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What you should know about the deregulated energy market and how to compare your options.
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A restructuring of the energy market has made it easier for you to choose your electricity supplier in more than 15 states and Washington, DC. Compare kilowatt-hour rates and energy plans to find the best fit to power your home or business.
What is energy or electricity choice?
Energy choice refers to the ability for consumers to choose an energy supplier for their electricity needs — also called the deregulated electricity market.
Deregulation of the US electricity markets began in the 1990s as a way to allow consumers to purchase the energy that powers their homes directly from retail suppliers. Deregulation means to remove government regulations or restrictions from a process or industry with the goal of improving efficiency, widening competition and boosting growth.
In a regulated energy market, utilities own and operate the infrastructure to manufacture and deliver electricity, including the meter attached to your home. Local governments typically set the rates the public ultimately pays, limiting customer choice and creating monopolistic markets — single suppliers that prevent competition for electricity.
In a deregulated market, independent energy utilities purchase supplies wholesale and compete for customers at rates set by the market itself.
How does deregulated electricity work?
The deregulated electricity market works through a system called a reverse auction — something like a reverse eBay. Energy service companies — called ESCOs — offer to sell the electricity their plants produce at their lowest rate at wholesale, competing with other energy providers on the market. Independent retail suppliers bid for the energy they think they’ll need to meet their customers’ demands.
Electricity then arrives to you in the same way it’s delivered in a regulated market: through the substations, transformers and power lines to your home or business electricity meter. Depending on your state, you pay for your electricity directly to the utility or your supplier.
Which states have deregulated electricity?
In states where electricity is deregulated, you have the choice of suppliers for the electricity that powers your home or business. The electricity market is currently deregulated in more than 15 states and Washington, DC.
|State||Deregulated electricity||Deregulated natural gas||What to know about deregulation|
|California||Yes||Yes||Gas choice limited to select regional customers|
Electric access limited to DirectAccess lottery
|Connecticut||Yes||Yes||Gas choice limited to commercial and industrial customers|
|Delaware||Yes||No||Electricity choice limited to select territories|
Gas choice limited to commercial customers
|Illinois||Yes||Yes||Electricity and gas choice limited to specific utility territories|
|Maine||Yes||Yes||Electricity and gas choice limited to commercial and industrial customers|
|Maryland||Yes||Yes||Electricity and gas choice not available statewide|
|Massachusetts||Yes||Yes||Electricity choice limited to Eversource, Fitchburg and National Grid territories|
|Michigan||Yes||Yes||Electricity choice guaranteed for 10% of electric utility’s retail sales|
Gas choice limited to Consumers Energy, DTE Energy, Michigan Gas and SEMCO utility territories
|New Hampshire||Yes||Yes||Electricity choice limited to PSNH, UES and NHEC utility territories|
Gas choice limited to commercial and industrial customers
|New Jersey||Yes||Yes||Electricity choice limited to Atlantic City Electric, Jersey Central, PSEG and Rockland Electricutility territories|
Gas choice limited to Elizabethtown Gas, NJ Natural Gas, PSEG and South Jersey Gas utility territories
|New York||Yes||Yes||Electricity and gas choice available in Central Hudson, ConEd, NYSEG, National Grid and Orange and Rockland utility territories|
Electricity choice only in PG&E utility territory
Gas choice only in Corning Natural Gas, National Fuel Gas Distribution, RG&E and St. Lawrence Gas utility territories
|Ohio||Yes||Yes||Electricity choice available in AEP Ohio, Dayton Power & Light, Duke Energy and First Energy utility territories|
Gas choice available in Columbia Gas, Dominion East, Duke Energy and Vectren Energy Delivery utility territories
|Pennsylvania||Yes||Yes||Electricity choice available in Citizens Electric, Duquesne Light, Met-Ed, PECO, Penelec, Penn Power, Pike County, PPL, UGI, Wellsboro and West Penn Power utility territories|
Gas choice available in Columbia Gas, National Fuel, PECO, Peoples, Philadelphia Gas Works and UGI utility territories
|Texas||Yes||Yes||Electricity choice available in AEP, CenterPoint, Oncor, Sharyland and Texas–New Mexico Power utility territories|
Gas choice limited to commercial and industrial customers
|Virginia||Yes||Yes||Gas and electricity access limited|
How to shop for an electricity supplier
If you live in a state where electricity is deregulated and competitive, get started by researching your options.
- Calculate your current energy use. Look at two or three of your most recent energy bills and average out your use by energy unit — per kilowatt-hour (kWh) for electricity. This information will help you shop for similar or cheaper rates on the market.
- Shop by ZIP code on an energy marketplace. Marketplaces like EnergyBot can help you compare rates and energy plans specific to your residence with your ZIP code and information about your home.
- Compare energy providers and plans. Weigh kilowatt-hour rates, contract terms and potential for savings to narrow down the best provider for your needs.
How to compare electricity plans
Depending on the state you live in, you may have one or a handful of independent electricity suppliers to choose from, each offering different rates and energy plans. Factors to weigh when researching your options come down to rates and the type of plan that fits your electricity needs and budget.
Fixed, variable and hybrid rates
Providers in your state or city may offer the option to choose between a fixed, variable or hybrid kWh rate:
- Fixed rates. Fixed rates allow you to lock in a rate for an established contract term. These plans protect your budget from surprise rate spikes, though they can keep you from more easily switching providers with lower rates if the market dips.
- Variable rates. Variable rates allow you to purchase energy without a contract. These plans give you the flexibility to jump to a different provider at any point, though you can expect to pay increased rates when demand is high, such as during colder weather months.
- Hybrid rates. Fixed and floating options split your contract into a fixed rate for part of your term and a variable rate for another.
For variable rates, ask your potential provider if it limits how much rates can fluctuate, which can help you keep costs manageable.
Introductory rates and signup bonuses
Many suppliers and providers offer lower advertised rates or bonuses to entice new customers. These bonuses can be reflected as a lump-sum savings or percentage knocked off the standard rate.
Introductory rates can last the first quarter of your contract, for six months or even the full term. Read the fine print of any offer to understand the rate you’ll pay after the bonus and avoid overpaying for your energy in the long term.
Contract terms and details
Understand the contract system of any supplier you’re interested in. Look at available terms, how the supplier handles renewals and whether you can cancel before your contract ends.
- Contract terms. Contracts can range from three months to a year or more. Longer terms can be easier to manage, while shorter terms allow the flexibility to leverage market dips.
- Contract renewal. Some providers require you to renew a contract term, allowing you to review or change the details of your rate schedule, while others automatically renew your terms unless you tell them not to.
- Contract cancellation. Markets being what they are, you may find lower rates so enticing, you’re willing to pay a termination fee to end your contract early. Understand the penalties you face so that you can factor them into any future decisions to switch providers.
- Late fees and grace periods. Ask potential providers about late fees and how many days after the due date you can make a payment without paying a penalty.
Energy and transmission costs
Your electricity bills include home energy costs that can vary by utility provider or supplier.
- Unit or consumption charges. Energy costs are expressed as kWh for electricity and therms for natural gas, with variances among residential, commercial and industrial customers.
- Delivery and transmission costs. This is the cost a utility company charges to cover moving energy from power plants, across power lines and pipelines and to your meter.
- Capacity or demand fee. Some electric companies charge a fee to cover the cost of ensuring enough electricity or gas when demand peaks.
- Ratchet charges. Also related to demand, these are periodic fees charged by utilities to recoup costs related to surges in use.
- Taxes. Most suppliers include tax costs in pricing schedules. Ask your supplier about taxes if you don’t see them clearly listed in your bill.
- Other costs and fees. Some states and local governments charge fees that fund public policy programs related to such causes as energy conservation or support for vulnerable communities.
Many suppliers offer alternative energy options, like wind, hydro or solar energy. Your energy bill may include fees associated with the renewables you choose.
How to switch electricity suppliers
After you’ve found an electricity provider that fits your energy needs, gather up a current monthly bill and get ready for the big switch.
- Call your new energy supplier. Confirm the details of your energy plan and ask any remaining questions. You may need to provide information from your current utility company to transfer your account. Ask how long it takes to complete the changeover.
- Call your old provider. Your new supplier will notify your old supplier, but it’s helpful to confirm the process directly with your current company.
- Review your first bill. Make sure the details of your new bill match your contract or agreement and flag any issues as soon as possible for a fix.
How to avoid electricity and utility scams
The deregulated energy market is confusing, and scam artists are known to exploit the vulnerabilities of whose who aren’t as informed about how the system works — like seniors and low-income households. Anybody with an electricity bill could be the next target lured into plans without transparency around the risks.
It’s not always easy to navigate the deregulated electricity market on your own. Be wary of energy plans that sound too good to be true. The low kWh rates from some suppliers may be propped up by creative math that doesn’t disclose use caps or short-term bonus rates. Don’t sign any contract without first asking about the average rate you’ll pay over the term of your agreement.
Common scams involve aggressive calls from imposter utility representatives asking you to pay a fee or lose access to power. Other red flags are unscheduled house visits from people pretending to work for your utility and asking to conduct “free” audits of your electrical system.
In all cases, do not let anybody claiming to work for your utility company into your home without a scheduled appointment. Instead, call the number on your utility bill and confirm with the company the representative’s information and purpose of the visit.
Benefits of electricity deregulation
Electricity choice is advertised as a way for consumers to take control of their energy costs outside of regulated monopolies and save money in the process.
- Competitive rates. In theory, deregulation requires electricity to compete for your business, motivating quality service and keeping kilowatt-hour rates lower than regulated rates over time.
- Flexibility of electricity suppliers. Unlike the regulated electricity market that chooses suppliers for you, the deregulated market allows you to customize electricity suppliers and rates for control over how you power your home.
- Access to alternative energy. Deregulation has allowed alternative energy suppliers to compete on the market, offering 100% renewable options to consumers.
What to look out for
Results of energy deregulation are mixed, and there’s research to suggest that it doesn’t lead to the promised savings over the regulated market. There’s also the potential for suppliers to lure customers into plans without transparency around the risks.
- High demand can be costly. It’s not as easy to plan for surges or manage overproduction with more electricity companies competing on the market. This guesswork can leave electricity suppliers short — and consumers footing the bill.
- Shaky supply security. If generators aren’t able to meet demand, it can collapse the system. These situations are rare but possible: In 2021, the Texas power grid failed due to unexpected extreme weather, resulting in an energy crisis that left more than 10 million people without heat — and electricity suppliers pointing fingers.
- Potential for scams. A confusing deregulated market has resulted in unscrupulous suppliers targeting the elderly, low-income households and other vulnerable communities with calls to switch utility companies and promises to save money.
- A Primer on Electric Utilities, Deregulation and Restructuring of US Electricity Markets, U.S. Department of Energy, May 2002
- Map of Regulated vs. Deregulated Energy Markets by State, EnergyBot, PDF
- Understanding Your Utility Bills: Electricity, U.S. Department of Energy, 2021
- US Electricity Markets 101, Resources for the Future, March 2020
- Utility Scams, AARP
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