Energy Deregulation 101
The power to choose your energy supply puts you back in control of your organization’s energy budget
What Is Energy Deregulation?
“Energy deregulation” means that, instead of being limited to the utility’s offering, people can choose to get their electricity and/or natural gas from competitive energy suppliers. Giving consumers a choice created competition amongst energy suppliers, resulting in more options and lower prices.
How Energy Deregulation Came To Be
Energy deregulation was formally launched by an act of Congress. Until the early 1990’s, utilities had enjoyed a monopoly on energy production and delivery. The National Energy Policy Act allowed power producers to compete for the opportunity to sell to utilities. The Federal Energy Regulatory Commission took it a step further in 1996 with Order 888, requiring utility companies to allow competitors to move electricity on their transmission lines.
How It Works
Deregulation puts the power to choose into the hands of organizations and individuals. To better illustrate the power of that choice, here’s a quick comparison of regulated and deregulated markets.
Regulated markets consist of too few supply customers buying energy too infrequently.
In a regulated market, the utility is the only true energy supply customer. The utility buys energy in blocks from the suppliers and distributes that energy to its customers. They then assess “Distribution”, “Transmission” and “Supply” charges on your bills. Sounds familiar, right?
This is an energy supplier. It produces electricity and/or natural gas, which utilities purchase and then sell to their customers
Transmission organizations move wholesale energy from the generator to the utility, and in many states, they’re a part of the utility.
This is your utility. It distributes energy to customers like you along power lines and gas pipelines.
Utilities purchase energy in blocks at set dates throughout the year, regardless of market conditions. When they purchase a block of energy, they’re buying enough energy to meet the energy needs of all of their customers at that day’s price. They then incorporate that day’s price into their supply charges until the next time they purchase energy.
Energy is an extremely volatile commodity, and timing is everything. This process of block-purchasing causes the utility’s supply price to lag the actual market price for energy. And while it may provide a temporary buffer against a spike in the market, it can also leave you paying a price well above the current market rate.
Deregulated energy markets have many more customers, better energy products, and more power of choice.
You have the power to choose who produces your energy!
Deregulation hasn’t yet seriously affected transmission.
The energy you buy from a supplier will always be distributed by your utility.