There are different types of energy markets, but let’s focus on two types that appear across the country: regulated and restructured or deregulated.
In regulated markets, investor-owned utilities (IOUs) own and operate all infrastructure that generates and transports electricity for the people and businesses they serve. This “vertical integration” means IOUs are responsible for the electricity they produce, moving the electrons over their system and reading the meter attached to your home business that shows how much electricity you use.
IOUs are required to seek approval for their investments (think the poles and wires on your street) from the state’s Public Utility Commission or equivalent agency. They then look to recover those costs from the people and businesses they are obligated to serve—that’s you, the customer. Public Utility Commissions are responsible for supervising the IOUs to ensure that these investments are sensible and that rates are fair and reasonable.
In essence, regulated markets are, for the most part, carefully governed by regulators, which helps to promote a space that encourages utilities to invest and innovate while safeguarding the affordability and reliability of electricity for end-users. In most cases, that means all of us who rely on electricity in our daily lives. This means that when we flip the switch, the power turns on, and we can afford to pay the bill at the end of the month.
In restructured or deregulated markets, utilities generally do not own the electric generation facilities within that market. However, the utilities do own the transmission and distribution system poles and wires that deliver power to your home or business. ISOs and RTOs are neutral, independent organizations whose main job is managing the balance between the power generated to supply energy to the grid and the load, which is how much people use or demand from an electricity provider over time.
RTOs and ISOs also manage their region’s generators and transmission companies to ensure enough electricity to meet demand now and in the future. They also constantly monitor and study the electric grid to deliver reliable power at what is hopefully an affordable price. Running the grid is a 24/7 job many consider the world’s greatest engineering feat.
The original intent behind creating deregulated/restructured markets was to promote competition to lower prices. Utilities and retail electric suppliers compete to buy and sell electricity at the lowest rates, allowing consumers to choose 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. While there is an open debate about whether or not retail competition is good for consumers, it requires people to make decisions about a very complex market they may not completely understand—opening up the unknowing consumer to predatory practices that often take advantage of them.
Regardless of whether you live in a regulated or restructured state, all utilities are required by state regulators to provide a connection to the electric grid for every home and business. This requirement comes with the agreement that regulators will ensure utilities are fairly compensated to maintain and invest in the electric grid.