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What is a deregulated energy market?

Written by Caitlin Ritchie

Edited by Hannah Hillson

Last updated 10/05/2022


SupawadeeAdam/iStock/Getty images

Energy deregulation is an energy market that allows consumers to choose their electricity provider from all of the available companies operating in the area. There are several deregulated markets across the country. Texas is the largest deregulated state, while Illinois, Pennsylvania, Ohio, New York, Connecticut, and several other states have also deregulated the energy markets.

In theory, energy deregulation allows for more competition in electric markets. In regulated areas, consumers are limited to only buying electricity from their utility company, creating a monopoly where the utility can set higher electric rates. In deregulated markets, the power to choose incentivizes providers to compete for your business, offering lower energy prices, better plan terms, and more reliable service. In some states, the electricity market is deregulated. Other states have deregulated the natural gas markets. And some states offer a combination of the two.

If you live in a deregulated area or are moving to a deregulated market, it’s important to understand your rights as a consumer, the roles of energy providers and utility companies, and how to choose an energy plan that works for your needs. SaveOnEnergy.com® is here to help you find an electric provider and plan for your home or business.

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Which states offer energy deregulation?

Over the last 20 years, more than 15 states have opened up their energy markets to deregulation. Beginning with Rhode Island in 1996 and most recently with Texas in 2002, states allow energy choice to hopefully reduce electricity rates for residential and commercial customers. 

There are also some states that offer natural gas deregulation. Pennsylvania, for example, allows residents to choose their natural gas provider as well as their energy provider. Other states have deregulated the natural gas market only for certain customers. In Maine, only commercial and industrial consumers can choose their natural gas provider. 

If your state is listed below, you could live in a deregulated area. Visit your state’s page to learn more about your energy choice options. 

Energy providers and utilities in deregulated markets

In deregulated markets, there are two main companies you should be familiar with — energy providers and utility companies. 

Energy providers sell electricity plans to consumers in deregulated areas. On the SaveOnEnergy marketplace, you can enter your ZIP code and explore a list of energy providers and the plans they offer in your area. Depending on where you live, energy providers may be called one of these names:

  • Retail Electric Providers (REPs)
  • Energy Service Companies (ESCOs)
  • Alternate Retail Electricity Suppliers (ARES)
  • Certified Retail Electric Suppliers (CRES)

Utility companies perform a different role in deregulated markets. Your utility is determined by where you live, so you can’t choose it like you can your provider. The utility is responsible for transporting and delivering electricity from the provider to your home through power lines. This means your utility is also in charge of maintaining electrical lines and restoring your service if there is a power outage.

In some deregulated markets, the utility company may also sell energy plans to consumers, essentially operating like an energy provider. This lets consumers choose whether they would like to receive their service from their utility or choose an energy provider instead.

Deregulation pros and cons

Pros of deregulation

There are several reasons why states deregulate their energy markets. Here are some of the main benefits to deregulation.

  • Competition between providers. In regulated markets, consumers can only buy electricity from a single utility company. Deregulation is meant to increase competition between multiple providers and lead to better service, more affordable prices, and the ability to choose an energy plan that works best for each individual home or business.
  • Lower electricity rates. The competition between providers may result in lower average electricity rates in deregulated states. The option to sign up for a low electric rate can sometimes lead to lower energy bills. Many states claim to have experienced a decrease in the average cost of electricity for residential and commercial customers after they deregulated the market.
  • Energy plan choices. Another benefit of deregulation is the ability to choose from a variety of plans. Most energy providers offer a range of plan types, contract lengths, and features. Some plans will work best for households that use a lot of electricity in a month. Other plans cater towards homes that fall into a lower usage tier. Each plan comes with an Electricity Facts Label (EFL), which outlines the details of the plan’s terms and conditions. Pay attention to a plan’s usage tiers, which reflect the rates you could be charged based on how much electricity you consume. Before signing up for a plan, it’s best to have an idea of how much energy you normally use in a month and choose a plan that offers good terms for the usage tier you fall into. You can use our energy usage calculator to estimate your consumption level or check one of your previous energy bills.

Cons of deregulation

Still, there are some drawbacks to deregulation that you should be aware of if you live in a deregulated area. Here are a few of the most common cons when it comes to living in deregulated markets.

  • Deregulation is complex. The energy industry in general can be confusing, so living in a deregulated area when you are also in charge of choosing an provider and plan can feel overwhelming. Understanding the different types of plans, reading EFLs, and signing up for a plan are all your responsibility as a consumer. Because the industry is so complex, SaveOnEnergy has compiled a wealth of resources to help you navigate the energy market. You can also call the number on the page to talk through your options with an energy expert.
  • Increased consumer responsibility. It is up to you as a consumer in deregulated areas to find and sign up for an energy plan that will work well for your usage level. If you consult a plan’s EFL, you will find that each plan’s electric rate is broken into three usage tiers. It’s important that you know and understand your consumption level when searching for the right plan. The rate you are charged under that plan will depend on how much electricity you use in a month. If you pick a plan that doesn’t work for your usage level, you could end up with an expensive electricity bill.
  • Sometimes higher rates. While the theory behind deregulation is that it leads to lower rates, that isn’t always the case. Seasonality and energy demand will impact that wholesale cost of electricity, which can result in higher electricity prices, even if you live in a deregulated area. For example, in Texas, the average electric rate in July was 13.35 cents per kilowatt-hour (kWh). That’s 13.6% lower than the national U.S. average of 15.46 cents per kWh. However, the same can’t be said for other states, like Connecticut, which had an average rate of 23.37 in July.

Picking an energy provider

There are dozens of energy providers in deregulated states. In Texas alone, there are more than 60 independent REPs competing for business. Finding the best energy provider depends on what you value most in an energy plan. 

Plan types. There are a few different types of energy plans offered in deregulated markets. The most common are fixed-rate plans, variable-rate plans, and no-deposit plans. Most energy providers offer fixed-rate plans, which secure the rate you pay for electricity for the duration of your contract. Fixed-rate plans are best suited for consumers who want protection from fluctuations in the energy market and value predictable electricity bills because the rate is locked in. Some providers also offer variable-rate plans or no-deposit options. These types of plans do not require a contract and often entice consumers with lower starting rates. However, the rate you pay with these plans can skyrocket during times of high energy demand because it is not secured. Deciding what type of plan will work best for you can also narrow down your provider options.

Renewable energy. If you are interested in a green energy plan, consider providers that offer 100% renewable options, like Green Mountain Energy, Chariot Energy, or Gexa Energy. Some deregulated states have a required amount of renewable energy that must be included in every plan. For example, every Texas energy plan must contain at least 6% of renewable sources. Each plan’s EFL will state the exact amount of renewable energy included, as well as the average amount in the state. Green energy plans can be an excellent choice for consumers who also own home solar panels or an electric vehicle. On the SaveOnEnergy marketplace, you can filter for green energy plans in your area to narrow down the results.

Years in business. Deregulated markets can create a fiercely competitive environment. New providers enter the market each year, and it isn’t uncommon for a provider to go out of business in some areas. That’s why we recommend learning how long a provider has successfully operated in a deregulated area before signing a contract. Newly-established providers aren’t a bad option, but it can be a riskier move to go with a new provider because deregulated markets can be so complex. If you value stability, search for providers with many years of experience in your area. If you are comfortable with a newer provider in the market, be sure to thoroughly research the provider and read all the plan documents before signing up. No matter which provider you choose, you should also understand what will happen if your provider goes out of business.

Customer service. Most consumers want a provider offering quality customer service in case they run into an issue with their plan. In some deregulated states, such as Texas, the public utilities commission (PUC) will track customer complaints. You should also confirm whether a provider offers a satisfaction guarantee or if it allows you to switch to another plan if you are not happy with the plan you signed up for. 

How to use the SaveOnEnergy marketplace

SaveOnEnergy is an independent, unaffiliated energy marketplace that lets consumers in deregulated areas compare energy providers, plans, and rates and sign up for a plan at no additional cost. Our goal is to make it easy to navigate the deregulated market and empower you to find the best energy plan for your needs. Here’s how to use our marketplace.

  1. Enter your ZIP code. We’ll show you a list of energy plans available in your area. You can use the filters to narrow down your options based on what matters most to you, including the rate type, contract length, specific providers, green energy options, and more. 
  2. Sign up for your plan. Once you’ve found an energy plan that you like, we can walk you through the sign up process online in a matter of minutes. If you have questions or want to discuss the details of a plan, call the number on the screen to speak with an energy expert. They can also help you sign up for a plan over the phone.
  3. Enjoy your new energy plan. After you’ve signed up for a plan, you should receive a confirmation email from your new energy provider. From there, the provider will coordinate with your utility company and activate your service. If you don’t receive your confirmation email or have an issue with your plan, you will need to contact your energy provider.

Important terms to know

Deregulation can be confusing. Here are some important terms to remember when shopping for an energy plan in deregulated areas.

  • Electricity Facts Label (EFL). This is one of the most important documents you should be familiar with before signing up for an energy plan. Each EFL contains information about the plan’s electricity rates, usage tiers, contract length, bill credits, and much more. Understanding the EFL will help you find the right energy plan for your home.
  • Early Termination Fees (ETF). If you sign up for a fixed-rate plan, you will need to sign a contract for a certain amount of time (usually between 12 and 36 months). If you cancel your plan before the end of your contract, you may be charged an early termination fee (ETF). Some ETFs are a flat fee, while others are based on how many months are left in your contract. The EFL will mention the details of a plan’s early termination fee.
  • Slamming. This term refers to the unauthorized switch of your electricity service. Your provider must have your consent before switching you to a new plan or provider. Contact the PUC immediately if you believe your provider has switched your service. You should also contact your provider and request your service be switched back to your previous provider or plan.
  • Cramming. This term refers to when your energy provider adds an extra charge on your bill without notifying you in advance. Your provider is required to let you know ahead of time of any new charges before you receive your bill. If you believe there are signs of cramming on your electric bill, contact your provider.
  • TDU or TDSP. These acronyms refer to the delivery and distribution charges from your utility company on your energy bill. You can find the details of these charges on your EFL or your energy bill.
  • Your Rights as a Consumer (YRAC) Disclosure. As an energy consumer, you have specific rights and responsibilities. Providers are required to give you a YRAC disclosure, which outlines your rights, the provider’s responsibilities, and more.

Deregulation FAQs

  • Energy deregulation means consumers can choose their electricity provider from a variety of operating companies. The benefit of deregulation is competition between providers and often lower electricity prices, more plan options, and better service. 

  • If you are moving to a state with deregulation, you will need to choose an energy provider and sign up for an electricity plan. Depending on the state, you might be able to receive service from your utility company or choose from a variety of energy providers. Your provider may be able to begin your service the same day you sign up. You can also schedule your service to begin in at a later date, usually up to 90 days in advance. The SaveOnEnergy marketplace lets you compare energy plans in your area at no additional cost and sign up easily. If you have questions about your energy options, call the number on the page to speak with an energy expert.

  • The right energy provider hinges on your needs and preferences. For example, some providers specialize in 100% green energy plans, while others focus on offering the lowest rates or the most reliable customer service. You can use the filter options on the SaveOnEnergy marketplace to narrow down your choices based on your preferences. 

  • Providers sometimes go out of business in deregulated markets. If this happens to your provider, you will not lose power. Instead, your service will switch to the provider of last resort (PLOR) in your area. You will then have a set number of days to switch to a different provider if you would prefer. 

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