Regulated vs Deregulated Electricity Markets Understanding the Difference

Understanding Electricity Market Structures

The U.S. electricity industry operates under two distinct market structures that determine how consumers receive and pay for power. Two market types:

Regulated markets: Traditional utility monopolies handle generation, transmission, and distribution
Deregulated markets: Functions are separated, allowing multiple companies to compete for generation business

Market coverage:

📊 ~17 states + Washington D.C. have implemented some form of electricity deregulation for residential customers

💡 Why it matters: Understanding which system governs your area determines whether you can shop for electricity suppliers or must accept your local utility's rates and service.

How Regulated Electricity Markets Work

In regulated electricity markets, a single utility company maintains exclusive rights to generate, transmit, and distribute electricity within its service territory. How regulated markets function:

🏛️ State public utility commissions oversee these monopolies
🏛️ Commissions approve rate increases and ensure reliable service
🏛️ Customers have no choice of electricity provider
🏛️ Pay rates established through regulatory proceedings

What utilities do:

🔌 Build power plants
🔌 Maintain transmission lines
🔌 Deliver electricity to homes and businesses

Examples of regulated states:

🗺️ Florida, Georgia, Nevada, and most southeastern states

📊 Rate determination: Reflects company's costs for generation, infrastructure, and allowed profit margins approved by regulators.

How Deregulated Electricity Markets Work

Deregulated electricity markets separate the supply chain into distinct competitive and regulated segments. What's competitive vs. regulated:

⚡ Generation (competitive): Multiple suppliers produce and sell electricity
🔌 Transmission & distribution (regulated): Local utility monopolies maintain infrastructure

How it works for customers:

✅ Choose your electricity supplier
✅ Utility continues delivering power through existing infrastructure
✅ Bill shows separate charges: supply (competitive) + delivery (regulated)
✅ Only the supply portion is subject to your choice

States with residential choice:

🗺️ Ohio, Pennsylvania, Massachusetts, Texas, and others
🗺️ Dozens of competing suppliers available

Key Differences Between Market Types

The fundamental difference lies in consumer choice and competition. Regulated markets:

✅ Simplicity with one provider and one rate
❌ No alternatives if you dislike prices or service

Deregulated markets:

✅ Multiple options available
❌ Require consumers to actively compare offers and make decisions

How rate structures differ:

🏛️ Regulated: Rates change through formal regulatory proceedings (every few years)
📈 Deregulated: Competitive rates fluctuate based on market conditions and supplier pricing

Consumer protection differences:

🛡️ Regulated: Rely on utility commissions
🛡️ Deregulated: Add supplier certification and market conduct rules

Advantages of Regulated Markets

Regulated electricity markets offer several benefits valued by consumers and policymakers. Key advantages:

📊 Rate stability: Regulatory oversight limits how quickly prices can change
🏛️ Public proceedings: Utilities must justify rate increases; consumer advocates participate
🔧 Long-term planning: Infrastructure investment for reliability over decades
🏠 Universal service: Guaranteed electricity access regardless of customer profitability
✅ Simplicity: No need to compare suppliers or understand contract terms
📞 Clear complaint resolution: Regulatory commissions provide processes

💡 Additional consideration: Some argue regulated utilities better support renewable energy mandates and grid modernization through coordinated planning.

Advantages of Deregulated Markets

Deregulated electricity markets provide benefits through competition and consumer empowerment. Key advantages:

💰 Price competition: Can lower generation costs as suppliers compete
🔒 Fixed-rate contracts: Lock in prices and avoid market volatility
🌱 Green energy options: Environmentally conscious customers can choose renewable suppliers
🚀 Innovation: Companies develop new products, pricing structures, and services
🔄 Easy switching: Dissatisfied customers can switch without moving
📈 Market pricing: Reflects actual generation costs rather than utility commission negotiations

📊 Research finding: Studies show competitive markets have reduced electricity prices in many regions compared to what regulated rates would have been.

Challenges in Each Market Type

Both market structures present challenges for consumers and regulators. Regulated market challenges:

❌ May lack incentive for utilities to minimize costs (profits come from approved rate bases)
❌ Customers cannot escape poor service or high rates without physically moving

Deregulated market challenges:

❌ Require consumer engagement and education to realize benefits
❌ Vulnerable populations may be targeted by aggressive or deceptive marketing
❌ Rate volatility can affect variable-rate plan customers during price spikes
❌ Complexity of comparing offers leads some customers to overpay through inaction

⚠️ Common requirement: Both systems require strong regulatory oversight to protect consumers and ensure reliable service.

Which States Have Deregulated Markets

17 states plus Washington D.C. offer some form of retail electricity choice for residential customers. States with full residential choice:

🗺️ Ohio, Pennsylvania, Massachusetts, Texas
🗺️ Connecticut, Delaware, Illinois, Maine
🗺️ Maryland, New Hampshire, New Jersey, New York, Rhode Island

States with partial/limited deregulation:

⚠️ California: Suspended deregulation following 2000-2001 energy crisis
⚠️ Michigan: Caps participation in choice programs
⚠️ Oregon and Montana: Limit choice to larger customers

Fully regulated states:

🔒 Most southern, western, and midwestern states

💡 Find your options: Check your state's public utility commission website to determine your specific options.

Frequently Asked Questions

Can I switch to a regulated market if I prefer that system?

No, electricity market structure is determined by state law, not individual choice. If you live in a deregulated state, you can choose to stay on your utility's default service rate, which functions similarly to regulated service. However, you cannot opt out of the deregulated market framework entirely while residing in that state.

Are electricity prices lower in regulated or deregulated states?

Research shows mixed results depending on timeframe and region. Some deregulated markets show lower prices than comparable regulated states, while others show higher prices. Many factors beyond market structure affect electricity prices including fuel costs, climate, infrastructure age, and renewable mandates. Active shoppers in deregulated markets often pay less than default rates.

Do I have to choose a supplier in a deregulated state?

No, you can remain on your utility's default service (called Standard Service Offer, Basic Service, or similar names) without choosing a competitive supplier. Many customers never actively choose and continue receiving utility-provided generation. However, default rates may be higher than competitive offers depending on market conditions.

Is my electricity more reliable in regulated or deregulated markets?

Reliability depends on transmission and distribution infrastructure, which remains regulated in both market types. Your local utility maintains power lines and responds to outages regardless of your generation supplier choice. Deregulation does not affect the physical delivery of electricity or outage response, only who generates the power you consume.

Why did some states deregulate while others didn't?

Deregulation resulted from state-level policy decisions in the 1990s and 2000s based on economic theories about competition benefits. States with higher electricity prices were more likely to deregulate hoping competition would reduce costs. Political factors, utility industry influence, and regional energy resources also affected whether states restructured their electricity markets.

About the author

Han Hwang

Consumer Advocate

Han joined ComparePower with years of experience building and scaling digital marketplaces. He brings that expertise to ElectricRates.org, focused on making energy shopping simpler for consumers in Ohio, Pennsylvania, and Massachusetts.

Electricity marketplace operationsDigital business strategyRetail electricity marketsConsumer experience optimizationPartnership development

Topics covered

deregulation regulated-markets electricity-choice energy-markets utility-structure

Sources & References

EIA - Electricity Restructuring (U.S. Energy Information Administration): "EIA provides comprehensive data on state electricity restructuring and retail choice implementation"Accessed Jan 2025
FERC - Electric Power Markets (Federal Energy Regulatory Commission): "FERC oversees wholesale electricity markets and interstate transmission"Accessed Jan 2025

Last updated: December 10, 2025