Energy deregulation means separating the energy commodity (electricity or natural gas) from its delivery to the end user. Before deregulation, utilities handled both aspects as integrated entities. However, in deregulated markets, these functions are separated: energy supply (the commodity itself) and energy delivery (the infrastructure such as wires or pipes). If a consumer does not choose an energy supplier, the utility will provide them with natural gas and electricity by default. As a result of energy deregulation, consumers can switch from their utility to a supplier to better manage their energy needs.
Today, almost half of US states have some degree of energy deregulation in place although the degree varies by state and may be limited to larger scale businesses only. In the Northeast, most states have deregulated gas and electricity markets. This is promising progress for consumers and businesses who want the option of choosing their energy supplier.
Electric Restructuring in New England – A Look Back
Beginning in the mid-1990s, half of the U.S. states began exploring deregulating their retail supply markets due to high electricity prices. The goal was to lower electricity prices, provide better service and options for customers, and provide innovative technology and grid management services. According to the New England States Committee on Electricity, state policymakers in the 1990s, in favor of electric restructuring, wanted to better meet consumers’ needs and preferences at the lowest costs, among other goals. The Federal Energy Regulatory Commission (FERC), an independent agency that regulates interstate transmission of electricity, natural gas, and oil, initiated market restructuring in 1996. As a result, individual states had the power to decide how to supply energy to consumers, and market competition was brought to the retail electric industry. By the year 2000, five of the six New England states had partially or fully restructured their electric retail markets.
What is Energy Delivery Service?
Whether your business relies on electricity, natural gas, or both, you obtain these services from your local utility company. Utilities are responsible for delivering electricity and natural gas within specific geographic areas. Some utilities provide delivery for both types of energy, while others focus solely on electricity or natural gas. Energy delivery involves the transmission and distribution of electricity and/or natural gas through an extensive infrastructure of poles, wires, and pipes. Utilities manage tasks such as meter readings, service connections, and restoring service during disruptions. They play a crucial role in ensuring a reliable energy supply to businesses and residences alike.
What is Energy Supply Service?
In states with deregulated, restructured, or unbundled electricity and natural gas markets, you have the option of choosing an energy supplier that can provide customized energy supply services for your business needs. You do not have to purchase your energy commodity from your local utility. If you do not choose an energy supplier, the utility will provide a standard service that covers both energy supply and delivery. However, this generic energy supply service is designed for a broad customer base and may not meet the specific needs of your business.
Benefits of Energy Deregulation
Deregulation offers significant benefits for businesses. It allows them to choose their energy supplier independently of the utility that delivers the energy. Previously, businesses were limited to their local utility at government-regulated prices. Now, in deregulated markets, businesses can select energy suppliers based on their specific needs for quality, flexibility, and cost-effectiveness.
Energy deregulation represents a pivotal shift in empowering consumers across nearly half of the United States. By separating energy supply from delivery, deregulation creates competition and choice, offering consumers the flexibility to select energy plans tailored to their preferences and needs. Recent regulatory actions, such as the FERC’s focus on grid resilience and long-term planning, reiterate the importance of balancing reliability and economic efficiency in our energy infrastructure. Deregulation isn’t just about choice; it’s about sustainability and resilience in our energy systems.
Frequently Asked Questions
What’s the Difference Between Energy Deregulation and Utility Deregulation?
Energy deregulation and utility deregulation generally refer to the same thing. Both describe a market where customers may have the option to choose their energy supplier rather than relying solely on their local utility for energy supply. The utility still delivers the electricity or natural gas and maintains the infrastructure needed to provide service.
Is Electricity Deregulation Different From Natural Gas Deregulation?
Electricity and natural gas deregulation work in similar ways. In both cases, eligible businesses can choose an energy supplier while their local utility continues to deliver the energy. However, availability can vary by state, utility territory, and fuel type, so a business may have a choice of electricity suppliers but not natural gas suppliers, or vice versa.
How Do Businesses Actually Buy Electricity or Natural Gas in a Deregulated Market?
In a deregulated market, businesses can compare energy suppliers and evaluate offers based on pricing, contract terms, energy usage, and other business needs. Once a supplier is selected, the supplier provides the energy commodity while the local utility typically continues to handle delivery and infrastructure. Businesses can also explore different energy contract options based on their budget and approach to market risk.
If My State Is Deregulated, Why Can’t I Always Switch Suppliers?
Deregulation does not always apply to every customer within a state. Energy choice may depend on your utility territory, customer class, location, or the type of energy you use. This means businesses in the same state may have different supplier options. Learn more about how energy choice varies by market and what may be available to your business.
What Are the Real Benefits of Choosing a Retail Energy Supplier Instead of the Utility Default?
Choosing a retail energy supplier can give businesses more flexibility in how they purchase energy. Depending on the market, businesses may be able to choose pricing structures and contract terms that better align with their energy usage, budget, and risk tolerance. A supplier can also provide market insight and support to help businesses make more informed energy purchasing decisions. Learn more about the benefits of choosing an energy supplier for your business.
Sprague’s Role in Energy Deregulation
Sprague Energy is a retail and wholesale supplier of energy products and services in the Northeast and Mid-Atlantic, serving over 20,000 commercial, industrial, utility, government, and wholesale customers. We offer a variety of products, including natural gas, electricity, diesel fuel, heating oil, gasoline, and residual fuels. Sprague strives to understand your business, your goals, and how you use energy. That knowledge allows us to respond using our experience, insights, and historical data to create a personalized solution that meets your needs now and into the future.
Contact us today to see how Sprague can serve as a smart alternative to traditional utility supply.
