Consumer Control: The Difference Between Regulated and Deregulated Electricity Markets

Posted by
Jay Nault

I am your average American consumer. I know almost nothing about what goes into the delivery of electricity to my home. My knowledge extends only to reviewing our household’s usage with every billing cycle and then paying those bills. I do not have or make the time to find out where our energy comes from, how it gets to us or what if any options in this regard are available. That’s likely because I grew up with one utility company where we lived. My parents ordered service from them and never gave it another thought.

Things Are Different Now

I recently spoke to a professional representative from the Great American Power company and realized that things have been changing over the past 40 years or so. These changes provide me with the opportunity to have more control and power over my electricity costs. In 1978, Congress passed a law known as the Public Utility Regulatory Policies Act, or PURPA. This passage created a structure for independent power producers to enter the market, and therefore for competition to become part of the manufacture and distribution of electricity. In 1992, Congress passed the Energy Policy Act, eliminating the restrictions on pricing for wholesale electricity. Since then, more and more options for deregulation have appeared.

What does this all mean to me, the consumer? Will it make any difference in my daily life? The answer is a resounding yes, and below you’ll find just one of several important differences between what are known as regulated – or markets that existed before the passage of these laws – and deregulated electricity markets.

Vertical Integration

In regulated markets, the utility company enjoys what is known as vertical integration. Specifically, that means that a single entity owns and basically controls the following aspects of electricity delivery:

  1. Manufacture
  2. Distribution
  3. Billing

In other words, most regulated markets feature a local monopoly on electrical power. The consumer does what has been done for generations, in that he or she orders from the only utility option available, pays whatever rates are charged and doesn’t actively participate in the market because in those places there isn’t one.

The nuances of rules vary from state to state, but in a typical deregulated market, one entity is not allowed to own all aspects of electricity delivery. In fact, those entities in deregulated markets are required to divest all their ownership interests in the manufacturing and delivery of electricity. These companies are only allowed to do the following:

  1. Distribute the electricity from the central power grid to the consumer’s meter;
  2. Bill the consumer; and
  3. Act as a Provider of Last Resort, or POLR.

A POLR serves as a safety net to the consumer, in that if the main power generator in that market ceases operations, the POLR can serve as the temporary provider so that customers don’t have any interruption in service.

What Does This Mean For the Consumer?

While there are restrictions in place in regulated electricity markets that prevent practices like price gouging, the bottom line is that a monopoly in any industry, by definition, does not face competition. As such, monopolies can basically change the rates on electricity regularly or randomly. Deregulated markets open the world of electricity delivery to competition, and this benefits the consumer because prices can and many times do go down and levels of service improve.

Specifically, this means that if I work with a company like Great American Power, I can enjoy a far greater degree of control over my power costs. I can fix the price for a period of time and never have to worry about those costs rising. I now know what I’m going to be paying for my electricity next month, the month after and even several months from now. I now have the power of choice.

Deregulated electricity markets are continuing to pop up across the United States, particularly in states such as Maryland, Pennsylvania and Ohio among others. If you hear from a representative of Great American Power, take a few minutes to speak with them, as it could give you the same peace of mind I now enjoy. If you’d like to learn more about how a deregulated electricity market can affect your bottom line sooner than that, Great American Power is here to help you do so instantly. Go ahead and enter your zip code here to find out more about your local situation. Take back your power and your rights as a consumer.