Energy Deregulation FAQs
The deregulation of the electric utility industry began in the early 1990s 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.
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.
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.
In order to create a competitive electric market, your local utility is required to separate its generating assets (power plants) from the delivery and services part of the business. It continues to be regulated, deliver electricity, own and maintain the wires, provide service, and render customer bills. No longer in the business of generating power, it is indifferent as to your source of electricity.
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.