What Is Energy Deregulation? And Why It Matters

Does the choice of what you buy and who you buy it from matter to you? 

In much the same way that you can choose between different grocery stores to shop the difference in prices, service, and products — energy and natural gas deregulation provides the ability to choose your gas or electricity provider. With choice comes the opportunity to select providers who can provide you with superior levels of service and allow you to choose different service options, such as:

• Fixed-rate solutions that offer consistent pricing even during unstable markets
• Electricity and natural gas services that are better for the earth 
• Convenient unlimited plans where, just like a cell phone plan, you pay the same each month without having to worry about how much electricity or gas you use on a monthly basis.

If you’re living in — or will be moving to — a state that has deregulated energy or natural gas markets, here’s what you need to know about how these markets operate, and how the benefits provided by the deregulation of utilities affect the benefits available to you as a consumer.

What is a regulated energy or natural gas market?

In regulated markets, the government or a similar organization has complete oversight and control of providing goods and services. In a regulated energy or natural gas market, the government establishes a public utility company that is in charge of providing the power that operates the lighting, heating, air conditioning, electronics, and appliance operations for both businesses and residential consumers. 

Public utilities are organizations established by the government and regulated by public utilities commissions for the purpose of providing “essential” services — such as water, electricity, gas, and communications.  In a regulated market, the public utility may have monopoly rights over specific areas of the market or geographic locations — meaning they are the sole operators and there is no right for competition. 

In a regulated electricity market, the public utility company owns and operates all electricity, from the generation to the meter, selling power directly to the customers. Similarly, in regulated gas markets, the government has sole oversight and control over the production and delivery of natural gas. The utility company also fully owns the infrastructure, transmission lines and pipelines and is responsible for their maintenance and operation as well as all new construction. 

What is a deregulated energy or natural gas market?

In a deregulated market, the government breaks up central control which allows multiple retail companies  — also called third party energy service companies (ESCOs) — to compete against each other. The deregulated retail market allows different ESCOs to purchase energy at wholesale prices from providers and then sell to consumers. Because ESCOs have to compete for consumers, they’ll attempt to outperform other providers by offering better service, different energy options, or different price plans or contract structures.

In a deregulated gas market, retail gas suppliers purchase gas at the “wellhead” — where natural gas is extracted from a well — and arrange for its transportation to the local gas utility. How and where these gas marketers purchase natural gas can result in savings for consumers through a combination of lower wholesale costs, lower storage costs, and fewer state and local taxes. 

Similarly, in a deregulated electricity market, retail providers will purchase electricity from different power plants. Depending on the type of power plant, the generated electricity may be considered “greener” or “earth-friendly” when it is from renewable sources such as solar, wind, or hydroelectric. Different ESCOs can also offer varying levels of service and available pricing plans — including fixed pricing, indexed pricing, and hybrid plans. 

Even in a deregulated energy market, the local utilities still own and operate the infrastructure, transmission lines, and pipelines. In most cases, you’ll still receive and pay a single gas or electrical bill to your local utility company. 

What are the benefits of regulated energy or natural gas?

The earliest days of energy services in the U.S. were largely unregulated, which proved challenging for providers and consumers alike. A lack of oversight led to exploitation of consumers, poorly managed and faulty infrastructure, a lack of access for rural and isolated communities, and the rise of private monopolies. In regulated markets, the government has complete control over the utilities and is required to work in the public’s interest. As a result, consumers in regulated energy markets tend to enjoy:

• Prices that tend to stay set and stable, with few spikes in cost
• Long-term stability and certainty they will have access to heat and electricity
• Continued oversight to prevent safety violations, abuse, or neglect

What are the benefits of deregulated energy and natural gas?

In practice, regulated markets suffered some of the same problems that unregulated markets did.  No competition over price meant that consumers were stuck paying for whatever service was available, utilities weren’t incentivized to provide better service, and government monopolies proved as problematic as private ones. Deregulated energy markets solves these issues by introducing competition, and as a result, consumers can enjoy: 

• Greater choice in options available — Being able to choose from different ESCOs allows consumers to shop around for options that are best for them.
• Improved customer service — Increased competition among energy providers motivates providers to offer better service to their customers.
• More transparency — Energy deregulation helps consumers understand where their energy and natural gas comes from and what it costs. Consumers can readily review their electricity and gas options and evaluate available energy plans. 
• More choices in services — Competitive energy suppliers can offer additional services and benefits to their energy and natural gas customers, such as unlimited energy and gas options, or earth-friendly energy or gas options. 

What is the history of energy and natural gas deregulation?

The poor service and inconsistent pricing of the earliest energy and gas markets gouging weren’t the only problems consumers had to deal with. Because building and maintaining infrastructure is difficult and costly, some areas lacked power entirely because it wasn’t profitable enough for companies to build power lines or pipelines.

To reign in the energy market and set standards to better serve citizens, in 1935 the U.S. passed the Public Utility Holding Company Act (PUHCA) and then created the North American Electric Reliability Council (NERC) — now known as the North American Electric Reliability Corporation — in 1968. NERC split both the U.S. and Canada into 6 energy regions, with each region assuming responsibility for controlling energy and improving the reliability of energy delivery.

The six NERC Regional Entities are:

Regulation has its own set of challenges, such as state-owned monopolies and lack of options for consumers. These problems reached a breaking point during the oil embargoes of the 1970s, which brought record high gas and energy prices to all parts of the country.  In response, the federal government created the Federal Energy Regulatory Commission (FERC) in 1977 and then a year later, passed the Public Utilities Regulatory Policies Act, which left the question of how to supply energy up to individual states.

Prior to this, gas producers sold gas to interstate pipeline companies, which, in turn, sold it to local gas utilities, which then sold to end users such as residential customers and small businesses. The 1978 Natural Gas Policy Act ended federal control over the price of gas, starting the deregulation of the gas market and enabling different states to compete in purchasing gas and providing it to consumers. 

In 1985, FERC issued Order 436 to further deregulate the gas market by allowing pipelines to offer transportation-only services for gas, which allowed some customers the ability to choose their gas provider. Then, in 1989, the Natural Gas Wellhead Decontrol Act removed federal price regulations, providing retail gas providers the ability to sell gas within an open market. The separation between transportation and purchase was further mandated in 1992 with FERC Order 636, creating truly “open access” pipelines for different gas providers to compete over. 

The passing of the Energy Policy Act in 1992 allowed non-utility generators to have access to transmission networks and created the exempt wholesale market for electricity generators. This allowed for private competition and further energy deregulation of electricity markets in several states. 

As of 2023, half of all U.S. states plus Washington D.C. offer some form of deregulated electricity and natural gas.

Timeline of Energy Deregulation within the United States

Which states have deregulated energy markets?

The following states have deregulated electricity markets

The following states have deregulated gas markets

What about the other states?

Five states in the U.S. aren’t considered fully deregulated and offer limited choices for electricity and/or gas: California, Kansas, Nebraska, New Mexico, and West Virginia.

Twenty-four states across the nation are regulated markets and do not offer any forms of energy deregulation:

Let Santanna Energy Provide Your Energy Solutions

If you’re a resident of Ohio, Illinois, Pennsylvania, Michigan, or Indiana, then you could be eligible to receive electricity and natural gas services from Santanna Energy Services. We offer fixed rates, unlimited energy plans, and renewable energy options. Plus, options for earth-friendly electricity and gas options. 

Visit our site to check your zip code to see if you’re in our coverage area and view our available energy plans that are tailored to your lifestyle.