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Regulated Markets and Restructured/Deregulated Markets


Staff member
Mar 19, 2024
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There are different types of energy markets, but we’ll focus on two types across the country: regulated and restructured (sometimes called deregulated).

In regulated markets, investor-owned utilities (IOUs) own and operate all infrastructure that generates and transports electricity within that jurisdiction. This “vertical integration” means they are responsible for the electricity generation (think natural gas, solar, coal, wind, hydro, etc.), then moving the electrons over their poles and wires and operating the meter that shows how much energy you use. The IOUs must seek state approval from their Public Utility Commission (or equivalent agency) for their investments and then look to recover those costs from those they are obligated to serve—that’s you, the customer. Public Utility Commissions, who supervise the IOUs, are responsible for ensuring that utility investments are prudent and that rates are just and reasonable.

In essence, regulated markets are (mostly) carefully governed by regulators, who furnish an environment that encourages utilities and other energy companies to invest and innovate while safeguarding the affordability and reliability of electricity for the end-users, which includes all of us who rely on electricity for our daily lives without burning a hole in our pockets.

In deregulated (or restructured) markets, utilities do not (generally) own the electric generation facilities within that market (Regional Transmission Organization “RTO” or Independent System Operator “ISO”) but do own the transmission and distribution system (poles and wires) that delivers power to your home or business. ISOs and RTOs are neutral and independent organizations responsible for managing energy, capacity, and ancillary service markets, ensuring that there is a balance between generating the power that will be supplied to the grid and load – how much people are using or demanding from an electricity provider over time. This has to constantly be monitored and studied by the ISO or RTO for a region to deliver reliable power at a (hopefully) affordable price.

The intent behind creating this market structure was to foster competition and lower prices. Utilities and competitive retail electric suppliers compete to buy and sell electricity at the lowest rates, allowing consumers to choose from whom they buy their electricity. This is often referred to as “consumer choice.”

Through this process, consumers are tasked with actively deciding who their energy provider will be while navigating various pricing plans, turning the energy market into a dynamic marketplace where retail electricity providers compete for customers. While retail competition may be good for consumers, they also make decisions about a complex market that they may not completely understand—opening up an unwitting consumer to predatory practices.

Regardless of whether you are located in a regulated or restructured jurisdiction, the construct of the regulatory compact holds. The utility is obligated to serve customers in its service territory and earn a rate of return on investments commensurate with its cost of capital and debt in exchange for all of the utility investments and costs being heavily regulated by state commissions.

The post Regulated Markets and Restructured/Deregulated Markets appeared first on Consumer Energy Alliance.
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