Deregulation of the electricity and natural gas markets is now a reality in thirty-one states and Washington D.C., which is beneficial for consumers. Energy deregulation allows for competition, which in a free market results in lower prices and better service for energy customers. Without deregulated energy customers typically have only one regulated utility company to supply their electricity needs. If you did not like your electric rates your choice was to move or build your own generator.
The challenge with the traditional regulated utility model is that only one company is in charge of generating, transmitting and distributing the electricity. Typically, state governments through Utility Commissions are charged with regulating the industry to make sure that citizens are charged a fair price for the service, often with less than stellar results.
With no competition, the regulated utilities decide what services are provided and what facilities are necessary. With energy deregulation, the local incumbent power utility remains responsible for the delivery of electricity. However, consumers can choose their electricity generation supplier, choose how they contract for the supply and often choose how green their power consumption can be.
The deregulated market is as reliable as the traditional regulated monopoly system, but with the advantage of customer choice for the purchase of the energy. The local regulated utility remains responsible and is paid for the local distribution of power. The same old local utility remains responsible for the local infrastructure maintenance and problems, like downed power lines or power outages.
Electric Distribution Company: Typically, this is the traditional regulated utility that has had the wires connected to your house and business for years. This will almost certainly be the same company you had before deregulation. This utility handles all delivery of electricity, maintenance of the lines and meter reading. It is also responsible for service connection, disconnection and upgrades.
Electric Generation Supply Company: These are the power companies that create and transmit electricity to the grid so your local electric distribution company can deliver it to your home or business. These companies are also known as Alternate Retail Electric Suppliers (“ARES”). Customers can contract with some of these companies directly. Others market their generated power to Electricity Brokers, who in turn market the power to end users.
Unbundled Electric Services: Deregulation legislation forced the regulated utility companies to unbundle their customer fees into four different parts: distribution, transmission, generation and transition. This allows customers to choose different providers for each of these services, except the distribution which must be handled by the local company. Typically a “fully fixed” energy supply contract includes transmission, generation and transition, plus certain other ancillary costs.
Tariff Rates: The rates charged for electricity by the Electric Distribution Company.
Electrical Commodity Prices: Electricity is now a commodity because there is a market with power generator companies competing to sell their generated power. Like all other commodities price is determined by a combination of the cost of generation, the amount of available supply and demand for electricity.