When utilities were first formed they were not regulated, and they often competed for the same customers. As the population grew, so did the need for more generation of electricity or production of natural gas. Utilities grew with the population and soon stretched across several states in some cases. Congress recognized that state regulation alone would not be sufficient to control the interstate utility holding companies, so they enacted the Public Utility Holding Company Act of 1935 to provide some federal oversight. Since then there have been a number of subsequent regulations (Natural Gas Act of 1938, Public Utilities Regulatory Policy Act of 1978, Energy Policy Act of 2005) that have helped to define the utility/customer relationship. The Federal Energy Regulatory Commission (FERC) regulates the interstate commerce of utilities, and each state regulates intrastate commerce through its Public Utility Commission.
Before deregulation, electric and natural gas utilities were vertically integrated entities that managed the three components needed to serve customer's energy needs: (i) GENERATION or SUPPLY of the commodity (electricity or natural gas) (ii) the long-distance TRANSMISSION of the commodity and (iii) the local DISTRIBUTION of the commodity to the meter at our homes and businesses.
With the advent of natural gas deregulation in 1989, the three components of the vertically integrated utilities were separated, rearranged, and, in some cases, sold off to other companies or regional transmission organizations. Only the generation or supply component is deregulated, while the transmission and distribution of electricity or natural gas remains regulated by each respective state. Utilities continue to maintain the delivery of the commodity, and they are responsible for responding to emergencies or outages and reading meters.
States each have the authority to allow or disallow retail competition. Even within a state allowing competition, all areas may not be deregulated, such as cooperatives or municipalities. Where competition is allowed, customers have the ability to choose who supplies the commodity. This choice allows customers to choose their pricing, manage their budgets better, lock into longer term pricing, and choose from different levels of environmentally friendly sources.