Beginning in the late 1990s, roughly a third of American states restructured their electricity industry. Utilities sold their power plants and became wires companies, and the business of selling electricity was opened to competition. The theory was straightforward: competition would drive down the price of the commodity while the natural monopoly, the wires, stayed regulated.
Twenty-five years on, the results are genuinely mixed, and understanding why is what tells you whether shopping is worth your time.
What switching actually changes
Only the supply half of your bill. The utility still owns the wires, still reads your meter, still restores your power after a storm, and still bills you for all of that. Read supply versus delivery if that distinction is not yet familiar, because it is the whole ballgame.
In a delivery-heavy state such as Massachusetts, supply might be a minority of your bill. A ten per cent saving on a minority of your bill is not much. In Texas, where the competitive area bills nearly everything as supply, the same ten per cent is substantial.
Where it is available
| Status | Jurisdictions |
|---|---|
| Retail choice statewide | Connecticut , Delaware , District of Columbia , Illinois , Maine , Maryland , Massachusetts , New Hampshire , New Jersey , New York , Ohio , Pennsylvania , Rhode Island , Texas |
| Retail choice limited | California , Michigan , Montana , Nevada , Virginia |
| Regulated monopoly | The remaining 32 jurisdictions. Supply is procured for you at cost. |
The partial cases are worth a note. Michigan caps retail choice at ten per cent of each utility's load, so most households cannot switch even in principle. Virginia permits switching essentially only to fully renewable suppliers, and only where the incumbent does not offer an approved equivalent. California has no individual residential choice at all; instead most customers are served by a Community Choice Aggregator chosen by their local government.
Why residential switchers lose money on average
This is the uncomfortable finding, and it has been reproduced by regulators in several states independently. The Massachusetts Attorney General, the Maryland Public Service Commission and the New York Public Service Commission have all found that residential customers who switched paid more in aggregate than they would have on utility default service.
Four mechanisms explain most of it.
- Teaser rates that roll over. A low introductory price for three or six months, then a variable rate that resets upward. Customers who do not diarise the expiry date pay the difference indefinitely.
- Acquisition cost. Door-to-door and telephone sales are expensive, and that cost has to come from somewhere. A utility procuring supply at cost has no sales force to fund.
- The default is genuinely competitive. Utility default supply is bought at wholesale through regulated auctions with no markup. Beating it requires a supplier to be better at procurement than a professional procurement process, which is a harder trick than the marketing suggests.
- Unbundled quoting. Some contracts quote energy only and pass capacity and transmission through separately, so the advertised number is not comparable to the utility's all-in price to compare.
Where it does work
Two situations are genuinely favourable, and they are not accidents.
Pennsylvania. The state runs PAPowerSwitch, a government comparison site that lists every licensed supplier's offer against the utility's price to compare, in a standard format, with contract length and cancellation fees disclosed. Because comparison is easy and honest, fixed-rate contracts of twelve months or longer from established suppliers have generally beaten the default. Disclosure rules made the market work.
Municipal aggregation. Massachusetts, Ohio and Illinois have large aggregation programmes where a city negotiates on behalf of residents. The municipality buys at volume, has no sales cost to recover and no incentive to mislead its own voters. Aggregation has consistently outperformed individual switching.
Texas is its own thing
Texas is the deepest competitive market in the country and the one where getting it wrong costs the most. Nearly the whole bill in the competitive area is supply, so plan choice dominates everything else.
Two rules matter more than any comparison site. First, read the Electricity Facts Label, which shows the rate at 500, 1,000 and 2,000 kWh. The most common expensive mistake in Texas is a plan whose advertised rate applies only at exactly 1,000 kWh and is much worse either side of it. Second, avoid wholesale-indexed residential plans. They were the mechanism behind the catastrophic bills during Winter Storm Uri, and the upside in a normal month is small against that tail risk.
A checklist if you are going to shop
- Check whether your municipality runs an aggregation programme first. If it does, that is usually the better deal.
- Use your state's official comparison site rather than a broker. Brokers are paid by suppliers.
- Fixed rate only, for a defined term. No variable, no introductory pricing.
- Confirm capacity and transmission are included in the quoted price.
- Check the cancellation fee before signing, not after.
- Put the contract expiry date in your calendar the day you sign. Rollover rates are where the money is lost.
- Compare against the utility's current price to compare, and check it again at every reset.
If your bill is mostly delivery, none of this will help much and you should be looking at rate schedules and usage instead. Work out the split before you spend an afternoon on comparison sites.
Your own state's status appears at the top of its rate page, along with which wholesale market it sits in.