Energy deregulation redefined the energy buying process, giving you the power to choose your energy provider. In the past, you’d typically have to rely on a single government-regulated utility company that monopolized the energy sector, controlling power generation, transmission and electricity sales.
Deregulation of the energy market began in the 1990s in response to the call for more competition, lower electric prices and increased efficiency. The goal was to open the market to multiple energy providers, giving consumers better options, flexibility and rates.
Thanks to deregulation, you have options regarding electricity providers, plans, perks and features. Getting the most out of your energy choice requires doing your homework, assessing your energy needs and making informed decisions.
States with Deregulated Energy Markets
Many U.S. states have deregulated energy markets, including Texas, Pennsylvania, New York, Illinois, Ohio and more. Note that a deregulated energy market may mean deregulated gas, electricity, or both.
In states with deregulated electricity, you can choose your electricity provider from a range of companies, allowing for competitive pricing and the opportunity to select from a variety of energy plans.
Not all states have deregulated energy markets, though, and must rely on the single energy company that operates the entire market.
How Deregulated Energy Markets Work
In deregulated energy markets, generators produce electricity using various fuel sources, including natural gas and green energy sources, such as solar, wind and hydropower.
Electricity companies purchase electricity in wholesale auctions, typically with oversight from a governing body of some sort. In Texas, this includes the Public Utility Commission of Texas (PUCT) and the Electric Reliability Council of Texas (ERCOT). Light companies compete with each other to purchase and sell electricity at the most competitive prices. This competition helps keep rates low for you, the end user.
Utility companies, which manage the local power grid, deliver electricity to homes and businesses throughout the state.
Pros and Cons of Energy Deregulation
Pros
- Increased competition: Deregulated markets have more energy providers, which can lead to lower prices and better service as companies compete for your business.
- Greater variety: Consumers have the flexibility to choose from a variety of plans, allowing you to select the one that best fits your needs, budget and usage habits.
- Potential savings: By comparing energy rates and providers and selecting the best plan for your usage, you may be able to secure potential savings.
- Green energy: Deregulation has led to more renewable energy plans and advanced pricing structures that support sustainability.
Cons
- Price volatility: Deregulation created a free market in which price fluctuations can cause rate spikes that can lead to unexpectedly high bills.
- Complexity: The wide range of options and terms can be overwhelming for consumers, making it difficult to compare plans and choose the best one.
- Marketing pressure: Some consumers may fall victim to aggressive marketing tactics, which can include deceptive discount structures or hidden fees.
- Potential for service interruptions: If an energy provider goes out of business, the state typically transfers customers to a Provider of Last Resort (POLR). However, each state may handle situations differently.
Types of Energy Plans in Deregulated Markets
In deregulated energy markets, you can choose from numerous energy plan types. These include fixed-rate plans, where the price per kilowatt-hour (kWh) stays the same throughout the contract, and variable-rate plans, where the price per kilowatt-hour fluctuates based on market conditions. There are also time-of-use and green energy plans, each offering different pricing structures or sustainability options.
Fixed-Rate Plans
Fixed-rate plans lock in a set price per kilowatt-hour of electricity for the duration of the contract, providing stability and predictability in your monthly bills. This type of plan protects consumers from fluctuating energy prices caused by market conditions, offering peace of mind with consistent rates. The contract length for fixed-rate plans typically ranges from 12 to 36 months, although some electricity companies offer shorter contracts from three to nine months, while others offer contracts as long as 60 months. Varying term lengths allow customers to choose how long they want to commit to the fixed rate. While these plans are ideal for those who prefer budget stability, it’s important to consider early termination fees (ETFs) if you need to switch providers before the contract ends.
Variable-Rate Plans
Variable-rate plans come with no contract, which may suit your needs if you don’t want a long-term commitment. However, these plans offer no price protection, as rates change monthly, depending on supply and demand, weather or seasonal changes. Although these plans occasionally offer low rates during periods of high demand, they more often leads to high rates and surprise bills. We generally don’t recommend variable-rate energy plans.
No-Deposit Plans
No-deposit plans allow consumers to sign up for electricity service without undergoing a credit check or paying an upfront deposit. These plans are beneficial for individuals or families with low or poor credit scores who may not have the financial flexibility to pay a deposit. While these plans can be convenient, they often come with slightly higher rates or fees to offset the risk taken by the energy provider. Based on our research, Payless Power may offer the best no-deposit energy plans due to its fixed-rate offerings for prepaid energy.
Other plan options
Other common plan options in the Texas deregulated market include bill credit plans, time-of-use plans, and green energy plans. Depending on your energy usage needs and your sustainability goals, one of these options may benefit you.
Choosing an Energy Provider
When comparing light companies in Texas, it’s essential to evaluate the company’s reputation for customer service and reliability. Our methodology for reviewing electricity companies in Texas relies heavily on customer service and trust, using survey data from real Texas energy customers. A trustworthy provider will ensure smooth service and transparent billing. Pay close attention to contract terms, including contract length, renewal conditions and any ETFs.
Another critical factor is the pricing structure. Compare a range of electricity plans to determine which best suits your usage and budget. Finally, check if the provider offers green energy options and if sustainability is important to you.
How To Use Home Energy Club To Compare
You can compare electricity rates using our energy plans comparison tool to see the best energy plans from top light companies in your area. Simple punch in your ZIP code, filter plans based on provider, home size, plan features or term length, and compare. To get the full details on any specific plan, we recommend reviewing its electricity facts label (EFL). The EFL is a state-mandated document that illuminates all of the key fees your energy plan may charge, including the energy charge, utility delivery fees, base charges and more.
Once you select a plan, we can help you sign up in five minutes or less. All we need is some basic information, including your name and your home address, and your new provider will get your lights turned on.
Renewable Energy Options
The increased competition in the deregulated energy space has driven innovation and made renewable energy more accessible. You now have access to renewable energy options, including wind, solar and hydropower. Other green energy options include biomass and nuclear power.
Increased access to renewable energy sources has also helped make green energy more affordable. Many clean energy plans are now as affordable as — if not cheaper than — traditional energy.
Business Energy in Deregulated Markets
In deregulated energy markets, businesses have more flexibility than residential customers in selecting their energy retailers, which can lead to potential cost savings. When shopping for commercial electricity, businesses can often negotiate and tailor energy contracts, taking advantage of bulk rates or renewable energy sources that align with their sustainability goals.
Important Terms To Know
In the table below, we break down important terms related to the deregulated energy market and the factors that can influence your monthly electricity costs.
| Term | Definition | Why It Matters |
|---|---|---|
| Fixed-Rate Plan | An energy plan where the price per unit of electricity stays locked for the contract's duration | Provides price stability and predictability in monthly bills, shielding consumers from market price fluctuations |
| Variable-Rate Plan | An energy plan where the price per unit of electricity changes based on market conditions | Exposes consumers to price increases and unpredictable energy bills |
| Default Service | The standard service provided by the utility company when a customer doesn't choose a supplier | Ensures continuous electricity service, but typically at higher rates than those offered by competitive suppliers |
| Generation Charge | The cost associated with producing electricity from power plants | A significant portion of the bill; fluctuates depending on the fuel source, demand, and market conditions |
| Transmission Charge | The cost of transporting electricity from power plants to local distribution systems | Helps maintain and upgrade the infrastructure that delivers electricity to consumers |
| Delivery Charge | The cost of delivering electricity from the local utility's infrastructure to homes or businesses | Represents ongoing maintenance and upgrades to local electricity grids |
| Early Termination Fee | A penalty fee if a customer cancels their contract with a supplier before the agreed end date | Acts as a deterrent for breaking contracts early; important to consider before switching providers |
| Renewable Energy | Electricity from sustainable sources like wind, solar, or hydro | Often a key factor for eco-conscious consumers; can be more expensive but supports environmental goals |
| Capacity Charge | A fee that ensures the provider has enough generation capacity to meet peak demand | Essential for maintaining grid reliability, particularly during periods of high energy consumption |
| Supply Charge | The cost of the energy supplied to the customer, separate from delivery charges. | Can vary significantly between fixed and variable-rate plans and between different providers |
Note that you may not see all of these charges on your energy bill. Some providers leverage specific charges, while others don’t. Most energy bills will feature an energy charge and a utility company delivery charge. Other fees may vary depending on the provider and plan you choose.
Frequently Asked Questions About Deregulated Energy
How does energy deregulation affect my electricity bill?
You can choose your provider in deregulated energy markets, so your monthly bill will change depending on your chosen plan, if you opted for fixed or variable rates, and any promotional offers. Additionally, energy rates throughout the state can vary based on market conditions, including the cost of fuel sources, supply and demand, and even local weather conditions. Signing up for a fixed-rate energy plan will help protect you from the rate increases caused by the free market.
Can I switch energy providers whenever I want?
If you live in a deregulated energy market, you can switch providers whenever you want. However, if you’ve signed up for a fixed-rate energy plan, you will likely owe an ETF if you cancel your plan before your contract comes to an end. The switching process typically involves comparing offers, selecting a new provider and notifying your current one that you will be ending service.
What happens if my energy provider goes out of business?
If your energy provider goes out of business, a Provider of Last Resort (POLR) may take over your energy service. You shouldn’t undergo any lapse of service. You may have the opportunity to switch to a provider of your choice if your current energy company goes out of business.
Which is better: a fixed-rate or variable-rate plan?
A fixed-rate plan locks in a set rate for the duration of the contract, providing predictability and protection against price increases. These plans are ideal for those who prefer stability in their monthly bills. A variable-rate plan, on the other hand, fluctuates with market conditions, which can result in lower costs when prices are low but exposes you to potential price hikes when demand rises. Fixed-rate plans are typically better for people who want consistent costs and can commit to a longer-term contract. We virtually never recommend variable-rate plans.
