You may think of electricity as a “sunk” cost, but when it comes to this expense, you might have more power than you realize. The truth is, you might not be bound to your local utility.
“In deregulated markets, operators can choose who supplies their electricity,” notes James McGinniss, CEO and co-founder of David Energy. “They are not required to purchase it from a utility. The operator cannot choose who delivers their electricity, though that will always be their local utility since they manage the infrastructure.”
What’s the Difference Between Vertically Integrated and Deregulated Markets?
In a vertically integrated electricity market, utilities cover the entire value chain with oversight from a public regulator. They are responsible for supplying and delivering electricity to consumers. In a deregulated electricity market, market participants other than utilities, such as retail electricity providers (REPs), can also sell electricity. They purchase electricity from a wholesale market and sell it to consumers.
Here's a current list of states in which electricity is deregulated: California, Connecticut, Delaware, Georgia, Illinois, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Virginia, and Washington, D.C. Expect that list to grow as 32 states have introduced some form of energy deregulation and retail energy choice as of 2024.
The Benefits of Deregulation and Choice
In deregulated markets, operators can choose to purchase electricity from their local utility or a REP. The benefits of partnering with a REP include more flexibility, savings, and sometimes access to value-added services. They may operate in a specific state or region, or throughout deregulated markets. Delivery is still handled by the utility.
“With REPs, operators get more choices of how they can purchase electricity. For example, they can choose a fixed or variable rate, or list their preference for renewable energy sources,” notes McGinniss. “Additionally, depending on who they partner with, they can get expert guidance on what’s in their electricity contract. These are typically complicated documents, and we always advise operators that if a provider is not willing to explain the terms or is being unclear about it, it likely contains something you wouldn’t want.”