Energy deregulation essentially breaks down the monopoly previously held by utility companies by separating power production from power distribution. Energy deregulation actually began in the 1970s, when the Public Utilities Regulatory Policies Act (PURPA) created a structure for independent power producers. But deregulation became much more widespread and viable after the Energy Policy Act of 1992, which eliminated restrictions on prices charged for wholesale electricity.

The reasoning behind choosing a different electricity generation company is fairly simple: If you live in an area where the electricity market is deregulated, then choosing an alternative home energy supplier could allow you to compare rates, products, services and then pick the best option for your needs while still receiving your power through the public utility as you always have. Actually choosing that supplier, however, can be a little more complex. Here are the five questions you should ask before signing a contract:

1.     How Does Pricing and Fees Work?

There are two main pricing models used by suppliers. One is a fixed model, in which you pay a set price for electricity as long as your contract is in effect. The other is a variable or floating model, in which your price depends on several factors  for any given month. Some companies might use a hybrid between these two models. You should also ask about any fees you will pay on top of the cost of your actual energy usage.

2.     What Contract Lengths Are Offered?

Before you sign anything, you should know if you are allowed to switch back to your previous supplier at any point or if you are required to stay under contract for a set length of time. You should also ask about the penalties should you want to get out of your contract early.

3.     How Are the Two Aspects of Billing Handled?

Since deregulated energy markets split production and distribution into two services. In many cases you will continue to receive the same bill from your current public utility company, with the only thing that changes is the name of the delivery provider within that bill. But you should ensure that you will continue to receive only one electric bill and if not, understand how the new bill will be coming to you so no payments slip through the cracks.

4.     How Do You Generate Your Electricity?

Each electric company has a slightly different profile in terms of how it generates its power. If you have strong feelings about sustainability or renewable options, then you will want to choose a supplier that shares your values in terms of green electricity generation. Remeber to ask about those power production methods and decide if they line up with your values.

5.     When Will the Switchover Happen?

There will be no interruption in your service if you switch to an alternative electric supplier, but you will probably want to know for bookkeeping purposes when your new supplier anticipates the switchover occurring.  The switching time frame is controlled by state laws and/or regulations.  For example, some states allow switching to occur in a few days while other states have proceedures which may result in the switching taking up to 1 to 2 billing cycles.