New York and Pennsylvania were two of the first states to deregulate their energy markets. Until 1996, public utilities supplied all of their electricity and natural gas. Energy deregulation allowed private organizations to operate alongside public companies, finally giving consumers a choice over how to power their homes and businesses. In order to understand the impact of these developments, we’ll explore how opening the market has affected prices, services, and the economy of each state.
What is Energy Deregulation?
In a regulated market, consumers are forced to purchase gas and electricity from a single, government-controlled utility that oversees all aspects of generation, transmission, and distribution. However, in a deregulated market, these tasks are handled by separate entities.
- Producers. Generate electricity and harvest natural gas.
- Suppliers. Purchase gas and electricity from producers in order to sell it to consumers.
- Utilities. Deliver gas and electricity to homes and businesses through power and gas lines.
Utilities still operate in deregulated markets, but they no longer have a monopoly on energy sales. Customers can purchase gas and electricity from an Energy Service Company (ESCO), who may offer different rates and services. If they decide another company does a better job, customers can switch when their contract expires. It’s their choice!
How Has Energy Deregulation Affected Pennsylvania?
Pennsylvania has benefited enormously from deregulation. Before 1996, Pennsylvania’s electricity prices were fifteen percent above the national average. Since then, electricity prices have fallen 25-50 percent, while natural gas prices have stabilized and remain lower than neighboring states. As of January 2025:
- Approximately 24 percent of all residential customers have switched from their state utility to a third-party electric generation supplier, according to the Pennsylvania Public Utility Commission.
- Around forty-one percent of commercial customers have followed suit, along with almost eighty percent of industrial customers.
- Numbers for natural gas are less precise, but over two-and-a-half million Pennsylvanians rely on private companies for their energy needs, including at least 1.27 million who purchase electricity from a third party.
What’s more, deregulation allowed independent companies to construct and operate private power plants. This not only allowed the state to shift its generative capacity from coal to natural gas, it has also increased the number of people working in the energy sector and helped attract new business investment, particularly from energy-intensive industries like steel, plastic, and chemical manufacturing.
How Has Deregulation Affected New York?
In New York, deregulation has led to a significant expansion of consumer choice. There are over 150 ESCOs currently operating in the state, supplying gas and electricity to households and businesses. Almost a quarter of consumers buy their electricity from a third-party supplier, while approximately sixteen percent purchase their gas from an alternative supplier as well. For consumers who’ve made the switch, the results have been largely positive.
- Thousands of residential and commercial customers have been able to take advantage of market conditions to secure below average electricity rates.
- Deregulation has encouraged the growth of power production and smart grid technology. Though exact numbers aren’t available, it’s estimated these efforts have created thousands of energy sector jobs.
- Homeowners and small businesses have also gained access to a number of value-added services, such as repair programs covering HVAC and electrical systems.
Despite these benefits, challenges remain. New York’s gas and electricity prices are still relatively high compared to the rest of the nation, mostly due to the state’s aging infrastructure. The government is attempting to boost supply by transitioning the energy grid towards renewable sources like wind and solar, but much of this new capacity hasn’t yet come online.
How Deregulation Helps Homeowners and Small Businesses
Thanks to deregulation, the number of ESCOs has been rising steadily in New York and Pennsylvania. While heavy industry accounts for some of this growth, the biggest driver has been households and small businesses. For them, deregulation has led to:
- More Options. Whether you’re looking for savings, reliability, or extra protection, there’s likely an ESCO who can provide it.
- Protection From Price Fluctuations. Many ESCOs offer fixed-rate contracts, making it easier to estimate utility costs over time.
- Better Customer Service. In order to attract customers, ESCOs devote considerable resources to client care. Most offer valuable add-ons, like upgrades and repair protection, to attract and retain customers.
Because the energy landscape is constantly evolving, the biggest advantage of deregulated markets is their flexibility. Instead of waiting for their supplier to adapt, homeowners and businesses can switch to a provider whose services align with their goals and needs, to make the most of new plans and technologies.
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*Systems covered depend on commodity purchased.
