You say vacation, I say holiday: differences in electricity deregulation between the UK and the US

I’ve had the privilege of working in the deregulated retail electricity markets in the UK and now in the US. Apart from the differences in word nomenclature – Americans say ‘trunk’ while the English say ‘boot’, Americans say ‘elevator’ while the English say ‘Lift’. Or maybe that’s just me… there are some stark differences between how the retail electricity markets in these two countries work.  I’ll cover the obvious differences and share some thoughts as to why the US market should perform better than the US market, despite the crisis in California, which was mainly caused by market manipulation.

Before launching into the differences I’ll share the simple definition of deregulated retail electricity: are electricity markets where several retail electricity suppliers, known as Retail Electricity Providers/REPs or Alternative Retails Electricity Suppliers/ARES, are allowed to compete with the incumbent utility to sell electricity to end use consumers (you and I). Power2Switch’s electricity price comparison product exists because there are several electricity suppliers in many states and consumers need an objective and user friendly website to enable them make responsible decisions about their choice and cost of energy.

The comparison of the differences makes sense for me to do along three dimensions:

  1. Regulation:  In the UK regulations were set at the national level and this meant that the same rules applied to all the suppliers across England and Wales. A change in the regulations/application of the regulations in one part of the country affects all of the country. The US has several zones and the states, for the most part, determine what applies in their electricity zone. This means that different rules and regulations apply in different states. It is not uncommon to find the same retail electricity supplier being subject to different eligibility requirements in the several states in which they operate. This decentralization helps prevent a full collapse of the whole US system, even though it brings its own complexities.
  2. Market Structure: In the UK the government utilized, but eventually moved away, from a Pool pricing – a spot market where all electricity suppliers in England and Wales sold and purchased electricity. It was seen that pricing was not favorable to certain generators, coal-fired generators for example, and so there was no demand for electricity from these generators due to the high prices. The government moved to a bilateral market – where electricity is bought and sold based on contractual agreements. The US retail markets, in each of the deregulated states, started and continues to operate based on the bilateral contracts which is less subject to price/demand or supply side manipulations.
  3. Consumer Councils: The UK had a national body, now called OFGEM, which was put in place to protect consumers from being cheated by the suppliers. Some questioned the effectiveness of OFGEM and it still continues to serve the consumers. In the US the 18 deregulated states have different stages and types of deregulatory structures and, due to other complications in the electricity generation and distribution structure in the US, there is no national body. The closest equivalent to OFGEM is FERC (Federal Energy Regulatory Commission), which does not have as much control or oversight capabilities when it comes to the state level. At the state level there are public utility commissions that play the role of consumer advocate and regulate both the utility and the retail electricity suppliers.

As you can see there are some differences between the regulations in both the UK and the US, but as is the case with all things, the success of these market structures rely on a clarity of the goals desired and a concerted effort by all parties involved to get these goals accomplished for the benefit of the consumer: YOU.


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