How Energy Deregulation Affects Your Procurement Decisions

Author: rpm
Last modified: July 11, 2022

The energy market is a tough one to navigate. People often ask us, “what is energy deregulation?” or “how does energy deregulation help me?” We also know that energy management has risen up the agenda and that you need to buy in your energy at the best price possible for your business.

So, in this article, we’ll answer those questions and look at the detail of how this affects your procurement decisions.

What is Energy Deregulation?

So, here’s a quick rundown. Energy deregulation is the reduction or removal of regulations in the energy industry. This allows you to shop around for the best price because you now have options for choosing the power supplier that best suits your needs.

Just like you choose your internet or phone line provider, you can choose your energy provider – so long as you’re in an area that’s deregulated.

This gives you a very necessary leg-up when making decisions about energy procurement! No one can afford to pay more for power than they need to these days. So let’s look at how it works.

How Does Energy Deregulation Work?

If you’re in a regulated market, your options are limited. Choosing natural gas or electricity from utility companies means the government mandates the price of the power you select.

However, once the government deregulates the market (by reforming older laws), other vendors enter the market. The result is competition. And that gives you an advantage by forcing prices down. You can

  • therefore decide who you’ll receive your energy from, and
  • what price you’re prepared to pay.

Although your natural gas and electricity still arrive through the local utility’s power lines and pipelines, you’re now in the driver’s seat.

These are the key facts.

1 Each state has deregulated the market in different ways: For example, while some states enjoy an open market, others have only deregulated electricity or natural gas (see below).

2 Even with a partially deregulated market, some states limit participating consumers and how much energy they can purchase.

3 Once the laws are in place, however, the process goes through a reverse auction. Each company sells its power at the lowest possible rate. And independent companies then step in, purchase the energy required per the predicted demand and sell that energy to consumers at their own prices.

4 The infrastructure to deliver power already exists, but your energy now comes through these new vendors.

5 And even though certain companies own the infrastructure that delivers the power, they’re not responsible for the price offered, only for transmitting the energy from point A to point B.

As we mentioned, though, this has created an energy market that’s more flexible for your organization, giving you the possibility of better rates to suit your needs. So let’s see if you’re included in this deregulated scenario.

Which States Are Deregulated in 2022?

States That Have Deregulated Electricity and Natural Gas

  • Illinois
  • Maryland
  • Massachusetts
  • Michigan Gas
  • New Jersey
  • New York
  • Ohio Electricity
  • Ohio Natural Gas
  • Pennsylvania
  • Rhode Island
  • Texas
  • Washington, DC

States That Have Only Deregulated Natural Gas

  • California
  • Colorado
  • Florida
  • Georgia
  • Indiana
  • Kentucky
  • Montana
  • Nebraska
  • New Mexico
  • South Dakota
  • Virginia
  • West Virginia
  • Wyoming

It’s worth noting, however, that there are pockets of regulated and deregulated energy within certain geographical locations.

So – if you want to know more about your procurement options – or work with energy consultants – we’re happy for you to contact us to discuss the way forward. Otherwise, let’s look at how it might be possible to rethink your procurement decisions as a result of energy deregulation.

How Does Energy Deregulation Affect Your Procurement Decisions?

With all of the information provided above, what does this mean for you and your bottom line? How does this affect your choices and, more importantly, your decisions?

Here are five key points to bear in mind:

1 More Flexible Energy Options

With a deregulated market allowing other players into the field, you can shop around and choose the best energy options that suit your facility’s needs. Learn as much as you can about your options and try to keep some flexibility in case the energy situation changes.

2 Better Price Structures

A deregulated market means more competitors want your attention. To get that attention, many competitors drop their prices and sometimes offer better deals overall. Again, try to avoid a once-and-done approach and consider several pricing structures.

3 Different Contract Options

A side effect of a better deal is better contract options. Having a lower fixed rate over a period of time is a great thing. However, it’s good to go over these options with an energy procurement advisor to ensure you’ve considered all angles. The last thing you want is to be locked into an unfavorable contract.

4 Cleaner Energy

The more energy providers there are fighting for your attention, the more they will introduce greener options that give you the chance to reduce your carbon footprint. Shareholders and clients alike demand a level of sustainability in businesses these days. Energy providers will key into this, so look out for clean energy deals when you’re procuring.

5 Market Risk Exposure & Efficiency Solutions

If you feel this is a complex situation that you need help with, make sure you consult with a proactive energy advisor rather than simply use a broker.

A broker will choose your option for you and walk away. An energy advisor, on the other hand, understands the market and risks, explains price movements and trends on the horizon – and will be part of your team, helping you understand how to make your own best procurement decision on an ongoing basis.

A Deregulated Market Is Better For All

With all of that said, the most important point is that energy deregulation allows you to have the upper hand in the energy procurement process.

The ability to choose a lower price, a better contract, or an energy source that’s better for your organization means you’re making the best ROI you can – which is great for business!

We Can Help

At Rapid Power Management, we specialize in being the energy management team that’s on your side! If you want to make knowledgeable decisions, have a lower bottom line, and someone to help guide you through the deregulated energy market, we can

  • analyze what’s going on with your charges,
  • show you where you can make savings, and
  • stand alongside you to ensure you pay no more than you need to for procurement.

Send us a bill – it’s as easy as that to get your free analysis!

Image attribution