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Deregulation in the Energy Sector: What It Means for Customers

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Since the early days of Edison and the dawn of the utility sector, power providers have typically enjoyed a regulated monopoly over their customers, meaning end-users did not have any choice when it came to energy companies. There would be a single utility company that controlled the power lines going into homes and businesses and so customers would have no ability to take their business elsewhere.

In recent decades, though, more and more areas of the U.S. energy sector have been deregulated through government action, meaning that customers newly would have the agency to choose who would produce power and bill them for it. This trend is a drastic change in areas where it’s implemented, but because most people are so used to the status quo of regulated monopolies there is a lot of confusion and misinformation about what deregulation actually means for customers. So if you’re in a state that’s currently deregulated or there’s a groundswell of grassroots support for energy choice in your state, take note of the following need-to-know information about how deregulated energy works.

Where is energy deregulated and who can exercise energy choice?

Currently, states where energy is deregulated are in the minority. And for those states that do allow a level of energy choice, there are different levels of deregulation: some do just electricity or just gas; some allow residential customers or just commercial/industrial customers, and some restrict energy choice based on total energy use for the customer or other factors.

The states where state governments have enacted laws to allow for some level of energy choice in a deregulated electricity market for households are the following: Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Texas, Virginia, and Washington D.C.

However, because of the other restrictions that are sometimes instituted, it’s important for individual customers to do their research on where and if they may be eligible to take advantage of energy deregulation. For example, residents of New York, New Jersey, Pennsylvania, Ohio, Illinois, Maryland, Connecticut, Massachusetts, and Washington D.C. are likely eligible to choose Atlantic Energy as their energy provider, but calling Atlantic and asking for more details can answer any questions you may have about your ability to take advantage.

How does deregulation affect power prices?

For most customers, satisfaction or dissatisfaction with their power provider comes down to one simple thing: what is their final monthly bill? As such, looking at how deregulation ends up affecting power prices is a crucial question.

A recent study by researchers at Ohio State University identified a lack of energy competition as being responsible for energy cost increases across Ohio. And while energy prices have been generally rising across the country, a detailed analysis of those rates separated into deregulated and regulated markets found that deregulated states only saw prices increasing by 47% over the past two decades compared with a 66% increase in regulated states.

So for customers looking at whether or not deregulated markets would be something they’d want, they need to look no further than these data points to realize the lack of competition in their local energy markets could be hitting their monthly budget more than they realize.

How does a different energy company get power to my home? Is new equipment required?

One of the reasons that regulated monopolies started in the beginning and have persisted since then is because of the high capital cost it takes to build out the infrastructure needed to transmit and distribute electricity from point of generation all the way into the final use in the home. It made more economic sense to only do that once by one company and that would be the way people got power.

Those economics still work that way, so if you are in a deregulated state and you choose an alternative power provider you’ll actually still get your energy delivered over the same grid and vast wired network. In these situations, you’ll also still end up paying the same legacy utility company for the transmission & distribution costs across their grid system, but the difference will be that you’ll pay a different company the cost of the power generation. It becomes an accounting exercise, as there is no way to ensure that the electricity physically created at the alternative electricity is delivered into your home, but rather you pay your new power provider for the amount of electricity you use and they ensure that amount of power is provided by them to the greater power grid.

In that way, you don’t need any equipment installed on your home and we can continue to use the same existing grid infrastructure, but you still get all the benefits of the power to choose your power provider.

What impact does deregulation have on power providers?

The system of monopolistic utilities is unique in the U.S. economy because it does not allow for competition and the benefits that bring to customers, nor the innovative momentum it brings to utilities. Companies that don’t have concerns that their customers may leave them for competitors who are better or cheaper lose the motivation to innovate. They can get complacent and thus not deliver the optimal service.

In areas with deregulated energy markets, though, competition makes everyone better. If customers are demanding more renewable energy in the mix, a new ‘green’ competitor may come along to attract these eco-conscious energy consumers. If customers are seeking neat perks, such as the smart home bundle that Atlantic Energy provides its customers, then they can ask their existing utility if they have anything like it and leave for the competition if they find something they like better. Deregulation forces the utilities to be more committed to the needs of customers, rather than simply finding ways to maximize their profits.

As a customer, the deregulation of energy markets puts you back in the driver’s seat. You can find the power provider who matches your needs and values best, not feeling beholden to the only game in town.

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