Deregulated energy markets in the U.S.

(September 30, 2020)

In Texas and several other states, the energy market is deregulated. In short, deregulated energy means consumers can choose which retail electricity provider (REP) they want to purchase electricity from. Several providers, also known in some states as suppliers, compete for consumers’ business, and this can lead to lower electric rates and, occasionally, energy deals and promotions.

Deregulated states approach deregulation independently. Read on to learn more about the history of deregulation in the U.S. and in each deregulated state.

Historically, utility companies have had a monopoly in energy markets. Consumers did not have a choice of where their electricity came from – it was generated, supplied, and maintained by the utility.

Because the utility companies held a monopoly in their service areas, there was no opportunity for competition or incentive for utilities to keep their energy rates low. Consumers did not have control over their rates or monthly bills and were required to remain a customer of the utility, regardless of rates or customer service.

This brought about the impetus for deregulation. Through a restructuring of the energy market, many states were able to provider consumers the chance to choose between a pool of REPs, each with unique energy plans, rates, and deals. Deregulated energy markets encourage competition between REPs and frequently result in lower electric rates.

Texas is the most deregulated state in the country with about 85 percent of the state being deregulated, including major areas such as Dallas, Fort-Worth, and Houston. The Texas energy market was deregulated in 2002 and natural gas is also deregulated for commercial consumers who meet a certain threshold. Residents must choose a provider; utilities can only transmit power to homes and businesses.

The Connecticut energy market was deregulated in 1998, forcing the two main utility companies – Connecticut Light & Power and United Illuminating – to begin purchasing electricity on the wholesale market. This also allowed new energy providers to emerge into the market. Currently, more than 650,000 Connecticut residents have switched to a new energy provider.

The energy market in Delaware was deregulated in 1999. Consumers reserve the option to remain with their utility company or switch to another REP if they believe they have found a lower rate or a plan that better fits their needs.

Deregulation in Illinois began in 1997 when the state passed “Customer Choice Act,” which allowed customers to choose their own Alternate Retail Electricity Supplier, or ARES. Energy deregulation was later extended to large commercial customers in 2002.

Maine began considering energy deregulation in 1995, although a bill deregulating the energy market was not passed until 1997. The state also offers natural gas choice, although only to industrial and commercial customers.

In 1999, the Maryland General Assembly approved plans to deregulate the energy market in a bill called the Electric Customer Choice and Competition Act. This opened the market to competition between energy providers and granted customers the power to choose among the candidates.

In 1998, the Massachusetts energy market was deregulated. The natural gas industry is also deregulated, giving consumers the option to choose their natural gas provider.

The Michigan energy market was deregulated in 1998, allowing consumers to choose between competing ESCOs. The natural gas market was later deregulated in 2002.

New Hampshire was the first state in the U.S. to begin the process of deregulating the energy market. In 1996, the state enacted legislature which opened up the electric market to competition between providers.

In New Jersey, the energy market was deregulated in 1999, although it has been slow to take off. Currently, about 20 percent of New Jersey consumers have switched to a new REP. The majority instead have remained with the default provider, which in many cases is the utility.

The New York energy market was deregulated in 1997, earlier than many of the other deregulated states. Unlike in other states, REPs in New York are called Energy Services Companies, or ESCOs. Additionally, New York does not offer natural gas choice to its residents.

The Ohio energy market was deregulated in 2001 – two years after the state introduced Senate Bill 3, which proposed restructuring the market. After this bill was enacted, consumers were allowed to buy their energy from Certified Retail Electric Suppliers (CRES) or remain a customer of the local utility.

Oregon’s energy market was deregulated in 1999, although energy choice is only extended to non-residential customers, such as commercial consumers. Currently, residential consumers are only able to choose between types of service from the utility company, such as green energy plans.

Pennsylvania was one of the first states to consider deregulating the energy market. The state government began investigating the electric industry in 1994. In 1996, Pennsylvania enacted House Bill 1509, otherwise known as the Electricity Generation Customer Care and Competition Act. This fully deregulated the energy market and created the possibility for consumers to choose their electric provider.

In 1996, Rhode Island deregulated its energy market with the Rhode Island Utility Restructuring Act. This restructuring unbundled energy supply and distribution, allowing consumers to choose an energy provider other than then utility company. Customers can also remain under a default offer or “last resort” service provided by the utility.

Virginia is one of the latest states to deregulate its energy market, although its laws regarding deregulation remains complicated. In 2000, the state began a pilot program to deregulate the market, but passed the “Re-Regulation Act” in 2007, which rolled back energy choice for most residential consumers.

Caitlin Ritchie is a writer within the energy and power industry. Born in Georgia, she attended the University of Georgia before earning her master’s in English at the University of North Carolina at Charlotte.

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