Officials of Nottingham City Council said they hoped Robin Hood Energy would take on mainstream suppliers.
Three tariffs are on offer, one for city residents only, with claims many customers could save Â£200 a year.
Councillor Alan Clark admitted there was a risk of the council losing money, but said the plan had passed all regulatory inspections.
Robin Hood Energy was a not-for-profit business, said the council. It said the directors were not paid a salary and other employees did not receive bonuses.
It differs from other arrangements as the council is acting as administrator and supplier buying directly from the grid, with no third party involved.
Mr Clark admitted that, as a business, it could lose money: "It is a possibility we have to look at and the regulator has to monitor that and we don't want people having their supplies cut off through any failure.
"But in broad terms, when you buy the energy and sell it, you make some sort of return on the sale, so if you can't sell enough you don't buy as much."
Independent energy market commentator Nigel Cornwall said many local authorities were looking at the idea.
"There is increased competition in the market and a desire for some councils to reconnect on this level.
"Wholesale prices are low at the moment and companies which have come in recently have held their own, and this company has the same chance as them."
A city council has launched what it says is the first local authority energy company in the UK.