What is the Difference Between a Utility and an Electricity Provider?
Depending on where you live, you might think of your “electrical utility” and “electricity provider” as being one and the same. But in states with deregulated electricity markets, there’s an important difference. An electric utility is the company that maintains electrical equipment and delivers electricity to your home. An electricity provider is the company that provides you with electricity plans, prices, bills and customer service.
For decades, electrical utilities were one-stop shops for generating electricity, transmitting it to customers and processing payments. Customers didn’t have a choice in the matter -- your utility depended on where you live.
Then, in the 1980s, some states began to allow the deregulation of electricity markets. As of 2018, 17 states plus Washington D.C. offer deregulated electricity.
In a deregulated electricity market, the electrical utility is the company that owns and maintains the wires, poles and transformers that deliver electricity to homes and buildings. The utility is responsible for checking electric meters and restoring power after severe weather and emergencies. As it was before deregulation, it’s the norm for a single utility to serve a large geographical area. In some parts of the United States, utilities compete along with competitive providers and act as the default provider for customers who do not choose an electric provider.
Electricity providers are companies that market and sell electrical service directly to customers. Customers in deregulated electricity markets can typically choose from among several different electricity providers. These companies handle billing and payment processing, and they compete for business in a variety of ways.
How Do Electricity Providers Compete?
The driving force behind the move toward electricity deregulation was a desire to break up the geographical monopolies that electrical utilities enjoyed. Because customers couldn’t take their business elsewhere, utilities lacked an incentive to provide superior customer service or competitive electricity rates. In a deregulated electricity market, electricity providers that don’t work hard to earn and keep customers risk losing them to their competitors.
In addition to competing on the basis of customer service quality, electricity providers vie for customers with the following:
- Lower rates. To attract customers who are focused on the bottom line, some providers emphasize their cheap kilowatt-hour rates.
- Variety of plans. Most electricity providers offer a mix of fixed-rate plans, variable-rate plans and plans with flexible payment options. Some plans include special breaks, like free electricity on weekends. This allows customers to choose a plan that fits their budgetary needs, lifestyle and risk tolerance.
- Shared values. Some providers reach out to environmentally conscious customers by investing in renewable energy, while others may appeal to customers’ sense of charity by sharing profits with local service groups.
- Promotions. If you shop around, you’re likely to find providers offering signing bonuses like cash rebates, consumer electronics and enrollment in rewards programs. To take advantage of these promotions, you’ll typically need to commit to a provider for a certain contract period.
Does My State Have Deregulated Energy?
A growing number of states have legalized electricity deregulation, but no state is fully deregulated. In some parts of deregulated electricity states, especially rural areas, electrical service transmission and billing are still provided by the same company. These companies are usually classified as municipally-owned electric utilities or electrical cooperatives.
In some of these more rural areas, electricity provider choice hasn’t yet arrived in part because the sparse populations make it difficult for multiple providers to compete in a cost-effective way. But electricity deregulation is always expanding, so areas that don’t offer choice today may do so in the future.
You can see a map showing which states offer electricity deregulation here.
Should You Call Your Electric Utility or Your Provider?
If you have both an electrical utility and an electrical provider, there can be some confusion about who to call for service. The answer depends on the type of service you need.
You should call your utility if:
- You experience an unexpected power outage
- You’re having a problem with your electric meter
- You suspect your electric meter was read incorrectly
- You need to report downed power lines or some other electrical emergency
You should call your electricity provider if:
- You want to make a payment over the phone
- You have questions or disputes about billing
- You want to cancel or change your plan
- You want to transfer your service to a new address
If you’re moving to a deregulated electricity state from a regulated state, it can be a bit of an adjustment to rely on two companies for your electrical service. But because electrical providers are competing to win your business, you can expect to pay less and get more.