Throughout the 20th century, control of the energy industry rested with a large group of regional monopolies-companies that were the sole providers of the supply and delivery of electricity for the areas they served. Because of the importance of these services to the public, these utilities were heavily regulated by the government.

Since the mid-1990s, a number of states and provinces have deregulated their electricity markets, allowing competition in the industry. This means that customers in those territories can choose an alternative electricity provider (different from their utility) to seek competitive rates and choose electricity products that make sense for their business.

Electricity Deregulation Timeline

Energy deregulation is very similar to the deregulated telephone industry, in which you may choose your long distance service provider, but your local phone company still maintains the telephone lines. The transmission and distribution portion of your electric bill (the cost to get the power to you) is still provided by the utility, but you can shop for the best prices and services available in the market for electricity supply

What States have Energy Choice?
Almost half of the states have passed some legislation or regulations to restructure their electric power industry. Ultimately, once the federal government passed the initial legislation around deregulating power generation, it has been up to the individual states to decide whether deregulation is in their best interest and to how they wish to implement deregulation within their borders.

According to the EIA, states that historically had higher-than-average power prices, such as California, Pennsylvania, New York, and most of New England, were among the first to open their retail electricity markets to competition, while other states began with a limited number of consumers. One of the major goals of electricity deregulation is to lower the price for electricity by opening power generation up to competition. Industry analysts have cited Pennsylvania as the most successful state in achieving its goals in restructuring.

Electricity Deregulation by State

 

Is Energy Choice Good for my Business?

Energy Choice allows you to select who supplies your electricity or natural gas.

 

Before Energy Choice
Utilities owned the power generation assets and therefore generated, transported and delivered electricity to consumers.

 

After Energy Choice
When the electricity industry opened up to competition in your state, it ended the utilities’ monopolies over all aspects of the energy lifecycle by separating the generation portion, which is now owned by private entities. These privately-owned plants generate the power and then sell it on the wholesale market where energy suppliers, like Direct Energy Business, purchase it for their customers.

 

Why is Energy Choice Good for My Business?
"Opening up" a market fosters a climate that encourages suppliers of goods and services to provide more options to consumers, in order to stay competitive. In the case of power, “options” can include things like price, term, service and billing/payment cycles. When a market is more competitive, it also encourages innovation and customization to meet the needs of the marketplace.

Energy suppliers have the flexibility to make purchases in the wholesale market at various points in time that can, like any fluctuating market commodity, present more or less savings benefit to their customers. However, utilities who provide default electric supply service typically have less flexibility in their wholesale purchases and therefore typically offer fewer options

Let's Break it Down to Another "Shopping" Example
An example of flexibility in purchasing and opportunities in market pricing can be seen with shopping for grocery produce, which fluctuates in price quite significantly based on whether the item is in season, or if growing conditions produce more or less than the demand.

Say you manage a small bakery that specializes in strawberry pies. In July, you purchase strawberries on special at $2 per pound. Because the price is so good, you purchase several containers and freeze them so that you can continue to make strawberry pies in the winter months. Then in November, you find that you need more strawberries to finish some remaining pie orders. However, now strawberries are $5 per pound. You need 2 pounds to finish the orders. Because the market price of strawberries went up in November each pie will cost you 5 times more to make, which means you might need to increase the price you charge your customers. If you had purchased more strawberries at $2 per pound, you could keep the cost of your pies at a minimum and you wouldn’t have to increase the price in order to compensate for the difference in cost.

This just goes to show how ideal buying opportunities in a market that fluctuates based on supply and demand can impact your bottom line, your production costs, your profits and the price you pass on to your consumers. The same applies to energy—by purchasing power at opportune times and in opportune quantities could result in savings for your business. That’s being able to “shop” for your power is an important element in controlling your bottom line.

 

 
Why Choosing a Supplier Can Benefit Your Business
Although your local utility can supply your power through their "utility default service" plan, you may be able to obtain better rates, terms and services by choosing a competitive supplier, instead of taking supply service from the utility.
 
 
  • Suppliers have flexibility to make purchases in the wholesale markets when favorable market conditions exist and can then pass that savings on to customers.
  • Utilities are limited as to how and when they can make purchases and therefore can offer very limited choices to customers for supply service.
  • Utility service rates are set for a period of time but then may change without notice once a new tariff passed.
 

 

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