Regulated vs Deregulated Electricity: Market Guide 2026

The U.S. electricity industry runs on two different systems.

The two types: Regulated means traditional utility monopolies handle generation, transmission, and distribution. Deregulated means functions are separated, allowing multiple companies to compete for generation business.

Where they exist: About 17 states plus 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.

In regulated markets, one utility has the exclusive right to generate, transmit, and deliver electricity in its territory.

How it works: State public utility commissions oversee these monopolies. Commissions approve rate increases and maintain reliable service. Customers have no choice of electricity provider and pay rates established through regulatory proceedings.

What the utility does: Build power plants, maintain transmission lines, and deliver electricity to homes and businesses.

Regulated states: Florida, Georgia, Nevada, and most southeastern states.

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

Deregulated markets split the supply chain into competitive and regulated parts.

What's competitive vs. regulated: Generation is competitive—multiple suppliers produce and sell electricity. Transmission and distribution stay regulated—local utility monopolies maintain infrastructure.

For you: You choose your electricity supplier. The utility continues delivering power through existing infrastructure. Your bill shows separate charges: supply (competitive) + delivery (regulated). Only the supply portion is subject to your choice.

States with choice: Ohio, Pennsylvania, Massachusetts, Texas, and others have dozens of competing suppliers available.

The big difference is choice.

Regulated: Simplicity with one provider and one rate. But no alternatives if you dislike prices or service.

Deregulated: Multiple options available. But they require consumers to actively compare offers and make decisions.

Rate structures: Regulated rates change through formal regulatory proceedings (every few years). Deregulated competitive rates fluctuate based on market conditions and supplier pricing.

Consumer protection: Regulated markets rely on utility commissions. Deregulated markets add supplier certification and market conduct rules.

Regulated markets have some real advantages.

Rate stability: Regulatory oversight limits how quickly prices can change. Public proceedings: Utilities must justify rate increases, and 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 established processes.

Some argue regulated utilities handle renewable mandates and grid modernization better through coordinated planning.

Deregulated markets bring benefits through competition.

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.

Studies show competitive markets have cut prices in many areas compared to what regulated rates would have been.

Both systems have downsides.

Regulated problems: Utilities may lack incentive to minimize costs (profits come from approved rate bases). Customers cannot escape poor service or high rates without physically moving.

Deregulated problems: They 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. The complexity of comparing offers leads some customers to overpay through inaction.

Both systems need strong oversight to protect consumers and keep the lights on.

17 states plus DC offer residential electricity choice.

Full choice: Ohio, Pennsylvania, Massachusetts, Texas, Connecticut, Delaware, Illinois, Maine, Maryland, New Hampshire, New Jersey, New York, and Rhode Island.

Partial deregulation: California suspended deregulation following the 2000-2001 energy crisis. Michigan caps participation in choice programs. Oregon and Montana limit choice to larger customers.

Fully regulated: Most southern, western, and midwestern states.

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