How Does Energy Deregulation Work
You may have heard the term “deregulation” relative to gas and electricity, but you may not understand what it means or how it relates to you. Find out more about this important legislation and what it means to you.
In the past, one utility provided the three components of a customer’s energy service:
- Generation (producing the energy)
- Transmission (moving the energy from production site to distribution site)
- Distribution (delivering the energy to the consumer)
Deregulation required the previous monopoly utilities to choose which function they wanted to continue offering. All previous utilities choose to offer the distribution portion of electricity service. The monopoly utilities were then required to sell their power plants, which created three separate entities that now provide electricity to your home:
- The Power Generation Company (PGC): the actual power producer who runs the power plants and sells energy on the open market
- The Transmission/Distribution Service Provider (TDSP): the entity that owns the equipment and facilities that distribute electricity
- The Retail Electric Provider (REP): the company that buys power from the distribution service provider and sells it to residents and businesses
The delivery portion of your energy service, as well as the maintenance of pipes, wires and equipment, is still handled by your local utility. If you choose your local utility as a service provider, it will handle both the supply and delivery charges on your bill, and its rate is regulated by the state. Your local utility rate, as set by the state, does not allow the utility to profit from the actual electric or gas portion of your bill. If you choose an alternative supplier of electricity, your local utility is unaffected financially, meaning they will still be able to provide you with the same level of service. If you choose a different supplier, your bill will separate costs by supply and delivery with the REP’s name in the “supply” section.
Deregulation allows consumers to choose from multiple electric suppliers, thereby encouraging a competitive market that will drive down electricity costs and increase quality of service. Currently, there are 24 states that have some form of electricity deregulation as a result of federal and various state regulations. To find out your state’s deregulation history, visit our Service Areas page.
The regulation of natural gas dates back to the industry’s very beginning (mid-1800s). Before deregulation, utilities billed their customers for all the essential steps to obtain natural gas from the gas well and deliver it to customer homes or businesses. This included purchasing the gas, delivering it to the customer, measuring each customer’s usage, providing emergency services and billing customers.
Deregulation has made it possible for customers to continue working with their gas utility or choose to purchase only part of its services. This ability to pick and choose which part of the process a customer wants to purchase is called “unbundling.”
Moreover, deregulation has allowed consumers the ability to choose their gas suppliers. The local utility is still responsible for the regulation and delivery of gas.
As is the case with electricity, gas deregulation has resulted in competition which helps lower the cost of gas and increase the choices available to consumers.
Currently, there are 19 states that have some form of gas deregulation as a result of federal and state regulations.