What Is a Deregulated Energy Market?

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In a deregulated energy market, consumers can pick their electricity supplier. In regulated energy markets, consumers can only receive electricity from the utility company in their area. The benefit of a deregulated energy market is that you can pick the energy plan, provider, and price that work best for you.

Since many providers typically operate in a deregulated state, this creates a competitive market that allows consumers to find the cheapest energy plan. If you live in a deregulated energy market, SaveOnEnergy can help you find an electric provider for your home or business.

Which states offer energy deregulation?

Eighteen states and the District of Columbia currently offer deregulated energy markets. If your state is listed below, you may live in a deregulated area. Enter your ZIP code to find energy suppliers near you. 

In the late ‘90s, states like Rhode Island, California, and Texas were among the first to switch to deregulated energy. However, many more states have since followed suit, permitting residential and commercial customers to choose their energy providers and find cheap electricity rates. 

In addition, some states offer natural gas deregulation. Pennsylvania and Illinois, for example, allow residents to choose their natural gas and energy providers.However, in other states, the natural gas market is only deregulated for certain customers. For example, only commercial and industrial consumers can choose their natural gas provider in Maine.

Energy providers and utilities in deregulated markets

If you live in a deregulated market, it’s important to know the differences between energy providers and utility companies.

Energy providers sell electricity plans to consumers in deregulated areas. The SaveOnEnergy marketplace can help you explore a list of energy providers in your area. Enter your ZIP code on the screen to discover available plans and sort by rate, usage level, provider, and more. 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)

Your utility company is determined by where you live, so you cannot change companies. The utility is responsible for transporting and delivering electricity from the provider to your home via power lines. Your utility also maintains electrical lines and restores your service during a power outage.

In some deregulated markets, the utility company may also sell energy plans to consumers, 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 advantages to living in a state with deregulated energy. Here are some main benefits you can enjoy.

• Competition between providers. In regulated markets, consumers can only buy electricity from one utility company. Deregulation creates competition between multiple providers, leading to better service, more affordable prices, and the ability to choose an energy plan that works best for each home or business.  
• Lower electricity rates. The competition between providers may result in a lower average electricity rate in deregulated states. Since consumers have the option to choose between energy rates, this could lead to a lower energy bill. Many states claim to have experienced a decrease in the average cost of electricity for residential and commercial customers after deregulating their energy 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, while others may cater to homes that rely on less energy. Before signing up for a new plan, estimate how much energy you normally use with our energy usage calculator or by reviewing previous bills. This will help you understand your consumption level and pick the best energy plan for you.
• Easy to switch plans. If you are moving homes or unhappy with your current plan, you can easily switch to a new provider. The SaveOnEnergy marketplace can help you navigate this process and compare new plans.

Cons of deregulation

While a deregulated energy market has plenty of benefits, there are a few cons to be aware of. Here are some of the most common downsides of living in a deregulated state.

• Deregulation is complex.It is the consumer’s responsibility to choose a provider and an energy plan. It can feel overwhelming to navigate all of your options. I’s important to understand different plan types, how to read an Electricity Facts Label (EFL), and how to sign up. SaveOnEnergy has extensive resources available to help you navigate the energy market. You can enter your ZIP code to explore your options or call the number on your screen to speak with one of our energy experts.
• Increased consumer responsibility. For consumers in a deregulated area, it’s important to know how much energy you consume in a month to find the right plan. The rate you are charged under many plans can depend on how much electricity you use monthly. If you pick a plan that doesn’t match your usage level, you may end up with an expensive electricity bill.
• Rates can be higher sometimes. While the theory behind deregulation is that it leads to lower rates, that isn’t always the case. Seasonality and energy demand impact the wholesale cost of electricity, which can result in higher electricity prices, even in a deregulated area.
• Options depend on where you live. There can be drastically different options depending on where you live. Even though individuals have the power to choose, it doesn’t mean that all locations have the same amount of options.

Picking an energy provider and plan

Finding the best provider depends on what you value most in an energy plan. Learn more about common plan types and how they work.

Fixed-rate plans

Fixed-rate plans offer a set rate per kilowatt-hour (kWh) for a limited time period determined in your contract. These plans allow for more predictable electric bills because your electricity rate doesn’t change regardless of market conditions. 

Variable-rate plans

Variable-rate plans fluctuate based on the market rate of electricity and do not require a contract. This may be a great option for customers who need flexibility or want to take advantage of dips in the energy market. However, there is more risk associated with variable-rate plans because customers may experience rate spikes during peak seasons. 

No-deposit plans

A no-deposit electricity plan does not require customers to pay an upfront deposit to begin service, unlike many other electricity plans. One popular type of no-deposit plan is a prepaid electricity plan, which allows you to pay for electricity in advance and reload your account when it runs low.

Renewable energy

If you are interested in a green energy plan, consider providers with 100% renewable options, like Green Mountain Energy or Gexa Energy. Some deregulated states have a required amount of renewable energy that must be included in every plan. Each plan’s Electricity Facts Label will state the exact amount of renewable energy included and the average amount in the state. 

Green energy plans can be an excellent choice for consumers who want the most eco-friendly option. You can filter for green energy plans on the SaveOnEnergy marketplace to narrow down the results in your area.

Deregulated energy for small businesses

Businesses also have the power to choose their electricity provider in deregulated energy states. Whether you are looking for a cheap energy plan or need flexibility, SaveOnEnergy can help you find the best fit for your business.

Consider an electricity provider’s years in business

Deregulated energy 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. 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 they can be risky because deregulated markets are so complex. If you value stability, search for providers with many years of experience in your area.  

Be sure to thoroughly research each provider’s reviews 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.

What is the price to compare?

Some deregulated states other than Texas offer consumers the option to purchase electricity from either a provider or their utility. Your utility offers a “price to compare,” or a standard rate, by which you can evaluate your options and make the best decision for you. If you’d rather simplify your decision by choosing to receive power from your utility instead of a provider, you’ll be enrolled with them by default.

How to use the SaveOnEnergy marketplace

SaveOnEnergy is a free, independent energy marketplace that helps consumers in deregulated areas compare providers, plans, and rates. We can help you sign up for a plan online or by calling one of our energy experts. 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. 

• 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, green energy options, and more.
• Sign up for your preferred plan. Once you’ve found an energy plan you like, we can walk you through the signup process online in minutes. If you have questions or want to sign up over the phone, call the number on the screen to speak with an energy expert.
• 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, your contract will last 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 depend on how many months remain in your contract. You can find this information in your plan’s EFL. 
• 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 to 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 outlining your rights, the provider’s responsibilities, and more.