responsible for the electricity rates’ wholesale market.
What Did Deregulation in the 1980s Do?
During the 1980s and 1990s, the free-market mania continued to challenge the thought that electric companies had a natural monopoly. Many politicians and economists pushed for the energy market to determine the price. Natural gas soon became deregulated. But the fight continued in hopes of gaining electricity deregulation as well.
In 1992, George H.W. Bush’s Energy Policy Act (EPACT) was passed by Congress. This act allowed access to transmission networks to non-utility generators and created the exempt wholesale market for the generators category.
EPACT encouraged states like California and Rhode Island, which had historically high electricity prices, to investigate competitive deregulated market benefits. In 1996, both states passed deregulation legislation and chose to give their consumers the right to choose their own electric company.
What Was the Result of Deregulation of the Electric Power Industry?
The deregulation movement of the 1990s resulted in the restructuring of the electric power industry. It changed from a regulated monopoly structure to one that promotes market competition. This has led to the industry becoming significantly more concentrated.
The 10 largest investor-owned utilities (IOUs) owned near 40% of IOU-held electricity generation capacity by 1998. Today, consumers in certain areas of 26 states have energy choice for their electricity provider, natural gas supplier, or both.
What Are the Deregulated States for Energy Markets?
Over half of the states in the U.S. offer deregulated energy market options. Still, you won’t find energy choice statewide in these deregulated states. Residential customers can only switch energy suppliers if their local utility company participates in the state’s gas or electric choice programs. While some states choose to participate in both programs, others have chosen to participate in only the natural gas program, only the electric program, or neither program at all.
Let’s look at which states offer deregulated energy markets. However, while doing so, it’s important to note that the alternative energy provider locations determine the specific areas in each state where program participation is available. As a result, not everyone in each of the listed states may be able to participate.
Deregulated Markets for Both Electricity and Natural Gas
As mentioned, access to natural gas and electricity options does not run statewide. Only consumers who live within the service areas of competitive energy deregulation markets have the privilege of choosing their own energy suppliers. The seven states with free access to both electricity and natural gas suppliers are:
- New Jersey
- New York
- Rhode Island
Deregulated Electricity Markets
Consumers who live in an energy deregulation service area in one of the six states listed below may have the opportunity to choose an alternate electricity provider:[Text Wrapping Break]
- New Hampshire
Deregulated Markets for Natural Gas
Residential customers of select service territories in the eight states listed below have the opportunity to choose their natural gas provider:[Text Wrapping Break]
Which States Are Regulated by a Public Utility Commission That Prohibits Energy Choice?
Twenty-four states across the nation do not offer any forms of energy deregulation. Those states are listed below:
Wisconsin, Washington, Vermont, Utah, Tennessee, South Carolina, Oregon, Oklahoma, North Dakota, Nevada, Missouri, Mississippi, Minnesota, Louisiana, Iowa, Idaho, Hawaii, Colorado, Arkansas, Arizona, Alaska, and Alabama.
Which States Have Limited Choice for Deregulated Energy Markets?
The following five states have what we call limited choice for residential customers. While many states that offer deregulated energy markets have limitations, these states are the most restricted.
California is the leading producer of electricity derived from renewable energy sources in the United States for biomass (from plants and animals), geothermal (from heat within the Earth), and solar (from the sun). The state also ranks towards the top in producing conventional hydroelectric power (renewable energy from moving water). Also, it has a large supply of crude oil.
Southern California Gas and San Diego Gas & Electric are two other California utility companies that consumers can use as their utility provider based on their geographic location. Gas is purchased from a third-party energy provider or Core Transport Agent (CTA) through the California program called Core Aggregation.
Kansas Gas Service customers who use 800 to 1,500 McF of natural gas per year have the option to change to a third-party gas supplier. To put that number into perspective, an average household in the U.S. uses around 61.3 McF annually.
There is a period of two weeks in April when Nebraska residents are able to select their natural gas supplier.
4. New Mexico
Natural gas choice in New Mexico is available by law, but participation is currently minimal.
5. West Virginia
Technically speaking, natural gas choice is available statewide for West Virginia residents. However, once again, participation in deregulated markets is limited.
How Does Energy Deregulation Work?
Energy deregulation now occurs across the United States and throughout North America, but how does it work? Here’s an example of a deregulated energy market in action:
Energy suppliers like Just Energy join the energy markets and offer their products to residents in their service area. The competitive market allows consumers to compare the rates, services, and contract structures that various local third-party supply companies offer, just like you do when shopping for a new cell phone, internet, or television provider.
Why Is Energy Deregulation Important?
Energy deregulation allows consumers to make their own choice – it’s the power of the consumer. A deregulated market opens up the opportunity to select from various contract structures such as fixed payment plans.
Deregulated energy markets also push retailers to evolve their products from the local utility and market competitors. They can do this by developing pricing plans, innovative features, and options that otherwise wouldn’t exist for residential consumers.
Renewable energy options for residential customers would be one example of groundbreaking services made possible by retailers like Just Energy. In deregulated electricity markets, innovative products foster the generation and injection of alternative energy into the electricity grid. This allows for cleaner power generation than the more widely used nonrenewable resources.
In a deregulated natural gas market, green products support projects aimed at reducing emissions responsible for pollution. By lowering the gas emissions that enter the Earth’s atmosphere, renewable energy helps contribute to a cleaner, greener environment. What’s more, consumers are often eligible for discounts, credits, tax breaks, and other savings options just for making the responsible decision to go green and help the planet.
What Is the Main Source of Power in the World?
On a global scale, coal is our main source of power, followed by natural gas. Unfortunately, coal and natural gas are fossil fuels that are created deep down within the Earth’s surface over millions of years, making them nonrenewable resources. We’re using them so fast that they will eventually run out.
What’s more, fossil fuels harm the environment. Coal is not only the number one source of power but it’s also the number one pollutant in the U.S. Burning fossil fuels like coal leads to carbon dioxide emissions, contributing to global warming. Burning coal also causes soot, smog, acid rain, and toxic air emissions linked to congenital disabilities, cancer, and other severe health-related conditions.
Switching to primarily renewable energy resources for electricity generation has many benefits. Of those, the top three benefits are helping the environment, prolonging the existence of fossil fuels, and saving money. Of the currently available green energy resources, hydropower and nuclear energy are our largest contributors, with wind and solar trailing closely behind.
How Do I Find Out If I Live in a Deregulated Market Area?
There’s value in knowing if you live in a deregulated energy market area. Luckily, it’s easy to find out whether you can choose an energy plan that’s appropriate for your unique needs.
You can simply make a phone call to your city hall to ask which energy companies service your local area. Or you can hop online to get the energy market information you need with a quick internet search.
Once you know which service providers are available to you, it’s important to weigh all of your options before selecting your energy plan. Check out an Energy Savings marketplace to compare these options and find the energy plan that best suits your needs.
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