Demystifying Deregulation

Monday April 11, 2011
Posted at 08:18

If you’ve heard all the talk of deregulated energy markets over the last decade or so, and seen all the marketing and advertising from retail energy companies in your city, then you might be confused about what it all means and how it affects you.

Thankfully, it’s very simple.

In a regulated electricity market, a single company, normally referred to as a utility, owns all the infrastructure — the physical stuff that stores and distributes electricity, like transformers, poles, and wires. That same utility is also responsible for buying the electricity from electricity-generation companies, selling the electricity to you, and distributing the electricity to your home.

If you have a power outage or a broken transformer or need any other kind of service in a regulated electricity market, you call the utility, which is responsible for all of those issues. But you’re out of luck if you want cheaper electricity, because the utility offers only one price.

However, in a deregulated electricity market, while the utility still owns all the infrastructure and is still responsible for distributing electricity to your home, competing electricity providers are allowed to buy the electricity and sell it to you directly.

If you have a power outage or a broken transformer in a deregulated electricity market, you still call the utility, which is still responsible for all of those issues. But the great thing is, if you want cheaper electricity, you can choose to shop around and buy your power from any electricity retailer that does business in your market.

That’s it. Those are the differences. And things work the same way in a deregulated natural gas market, too.

Deregulation simply means that you have the power to choose the company you want to buy electricity or natural gas from. No matter which company you buy from, the electricity and natural gas is then transmitted to your home by the utility that owns all the infrastructure and makes repairs when things go wrong.

Not All States Have Deregulated Energy Markets

Although energy deregulation is great for consumer choice, not every state is deregulated. Some states have only deregulated electricity, while others have only deregulated natural gas. And some states have partial choice markets for natural gas, which could mean that one group of customers has choice but another doesn’t, or it could mean that choice is available, but only on a trial basis.

Deregulated Electricity Markets: Deregulated electricity markets include Arizona, Arkansas, California, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Virginia, and the District of Columbia.

Deregulated Natural Gas Markets: Deregulated natural gas markets include Florida, Georgia, Illinois, Indiana, Iowa, Maryland, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Pennsylvania, Rhode Island, Virginia, West Virginia, and the District of Columbia.

Partial Choice Natural Gas Markets: Partial choice natural gas markets include California, Delaware, Missouri, Texas, and Wyoming.

Sources:

U.S. Energy Information Administration website, “Status of Electricity Restructuring by State as of Sept. 2010.”

U.S. Energy Information Administration website, “Natural Gas Residential Choice Programs by State as of Sept. 2010.”

White Fence Energy website, “Is Your State Deregulated?

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