Working in regulated and deregulated energy markets can greatly affect both businesses and energy brokers. Find out why & what the key differences are.
The Differences Between Regulated vs Deregulated Energy?
If you’ve lived in the United States since the 1990s, you’ve likely heard about energy deregulation and how it reshaped the market. Before that time, most energy utility companies were tightly regulated by the government. These companies held monopolies over their local markets in exchange for following strict government rules.
When deregulation began in the 1990s, those monopolies were broken up, creating space for new energy providers to enter the market. This shift gave consumers more choice and increased competition. In this article, we’ll look at the benefits of deregulated energy and explain the key differences between regulated and deregulated markets.
What Is Regulated Energy?
In a regulated energy market, the local utility company holds a monopoly. Customers must buy their power directly from this provider, as it is responsible for generating, selling, and delivering energy to the community. Many states across the U.S. still operate under this regulated structure today.
What Is Deregulated Energy?
Deregulated energy markets operate differently from regulated ones. In these markets, utilities still play a key role. They continue to own and maintain the local power and gas lines, and they remain responsible for delivering energy to homes and businesses. However, instead of being the only option, utilities compete alongside other energy suppliers while still offering their own default rate.
This means customers in deregulated markets are free to choose. They are not required to purchase energy directly from the utility. Instead, they can shop for electricity or natural gas from third-party suppliers, often comparing prices, plans, and contract terms to find the best fit for their needs.
Regulated vs Deregulated Energy: At a Glance
Feature | Regulated Market | Deregulated Market |
Energy Supplier | Single utility company | Multiple suppliers compete for customers |
Customer Choice | No choice — must buy from utility | Full choice — shop among suppliers |
Billing | One bill from utility | Either one consolidated bill or two separate bills (supplier + utility) |
Rates | Set by state regulators | Competitive, based on market conditions |
Utility Role | Generates, distributes, and bills for energy | Distributes energy and maintains infrastructure |
Business Impact | Limited to efficiency projects to reduce costs | Can shop for better rates, flexible contracts, or renewable energy |
Broker Role | Limited (focus on efficiency, audits, consulting) | Active (helping businesses shop, compare, and negotiate plans) |
Differences Between Regulated and Deregulated Energy Markets
There are a few key differences between regulated and deregulated energy markets. If you have lived in both a regulated state and a deregulated state, then you know they are not alike. Businesses operating in both of these markets also see many differences in utilities. Below are some of the main differences between regulated and deregulated markets:
Wholesale Energy Markets
In most regulated states, there is no wholesale energy market like the one in deregulated states. Because utilities control everything in regulated markets, a free-trading wholesale market is not necessary. Deregulated states, however, have wholesale markets where electricity and natural gas are traded like commodities.
Billing Options
In regulated markets, customers receive a single bill for energy from their local utility. That bill is simple, and customers pay the regulated rate for that period. In deregulated markets, billing is different. Supplier rates may appear on a utility bill, or customers may get two bills: one from the supplier for energy supply and one from the utility for energy delivery.
Consumer Choice
The biggest difference between regulated and deregulated markets is consumer choice. In regulated states, customers cannot choose since the utility has a monopoly. In deregulated markets, consumers can select from multiple energy providers. In states like Texas, customers must sign up with a supplier, as they cannot remain with the local utility.
Impact on Businesses
Both types of energy markets affect how businesses operate. There is debate about whether deregulation is good for companies. In regulated states, businesses must find alternative ways to control energy costs. Since they are tied to utility rates, the only way to lower costs is to cut usage with efficiency projects.
In deregulated states, businesses can choose their supplier, so they face many decisions. Which plan is best? What is the lowest rate? How long should they lock in a fixed rate? Should they stay with the utility or change providers? These choices can be complex for companies in deregulated states.
For larger businesses with sites in both regulated and deregulated states, the differences are clear. Many national customers with multi-site operations say they see two main differences:
- Regulated locations see utilities as a fixed cost of doing business.
- Deregulated locations focus on finding ways to reduce costs.
Impact on Energy Brokers
These energy markets also affect licensed brokers and how they operate. Since most brokers sell electricity and gas, they mainly work in deregulated states. When states pass laws to deregulate, brokers and sales agents gain new opportunities.
Some brokers expand services to offer solutions beyond energy supply. These services can also be sold in regulated markets. Energy efficiency upgrades such as LED lighting, smart thermostats, and variable drive motors help customers save money in regulated states.
Other brokers provide utility audits, which are useful in regulated markets. In these audits, brokers look for overbilling or mistakes in utility statements. In regulated states, utilities may offer different commercial delivery rates. Auditors often find that a business qualifies for a cheaper rate class, saving them thousands of dollars.
Want to Learn More?
If you want to dive deeper into regulated and deregulated commercial energy markets, you’re in the right place. Our team of expert energy advisors has been helping customers in both types of markets for more than a decade. We also provide a range of services and energy solutions tailored for businesses, no matter their location. Get in touch with us today to learn more.