Powering Your Business

How electricity moves from the power plant to your light switch before and after deregulation

By: Tim Clark

Electricity. Energy. Power. Everyone needs it, everyone has it, everyone receives a monthly bill and everyone, at some point, has been affected by a power outage. Do you understand the simplistic idea of how it comes to your light switch?

Background
For the first 100 years of commercialization, energy was supplied by monopolies to consumers, which meant that consumers had to take the power that they were given, at the price that was offered, from the source making the offer. The consumers were not able to choose their supplier. In the late 1970s, the natural gas market began to introduce competition to its market with deregulation, followed by the electricity market a decade later. In states with a deregulated market, consumers decide from whom they buy their electrical power, giving them the power to choose.

Not all parts of the country allow businesses and institutions to choose their energy provider as part of an open, competitive free market. Fifteen states, plus Washington D.C., have active electricity restructuring as of September 2010, according to the U.S. Energy Information Administration, and more than 20 states have deregulated programs in natural gas.

Back in 2001, Texas passed a law to deregulate electricity as a result of the Texas Senate Bill 7, and the following year, 2002, Texas became a deregulated sate. As a result, 85 percent of power consumers, those not regulated within a co-op or municipality, can choose their electricity service from a variety of “retail electric providers” (REPs), including the incumbent utility provider. The incumbent utility in the area still owns and maintains the local power lines, as well as all power outages, and is not subject to deregulation.

Customers served by cooperatives or municipal utilities can choose an alternate REP only if the utility has “opted in” to deregulation. The rules differ from state to state, but generally speaking, the power plants, salespeople, retail suppliers, billing companies and delivery companies (the ones who own the poles and wires) are no longer a single company.

How does it work?
Since deregulation, energy service has two parts: supply and delivery. Deregulation affects only the supply portion. Deregulation allows consumers to choose their supplier of electric and natural gas (generation), while the delivery of the energy (transmission and distribution) will still be the responsibility of the incumbent (regulated) utility company.

Why deregulation matters:
It gives us choice

• Deregulation generates competition. Energy deregulation ensures that all companies have an equal chance to provide service to electricity consumers, creating a more level playing field for future industry rivalry and competition.

• Deregulation generates better customer service. Within competitive markets, failure in service will be met with consumer rebellion and subsequent loss of profit, which then strengthens the incentive to maintain higher standards of service.

• Deregulation generates lower pricing. It equalizes regional differences in electricity prices. While the average price of electricity in the United States is about 7 cents per kilowatt-hour (kWh), it varies widely from state to state, ranging anywhere from about 5 cents to 10 cents per kWh.

What will you choose?

 

For more information, visit Stellar Energy Solutions online at www.stellarnrgsolutions.com.

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