Understanding Energy Deregulation and Electric Deregulation
Historically, energy utility companies both sold the electricity or natural gas and delivered it through their power lines or natural gas piping systems. Since consumers could not choose to buy from alternative suppliers this gave them a monopoly. When utility companies raised their energy prices too much, consumers started complaining.
With energy deregulation (or electricity deregulation or natural gas deregulation) consumers have the choice to buy their electricity or natural gas from Energy Supply Companies (ESCOs), while the utilities still deliver the energy through their grids. The utility still makes a handsome profit on energy delivery, but now consumers can enjoy significant savings and other benefits by buying their electricity or gas on the open market. So far 31 US states have some form of deregulated energy, with many more scheduled to follow.
Under energy deregulation, Energy Supply Companies buy or produce natural gas or electricity or both and sell it to their customers. Most ESCOs simply buy the energy and resell it, but some also produce the electricity or pump the natural gas out of the ground themselves. In most energy deregulated states, consumers have a choice of switching to an independent supplier or staying with the utility as their provider, while some states require that all consumers buy from ESCOs.
This energy deregulation or electricity deregulation option is called the “Energy Choice Program”. Energy Choice Programs have different names in different states, such as “Power Your Way Program” in New York and “Electric Choice Program” in Connecticut.
The local utility company still delivers the electricity or gas to the customer and handles delivery emergencies because they are the ones who own and maintain the pipes and wires. A customer cannot change utility companies. The utility company stays the same, no matter which ESCO supplies the energy.
In an energy deregulation state, the utility company is not allowed to profit from the buying and selling of energy. Whatever the energy costs them is what they may charge the customer. They can only profit from the delivery. They own the pipes and wires the energy is sent through and get paid for the delivery of the energy no matter where it comes from. So, the utility company doesn’t shop around for the best energy prices.
ESCOs are allowed to profit from the buying and selling of energy to customers. This creates competition between Energy Supply Companies who want to offer the best rates to customers. This is why ESCOs can offer better programs than utility companies and why utility companies’ prices are often higher than ESCO prices.