Deregulation of Electricity – What Is It and What Does It Mean for My Business:

Deregulation of energy based commodities is an often discussed but little understood topic in the backrooms and boardrooms of businesses across the country, of every kind and description.   In short, deregulation is the process of removing or reducing a variety of state regulations that relate to and have longtime controlled every aspect of the sale and distribution of electricity.

The push for deregulation, of this commodity, which began in the mid-1990s  stems from a belief that fewer and simpler regulations will lead to a higher level of competition, more productivity, greater efficiency and lower overall prices for the end user.  One by one, states across the Nation have embraced this concept allowing a series of marketplace barriers and end user pricing to fall.

As a state deregulates, it ends the utilities’ monopolies over all aspects of the energy lifecycle by separating the generation portion, which can then be owned by private entities. These privately-owned plants generate the power and then sell it on the wholesale market where energy supplier, who in turn sell the energy supply to their customers.

Deregulation has created some exciting new choices for end users. Consumers continue to receive the same reliable service from their utility, but at the same time, benefit from the innovation, high level customer service, and competitive pricing that a deregulated market fosters.

What You Need to Know:

Your electric bill is comprised of three (3) major components -

1. Energy – also referred to as Supply:     The cost of the electricity you consume

2. Delivery:    The cost of delivering the electricity to your physical location

3. Taxes:        State and municipal taxes

  • Under a deregulated electricity platform, the cost you pay to the utility for delivery is the same regardless of which supplier from whom you purchase energy.
  • Supply charges, or the price of energy can be driven by number of factors including but not limited to what season it is, time of day, or how much you consume.  When a state is deregulated, this portion of your organization’s electric bill can be negotiated and is subject to what the open market will bear.
  • Not unlike every other product or service, state and municipal taxes truly “are what they are” and should simply be considered a line item on your billing statement.

How Does Electricity Deregulation Affect My Business?

As mentioned above, one by one, states across the Nation have embraced and adopted the deregulation of electricity.  Deregulation removes government mandates and controls on the price of the cost per kWh that commercial users are charged as well as removes geographic boundaries where single suppliers previously held monopolies.  This change allows multiple suppliers to compete in the open market in order to acquire and retain each customer as well as provide their product at a price that consumers are willing to pay.  Today nearly half the States have some form of deregulation and more are expected to follow suit.

In a deregulated market, the utility no longer owns power plants nor do they profit by selling you energy. Instead, utilities profit on the delivery of electricity to your location.  The cost you pay to the utility for delivery is the same whether you purchase energy from them or a different supplier.

The rate you pay for electricity is the result of competitive and intelligent purchasing strategies which occur anytime throughout the year. The utility’s energy price can vary depending on what season it is, time of day, or how much you consume.

The deregulation of the electric generation supply is similar to the telephone industry deregulation. Since that industry was deregulated, you can choose your long-distance supplier among competing companies, while your local phone company maintains the actual phone lines.

Similarly, energy consumers can select the electric generation supplier that best meets their electricity generation supply needs.  That said, although consumers can choose their electric generation supplier, electricity is still distributed as it has been for decades, through the local utility company’s regulated system.

In short, deregulation provides you and your organization, the certainty of delivery while opening up option in terms of suppliers with a result of overall cost savings compared to the choice-less monopolies of the past.