Deregulation Basics

Electricity Deregulation Basics

The Competitive Electricity Market-

In the past, one company provided all parts of your electricity service (generation, transmission and distribution, and retail sales). With competition, these parts are separated into different companies.

Retail Electric Providers (REPs) / Electric Companies-With electric competition, Retail Electric Providers (REPs) sell electricity to you and handle customer service and billing. REPs compete for your business by offering a variety of different pricing options, renewable energy options, added customer service benefits, or other incentives.

 

Deregulation FAQ’s

Q: When did electricity deregulation begin?

A: The deregulation of the electric utility industry began in the early 1990’s when open access to the wire system that delivers electricity to the commercial and residential markets was guaranteed by Federal legislation. The primary objective was to increase competition in the generation and sale of electricity. This was a very significant development in American commerce since the electric industry produces more than $200 billion in annual revenues to industry participants. Deregulation is now being implemented on a state-by-state basis over a period of years, which contrasts long distance telephone deregulation that was done on a national level all at once.

 

Q: What is deregulation?

A: Deregulation enables legislation and agreements between the state’s regulatory body (normally the public service commission or the public utility commission) and the utilities operating within the state. The deregulation of the electricity and natural gas industries creates opportunities for businesses to reduce total expenses by enabling businesses to select suppliers for the best combination of price and reliability. The primary objective of deregulation is to create a competitive market, resulting in lower energy costs. This is working; the number of suppliers in the market is increasing, leading to more competition and lower prices.

 

Q: What do I have to gain from deregulation?

A: Electricity deregulation allows businesses to shop for the electricity portion of their bill. In a deregulated market, the supply component of electricity is approximately 50 percent of the monthly bill (although it can be as high as 75-80 percent in some areas). The remaining portion of the bill contains the costs for transmission, distribution, servicing, and administration, which are maintained by the local utility. This means the local utility will continue to service the account and deliver electricity through its wires, regardless of the supplier that actually generates the electricity that is used by your business.

 

Q: What do I need to know about the market?

A: To make an informed decision in a deregulated market, you must understand and weigh the significance of price, reliability of suppliers, load management, and any associated fees. Remember, price is only one component of a contract’s terms and conditions. Read any supply offer carefully.