Energy Deregulation

The Complete Guide to Choosing Your Energy Provider

1-feature-energy-choice

Deregulation allows alternate suppliers into the market to offer their energy products to consumers. The price they offer is not set by the government or the utility company. It allows you to choose your supplier like you would for most other service providers. For example, if you are unhappy with the price of your Internet service, you can change to another company. Deregulation allows you the same freedom.

 

Most people consider the United States electric industry the last great government-sanctioned monopoly. The monopoly, composed of hundreds of individual energy suppliers, ensures that everyone within the United States receives a steady flow of energy at stable prices. The system has served the country well for several decades. However, the system also has several drawbacks.

While a regulated energy system guarantees stable service, it also ensures there is only one service provider per region. This means there is no competition among providers. While this may not seem like a problem on the surface, it’s a long-term issue in regard to pricing and customer service.

In response to the growing number of people dissatisfied with a lack of options, many states have opened their systems to energy competitors in a process known as deregulation. This complete guide will help you understand deregulation and its benefits, as well as guide you through the process of choosing a new energy provider. 

shipley-energy-deregulation-flow-chart

What Is Energy Supply Regulation?

In a regulated energy supply system, consumers only have a single utility company available to them. The utility company sets the price of the energy provided and controls the costs involved in sending it to homes, maintaining lines and pipes, and ensuring the consistency of the power supply. Within this system, the consumer has no power to choose their utility company.

This regulated system has a long and storied past in the United States, beginning in the early 1900s during the New Deal Era.

2-timeline-energy-choice

During this time, large interstate companies controlled more than 75 percent of the country’s electric generating capacity, and they almost completely controlled the pricing of that energy, artificially inflating it to maximize profits. In 1935, Congress passed the Public Utility Holding Company Act of 1935, more commonly known as PUHCA, which forced these large companies to break up.

The passing of PUHCA effectively sanctioned the creation of 300 power systems and 800 rural cooperatives to replace the old energy monopolies. To prevent another slew of private monopolies to develop, the government regulated these new energy providers with strict rules, dictating the region they could operate in and the prices at which they could offer energy.

At first, this system proved to be quite effective, benefiting the majority of the United States’ population. Not only did these smaller companies provide more reliable service to customers, but they did so at fairer, more stable rates. While this solution helped to eliminate the immediate problem of interstate energy monopolization, the regulation of energy also eliminated any possibility for competition between energy companies.

Today, the continuing practice of energy regulation has resulted in stagnant energy prices and services.

What Is Energy Supply Deregulation?

In a deregulated energy market, the limitations of PUHCA are somewhat lifted, allowing multiple suppliers to exist within a single territory. A wider variety of natural gas and electricity suppliers are available to each consumer within the deregulated territory, providing consumers with the power to choose their energy provider. Just like in a regulated system, energy consumers receive the same amount of energy with the same consistency, but the price and quality of their service, as well as their service options, can drastically change.

Deregulation began in the 1970s when OPEC’s worldwide oil embargo changed the face of the electric and natural gas industry. It not only caused petroleum oil to run scarce, it also caused electricity and gas prices to skyrocket. This caused a renewed interest in alternative forms of energy.

In response to the worldwide oil crisis, Congress passed the Public Utilities Regulatory Policies Act, or PURPA, in 1978. It required utilities to pursue renewable energy options and created a structure for independent power companies to come back into the market. However, private energy companies were still discouraged under PUHCA’s limitations, resulting in very few appearing in the market.

In the 1990s, however, national attention focused on energy options more than ever before. People began to call for competition in the energy industry, tired of the government-sanctioned monopolies they were forced to live with. Congress finally responded in 1992 with the Energy Policy Act. This law allowed power producers, both public and private, to compete for the sale of electricity and eliminated restrictions on energy prices for wholesale electricity.

While the Energy Policy act opened up the market to private energy providers, many utility companies simply weren’t set up to allow the introduction of new suppliers into their systems. This caused a great deal of frustration and confusion for local utilities and new private energy companies alike until 1996, when the Federal Energy Regulatory Commission, or FERC, issued Order 888. This was a landmark order for the United States’ energy market, requiring utility companies to open their transmission lines to competitors. The act also required utility companies to provide public access to their energy rate schedules, introducing a new level of transparency into the energy market.

Since these two landmark rulings, deregulated markets have swelled across the nation.

What States Use Deregulated Energy?

3-deregulation-map-energy-choice

Deregulation is not currently the norm throughout the United States, but it’s slowly gaining popularity. Currently, only eight states have completely deregulated energy systems, including both electricity and gas:

  • Pennsylvania
  • New York
  • Maryland
  • New Jersey
  • Ohio
  • Michigan
  • Illinois
  • Montana

Washington D.C. also has the benefit of complete deregulation. Only twelve states have deregulated gas systems, and eight states enjoy deregulated electricity. In total, a little over half of U.S. states employ one form of deregulation or another, and the movement continues to grow.

Where Is Deregulation Going Today?

Today, numerous states and several main interest groups support nationwide deregulation. The interest groups advocate changing the current system in favor of one they think would most benefit the population. In total, the groups have spent over $50 million lobbying to Congress and other lawmakers. Most of the funds are spent targeting a few key aspects of energy legislature, many of which bar deregulation in part or completely.

Some of the primary issues and topics concerning these interest groups include the following:

  • The 1935 Public Utility Holding Company Act: As discussed previously, this law was vital in breaking up the interstate monopolies of the early 20th century, and now functions as a pass for local utility companies to maintain small monopolies within their regions. While this law does prevent these local utility companies from expanding their reach and renewing the catastrophic monopolies of the 1930s, it now stands as a barrier for new private energy companies to grow.

    Opinion among deregulation proponents is largely split when it comes to this particular piece of legislature. While some view it as an unnecessary and outdated barrier to increased energy competition, others value it as a safeguard against the creation of another slew of interstate monopolies. Many fear that repealing the law would remove numerous protections to American consumers. While some would prefer the law repealed completely, moderate deregulation supporters tend to promote changing the law, maintaining all of the protective measures while expanding the rights and abilities of private energy companies across the nation.
  • The definition of “fair competition”: Many private, investor-owned electric companies have more funds available for marketing and advertising campaigns than public utility companies. This is another source of contention between lobbying groups, as it brings up the issue of fair competition.

    While the private electric companies can easily outcompete government-owned agencies in terms of advertisements, the can do so because of private funding. While some groups see this as a fair and earned advantage, others would say that it overshadows the local utility companies and results in a misrepresentation of the market.

    The solution to this problem is a matter of debate. Many groups want the ability for both government-owned and investor-owned companies to compete fairly within the market, and ensure fair pricing and access for everyone in the area. However, many are unsure of how to accomplish this without treading on the rights of private energy companies to promote their services.
  • How to handle smaller rural regions: Another concern surrounding deregulation is the effect of this policy on rural areas, especially on its residents, small businesses, farmers and ranchers.

    As it stands, energy for rural regions can be more expensive and lower quality. This is primarily because utility companies tend to be centrally located, closer to more populated areas. As a result, the rural residents living on the outer edge of a utility company’s territory can be miles away from their utility company. This can cause serious energy problems for these residents. Energy shortages tend to affect these regions first, and damage to power lines or pipes can take much longer to fix, leaving rural residents without power for longer periods.

    Many supporters of deregulation support the idea that the introduction of private energy companies can help support these rural communities by offering them not only more competition, but also more energy coverage. By offering more energy companies, the supply of energy to a region increases, resulting in fewer shortages. Additionally, while utility companies are in charge of power lines and pipes, the introduction of alternative energy suppliers means more attention to energy supply lines.

    While many would agree that deregulation benefits rural communities, getting private companies into these areas can be problematic. Private companies are less likely to arise in these areas due to smaller populations. Some lobbying groups suggest offering incentives for private energy companies moving into these areas, though this is hardly a simple solution to the problem.

The above issues are still major points of contention between lobbying groups, and how these issues are treated in future will largely shape deregulated systems in the years to come.

What Are the Benefits of a Deregulated System?

4-benefits-of-deregulation-energy-ch

Deregulated systems are excellent for both residential and commercial customers, as well as the energy market as a whole. The system can also prove to be a distinct advantage for local economies. Deregulation offers the following benefits:

  • Lower residential prices: Allowing consumers to act more freely within the energy market gives them more control over their energy prices. Consumers’ actions stimulate changes in the market, causing energy companies to alter their services to better suit consumers’ needs and wants. The effect is a cheaper and higher quality market.
  • Lower commercial prices: Businesses benefit from deregulation as much as residential buildings do, primarily in reduced prices and higher quality service. This reduced cost can have far-reaching effects, however, as energy costs can factor into the operating cost of a business, which in turn factor into the costs of the business’ product. For example, the average grocery store spends about 4 percent of its net sales on electricity expenses. Such expenses are passed to the customer through higher product prices.

    The effects of these energy costs on a business are especially noticeable for smaller businesses, because their expenditures represent a more substantial burden on their finances. By stimulating an average drop in energy prices, deregulation effectively lightens the load of small local businesses, reducing their operating costs and their product costs by extension.
  • Equalized regional differences: Prices per kilowatt-hour vary widely from state to state and region to region. Introducing competition drives regional prices ever lower, equalizing some of the differences and deficiencies previously present.
  • Increased jobs: With the introduction of new energy businesses comes new jobs. Not only can these alternative energy companies directly offer new jobs to local residents, but they can also indirectly spur job creation by saving money for local businesses, freeing up funds that can be used to hire new employees.
  • Benefits for the environment: Increased competition also means an increase in the population’s standards. New energy production companies want to ingratiate themselves with local consumers as much as possible. Most accomplish this with high quality customer service and low prices, but many companies will turn to other ways to get an edge on the competition.
    12-companys-go-green
    In order to set themselves from the crowd, numerous energy supply companies focus on environmentally friendly processes and methods. By minimizing their environmental impact, reducing emissions and byproducts, and making use of energy-efficient production methods, energy companies can not only market themselves as environmentally friendly companies, but they can benefit from positive public perception. Electricity supply companies can especially benefit from this by making use of renewable energy sources like wind and solar power.

    This focus on environmental friendliness also spurs competition of its own. Competition to find the cleanest, cheapest, and most efficient energy generation technique among energy supply companies will in turn spur the development of new energy solutions across the nation.
  • Increase service reliability: Increased competition also means errors aren’t as tolerable among the consumer network. A single outage can result in consumer rebellion and loss, which is why private energy suppliers work hard to ensure consistent energy service. This means energy suppliers will work doubly hard to ensure that more than enough energy is produced to supply the region each day, and that outages and shortages are handled promptly and professionally to mitigate negative feedback.

Should You Switch Suppliers?

If you’re thinking of switching suppliers, it’s wise to take a closer look at what the benefits mean for you, your service and your energy bills. Some of the direct benefits to you include:

  • Improved service: Alternative providers often employ excellent customer service representatives to better serve their customers. Because of the wider variety of options, if a customer has a bad experience, they can easily go elsewhere. This places greater importance on quality customer service.
  • Increased savings: You can shop around for service, so you can potentially find a better deal. Even if the difference is small, it can have a big impact — by saving a single cent per kWh, you can save more than $100 a year.5-save-100-a-year-energy-choice
  • Greener energy options: A number of providers offer 100 percent renewable energy plans. The plans may be a little bit pricier in some cases, but they can greatly reduce your carbon footprint.
  • Improved local economy: By supporting an alternative energy provider, you can play an active part in stimulating your local economy. By offering lower prices and better service, private energy providers can cut costs substantially for both private citizens and small businesses, stimulating job growth and making funds available for local spending. Additionally, the introduction of an alternative energy provider creates more jobs in your area.

People across the United States have reported success in deregulation. In fact, since deregulating in 1998, Pennsylvania has experienced a great deal of success.

6-PA-stat-energy-choice

Nearly 500,000 consumers, or 11 percent of the population, chose to leave their utility company, and residential customers who chose the least-expensive supplier saved an average of $10 per month.

How Do You Shop for an Energy Supplier?

After recognizing the numerous benefits of energy deregulation and the potential benefits of switching energy suppliers, you may be wondering how to switch. The first and most important step is to shop around for a supplier.

To find the best deal possible, you should take the following steps:

7-find-the-best-deals-energy-choice

  • Calculate how much you pay: Obtain copies of your energy bills for the past few months or a statement for your energy expenditures over the past year. You can usually ask your local utility company to send this to you. Determine exactly how much you currently pay for electricity, and then calculate how much you spend per year and per month on average. Once you know what you’re currently spending, you can look for a better deal.
  • Contact suppliers in your area: Search for information about your local suppliers online. While many of them won’t openly advertise their pricing schedules, most will advertise other features on their website or give you a quote if you use their online contact page. If you have any questions, feel free to call them directly.
  • Compare figures and estimates: Create a checklist or chart of features and rates, so you can easily compare suppliers. A list of the most important qualities, such as pricing or green energy options, will help you prioritize features and make your decision.

Once you narrow down your choices, you may ask for more details before you make a final decision. Ask about sign-up incentives and a quote or estimate before you finalize your decision.

What Questions Should You Ask a Potential Supplier?

8-questions-to-ask-supplier-energy-c

When shopping for a new energy supplier, you should gather all the information you need to make an informed decision. While pricing schedules, customer service quality and green energy options are all important, there are other factors that will have a significant effect on your bill. While gathering information about potential suppliers, ask the following questions:

  • How is the supplier licensed? It is standard for supplier’s in every supplier to be licensed by the local Public Utility Commission. In Pennsylvania, for example, all suppliers are required to be licensed by the Pennsylvania Public Utility Commission.
  • What is the supplier’s price per kilowatt-hour (kWH), and do they have multiple pricing schedules? Many suppliers will use one of two pricing methods: fixed and variable. A fixed pricing schedule means your price per kWh will remain the same for at least three billing cycles, though the rate is usually applied to the term of your current contract. Your price will not change during the time of the agreement, which can be a benefit when the market spikes, but a detriment when market prices decrease. With a variable rate, your price may change by the hour, day or month depending on your contract terms. You rate will rise and fall with market prices, which can be good or bad depending on the state of the market.
  • 13-what-causes-rates-to-changeIf the supplier uses a variable rate, is there a limit to how high or low the variable rate can go? Variable rates change based on the current market, but some suppliers put limits on their rates so they don’t fluctuate too much. Upper limits can keep your costs low, but lower limits can be a detriment if the market is especially inexpensive.
  • Are there any fees or price increases or decreases depending on usage or circumstances? Some suppliers have hidden fees, from meter-reading fees to contract renewal fees. Also, suppliers may change their rates based on the time of day or year. Ask about possible rate changes and fees to discover the true cost of switching energy providers.
  • Is there an introductory rate, and if so, how long does it last? As an incentive, many energy suppliers offer introductory rates at below-market value for part or all of the new customer’s first contract. This rate may last for the entirety of the contract, or it may only apply to the first few months. Be sure to ask about introductory rates, how they are determined and how long they last after signup.
  • Is there anything that will cause your rate to change, and if so, how? Rates primarily change based on the energy market, but some energy suppliers account for other factors in their pricing.
  • Are all taxes included in the supplier’s price? Most reputable suppliers include tax information within their pricing schedule, but others omit it in order to provide you with a slightly more attractive estimate. Ask any potential supplier whether taxes are included within their pricing estimate.
  • Does the supplier use or offer energy choices, such as renewable energy? Many suppliers offer alternative energy sources, such as wind and solar energy. Ask how they generate energy and if they use renewable sources.
  • Does the supplier have a record of average prices over the past year? Looking at an average pricing schedule over the past year should give you a good idea of what to expect on an annual basis. Most suppliers have a record, so it doesn’t hurt to ask.
  • Does the supplier use a contract system? Some suppliers go month to month, but most operate on a contract system where you sign up for a certain number of months before your contract is renewed. The contract will also state whether your pricing schedule is fixed or variable.
  • How long does the supplier’s contract system last? If your potential supplier uses a contract system, each contract may run anywhere from a month to a year, depending on the available options. Ask about your options, including the minimum and maximum contract terms.
  • What happens when your contract expires? Several things can happen when your contract expires. Some suppliers automatically renew it if you don’t contact them, and some will charge a fee for a contract renewal. In some cases, your supplier may switch you from a fixed rate schedule to a variable rate schedule unless you explicitly ask otherwise. Ask any potential supplier exactly what happens at the end of each contract period, so you know what to expect.
  • What happens when you cancel your service before your contract ends? If you move or find a better supplier but you still have time left on your contract, you could incur fees for early cancellation or breach of contract. Ask about any protocol you have to follow to end a contract early, any cancellation fees you may incur by cancelling early and if there are any circumstances in which an early cancellation fee can be waived.
  • Are there any sign-up bonuses or incentives? Some suppliers incentivize new sign-ups, either year round or seasonally. Ask if you qualify for any sign-up bonuses or specials.
  • Who provides billing, and will you be billed separately from your utility company? Some suppliers simply work through your existing utility company, while others will bill you separately. Be sure to know which to expect so you don’t pay the same bill twice.
  • What happens when you are late on a bill? Many potential suppliers charge a late fee if you fail to make a payment within a certain time frame. Be sure to ask whether your potential supplier charges late fees and how much they are. You may also want to ask if there is a grace period – a period after the due date when you can still make the payment without incurring the late fee.14-are-there-late-fees
  • Do you need a special meter, and if so, will you be charged for it? If you are a residential customer, most companies don’t require a special meter. However, some suppliers offer advanced meters, which allow you to record your usage. While not required, advanced meters can help you reduce your energy usage.

Be sure to add your own questions if you have them. If anything seems unclear, feel free to ask the potential supplier via phone call. How they answer can help you judge the quality of customer service the potential supplier can provide.

How Do You Switch Suppliers?

If you’ve made your decision on an energy provider, the next step is switching. All you need to do is take the following few steps:

  • 9-how-to-switch-suppliersContact your new supplier: Contact your new provider as soon as possible. If you can, set up a consultation to review the details of your contract and the terms and conditions. Make sure you have a copy of your contract in your files — it’s important if you have a billing issue or question in the future.
  • Provide your utility account number: You need to provide your new supplier with your utility company account number so they can process the switch. The number is on your monthly energy bill.
  • Contact your old provider: Your new supplier will likely notify your utility company for you, unless they explicitly say otherwise. In any case, your utility company will contact you by mail to ensure you did indeed select a new supplier. Once you send a confirmation, the process is officially underway.
  • Wait for your new bill: How quickly the switch happens depends largely on the rules and procedures of your area. Some areas have expedited processes that facilitate quick supplier switches. These expedited processes usually take around 3 days or so. However, most regions will simply wait to switch until your next meter read date. Depending on the date of your next meter read, the switch can take anywhere from 11 to 40 days.

Once you complete the above steps, you’re officially signed up with a new energy provider.

What Are Some Common Myths and Questions About Deregulation?

With any new system, there are numerous questions, concerns and myths, including the following:

  • What factors should I consider before moving home energy suppliers? Weigh your options carefully. Look at your current bill to determine how much you’re spending each month. Compare your usage to the pricing schedules of other options in your area. If you have questions about your bill or the pricing schedules of competitors, call either your utility company or the competitors. Compare all of your options and learn as much information as possible before you switch.
  • Do I have to notify my current utility company? Not usually, no. Once you sign up with your new competitive supplier, they will take care of the switch unless they explicitly say otherwise. They will contact your current utility company on your behalf and set everything up for you. Once this is completed, you will receive a notice from your utility company confirming your change in suppliers.
  • Will my utility company treat me differently if I switch providers? No, federal laws require your local utility company to provide you the same quality service as they would if you were purchasing energy from them. Regardless of where you buy your electricity or natural gas supply, they must serve you with the same amount of professionalism and care as they would any of their customers.
  • What changes if I choose a new supplier? If you choose a new supplier, the source of your energy, your pricing schedule and your service will change. Sometimes you can save a great deal of money, and you may even experience better customer service.
  • How can a competitive supplier offer a lower price than my local utility? Unlike utility companies that have their prices mandated, competitive energy suppliers dictate their own pricing schedules, and their energy costs reflect the current market.
  • Does switching suppliers mean I’ll be charged twice? No. You will not be charged twice for using your utilities, but your bill may look a little different. Typically, when you switch to an alternative supplier, your bill is split into two sections: a distribution section and a supply section.Your local utility handles the distribution section, composing about 30 percent of your total price. The supply section is handled by your alternate supplier — the remaining 70 percent of the costs of your energy bill. 10-bill-breakdown-energy-choice
    If you have questions about your bill or it doesn’t look right to you, contact your local utility and ask them directly.
  • What should I do if my rate is inaccurate or my bill is wrong? If you have any questions regarding your bill, be sure to know which to contact, your supplier or your distributor. If the incorrect portion of the bill is from the supplier, contact your supplier to confirm the accuracy of your bill. If necessary, examine the details of your contract to make sure you understand it. If there is an error with your energy rate, your supplier can fix it. If the billing issue is with your distributor, call your local utility company.
  • How long does it take to switch to a new provider? It depends on the next read date for your meter — anywhere from 11 to 40 days. In states like Pennsylvania, some regions offer accelerated switching, which means the process takes around three business days once your utility company has been notified. Ask your new supplier what the average switching time is in your area.
  • Who do I call in case of a power outage? If you experience a power outage or an issue with your lines, poles or pipes, call your utility company. Your local utility company is in charge of local infrastructure and physical problems associated with your energy supply. Your energy supplier has no control over the local infrastructure, and will simply direct you to your local utilities company for help.
  • If I switch, can I go back to my utility company? Yes. With deregulation, you have the power to choose your utility company if you prefer. Be sure to check with your supplier before you switch, as they may charge early termination fees.
  • Do I have to switch if my local market becomes deregulated? No. You can certainly stay with your utility company instead of finding an alternate supplier. Deregulation simply means that you have the option to switch.

What Energy Supplier Should I Choose?

When looking at potential energy suppliers, you should look for a trustworthy supplier with high customer ratings, a transparent pricing schedule and excellent customer service. If you’re looking for an energy supplier with all of these features in Pennsylvania, Ohio or Maryland, Shipley Energy may be the right choice for you.

Shipley can Help you with electricity, heating oil, natural gas, and propane 

We have over 85 years of experience in energy supply, providing consistent service to Pennsylvania, Ohio and Maryland for decades. We pride ourselves on our excellent customer service and numerous payment plans to fit any budget. Our variable and fixed rate billing schedules are easy to understand and can save you money every month.

Switching is easy! There’s no setup fee, no interruption in your service and no need to set up a new account.

15-CTA-energy-choice

To learn more about our incredible services, call or contact us online to speak with one of our trained customer service representatives.