Monopoly®, the world famous board game, was originally invented in the early years of the 20th century. In that contest of financial acumen, the utility properties were simple: One for water, one for electric.

If Monopoly was a 21st century invention, things would not be so simple. Electric deregulation has taken hold in many places, including the U.S. where around half of the state legislatures have opened their electric markets to competition. In that version of the game, there would be three different electric utility properties to land the top hat, shoe, or other piece on: Power Generators; Utility Companies; and Retail Electricity Providers.

Utility Companies Versus Electricity Providers: A Parallel Example

Your car needs fuel in order to run. This fuel is “generated” at a refinery and delivered through a system of pipelines and a tanker truck to one of many retail outlets (gas stations). The retail outlet—the retail electricity provider—offers customers a choice of different types of fuel at different prices.

This example from a different part of the energy sector that somewhat parallels how the consumer chooses electricity providers in a deregulated environment. The electric generator fills a similar role to the refinery: It creates electric power. The utility company distributes the power through a system of wires and substations. The electricity provider is the retailer, offering different electricity plans at different prices.

You may change retailers to fuel your car without changing the refinery or distributor. Instead of going to the Exxon station down the road from your house, for example, you may choose to go to one close to your office because it is more convenient or it has cheaper prices. Same distributor, different retailer.

If you live in a state that has deregulated electricity, you can choose to “fuel” your electric sockets and light switches by going to a different retailer, that is, a different electricity provider. The utility company that ensures that you have power (the distributor) doesn’t change.

The Key Difference

The car fuel example diverges from the deregulated electricity market in one key area.

When you select a different electricity provider, the utility company takes a more active role than simply distributing power. You still receive your electricity bill from the utility company, and you still contact the utility company when you need service.

Also, under state mandate, the utility company will step in to ensure there is no interruption in service if anything happens to the electricity provider.

To summarize, deregulation 1) creates a distinction between utility companies and electricity providers, 2) offers you the opportunity to significantly cut your electricity costs, and 3) offers you simplicity by retaining your interface with the utility company.