Getting Electricity Deregulation Right

Lynne Kiesling
February 1, 2001

Pennsylvania, which passed deregulation legislation at the same time as California, has fully implemented deregulation for all customers of electricity. Pennsylvania’s customers have seen an average price decrease of 30 percent and an increase in service options, including “green,” or renewable, power. Of the states that have deregulated wholesale and retail electricity markets, Pennsylvania has had the highest rate of customers switching to alternate generation providers, and Pennsylvania’s customers express the highest satisfaction with their electricity services in the United States. Pennsylvania achieved this deregulation success through market-based default (or standard offer) prices, non-mandatory divestiture of generation, accelerated phase-in of all customers, and the use of financial instruments and regional markets. All of which encouraged alternate providers to enter the market and create real competition.

Other states with early deregulation, such as Massachusetts and Rhode Island, did not experience Pennsylvania’s success, and recently adopted policies that have succeeded in Pennsylvania, such as higher default prices to encourage entry.

Electricity Deregulation

WHAT’S THE ISSUE?  

The U.S. electric industry is undergoing a sea change in the way it delivers electricity to millions of households and businesses nationwide. The $220 billion industry, which has been called the last great government-sanctioned monopoly, is slowly but surely being deregulated and opened to competition, giving consumers the power to choose their electricity provider in much the same way they choose telephone carriers.

Advocates of deregulation say reducing government control of the industry will benefit consumers – lowering prices while expanding services and giving the public a say in who supplies the power that runs their computers, toasters, lamps, and more. But among the 24 states that have enacted electricity deregulation plans, results are mixed. Rising prices, skyrocketing demand, and limited supply in some areas have raised questions about the viability of deregulation. At the same time, Congress has been unable to agree on a measure to introduce competition to the electricity market nationwide.

Energy Deregulation State of California

Wednesday, February 24, 2010

California used to be an open electricity market whereby rate payers could purchase their electric supply from providers other than the local investor owned utilities. This program is known as Direct Access. Due to the power crisis in 2001, Direct Access was suspended and customers not already on Direct Access were limited to buying power only from their local utility (PGE, SCE, SDG&E).

In late 2009, Governor Schwarzenegger signed into law SB 695 that allows a minimal amount of overall energy supply to be open to a deregulated market. Currently, past energy users that utilized the deregulated markets will have priority to this limited amount of energy being open to the market. The Dept of Water and Resources (DWR) has oversight of the deregulated energy users that took advantage of deregulation in the past. These users, in general, consists of manufacturers and large 24/7 energy users. On March 11th, a court ruling is being made if these users should have priority. If the ruling is in their favor, then a vast majority of the open market energy could be utilized by these users, allowing minimal or no energy for newly interested users of the deregulated market. Leading up to the final CPUC decision, it is expected that no preferential treatment will be given to former Direct Access customers.

Dates and Deadlines: The current target date for the opening of this market is April 11,2010. All newly interested parties must produce an NOI no later than March 18, 2010. The rumor is this may be pushed back till April 1, 2010.

As of today’s date, the NOI form is not available on-line but should be soon. It will be available on the California Public Utility Commission (CPUC) site and the utility companies should be able to direct a client to the form. Utility consultants and power brokers are designing their own applications in anticipation of what the final NOI willlook like. A first come, first serve approach will be utilized and parties that have submitted their NOI’s will be notified as accepted or not within 20 days after the March 18th date. Uponacceptance, the party that submitted the NOI will have 60 days to choose their Electricity Service Provider (ESP) and negotiate a contract with them.  The goal of the energy deregulation market is to role out all available energy supply within the next 4 years.

Electric Utilities: A Changing Industry, An Instrument of Change

By Michael Powers  © 1990, 1996
 
Synopsis
     Conventional wisdom holds that the electric utility industry is driven by economic growth, rather than driving such growth; power consumption goes up in a growing economy, for instance, and declines in a slowing one.
 
      But energy costs tend to be compounded due to the "multiplier effect" to profoundly affect the costs of capital, raw material, labor, production and distribution.  And like other major U.S. industries which were formerly regulated -- most notably, transportation and telecommunications -- the electric utilities are now facing increased competition and deregulation.  The success or failure of utilities to "re-invent" themselves after deregulation, therefore, may have a significant impact on many other sectors of the economy.
 
     Many experts believe that after deregulation, electricity will be sold and priced like any other commodity, leading to the emergence of an international marketplace for "free-market electricity" and related energy services.
 
     The future survival of utilities in this more competitive, global environment appears to lie in two customer-oriented strategic directions:  providing customers with power at the lowest cost, or at the highest level of service, or some combination of both.
 
     In such an environment, innovative utilities may choose to forego their traditional monopoly on power generation, in favor of greater control over the transmission system which transports the power.
 
     This positions the utilities as "energy brokers" to their customers, buying power from those with too much, selling power to those with too little and collecting a reasonable commission for performing these service activities.
 
     In fact, bulk power transfers among utilities have more than doubled since 1971 and now account for more than 25% of all U.S. electricity generated, saving consumers over $15 billion a year, a figure that will surpass $30 billion by 2010.
 
     This strategy also transforms utility customers into part-time "energy producers," a role which many are already assuming through their use of cogeneration and other alternative energy technologies.
 
     In a true free-market environment, utilities and their customers are then free to become financial partners in the energy marketplace, rather than adversaries as they are now under third-party regulation.  As partners, both utilities and their customers have incentives to consume less power in local markets and produce more power for sale in interstate or international markets -- a synergistic application of this strategy which has been called "Energy for Export."
 

Coping with High Energy Prices - Do's and Don'ts of Deregulation

 

The deregulation of electricity generation is now fully implemented in Pennsylvania. In the deregulated environment, electricity will be just another commodity. Unlike most commodities, however, electricity cannot be effectively stored and therefore needs to be traded on an instantaneous basis when needed. Early in the process, there were claims that consumers could save 30 to 50 percent of their costs for electricity because of the deregulation legislation. Those claims appear to be exaggerated; more realistic savings are in the 10 to 15 percent range for those informed consumers who know how to take advantage of the opportunities available because of deregulation. Therefore, it is imperative that everyone become more involved in studying all aspects of the deregulation of electricity generation. The following do's and dont's are intended to get you started on the journey of learning more about deregulation.

Energy deregulation could save county money

January 12, 2011 - By Kay Stephens, kstephens@altoonamirror.com

HOLLIDAYSBURG - Representatives for two energy-related companies said Tuesday that Blair County will be able to save money with the deregulation of the electric industry.

Edward Hale, from Glacial Energy's Bucks County office in Newton, said that if the county signs a month-to-month agreement with his company, it would have flexibility and savings. Based on current rates, Hale said the county could cut $144,000 off its 2011 electric bill, estimated at $477,000.

Mike Polosky of Efficient Energy Solutions, Pittsburgh, said his company offers the county a chance for long-term savings by locking in an electric rate for one or two years. That would reap a first-quarter savings of $15,800, based on current rates, he said, and it be more beneficial in the long run because electric rates are down and demand is low.

"Nobody knows what Penelec rates will be for the coming year," Polosky said. "If we have a very hot summer ... [not having locked-in rates] could put a big hole in your budget." Hale countered that he doesn't think electric rates have hit bottom and advised commissioners to consider the month-to-month plan now, then later decide if they want to lock in rates. "We're talking about saving more money now," Hale said.
Commissioners listened to the pair of proposals at their weekly meeting and said they will study the matter and take action within a month.

Commissioners Chairman Terry Tomassetti likened the decision to choosing between a fixed-rate and variable-rate mortgage, but with more money involved. "It's obviously a major expense for the county," Tomassetti said. Blair County Finance Director Robert Kuntz said energy brokers and suppliers have been "bombarding" the county because of deregulation. He said he arranged for Hale and Polosky to attend Tuesday's meeting because the county has familiarity with those companies. "I'll be taking a look at this, too," Kuntz said.

Mirror Staff Writer Kay Stephens is at 946-7456.

What is Energy Deregulation

Energy deregulation is used to introduce competition into the electricity industry. This is done by allowing consumers to decide from whom they buy their electrical power. People generally appreciate a variety of options when they must spend their money.
A few decades ago, options among power suppliers were unheard of. The power market in each state was virtually monopolized. This meant that people had to take the power that they were given, at the price that is was offered, from the source making the offer. The advent of energy deregulation has changed this, giving consumers the power of choice.

Energy deregulation is a state issue. As such, the discussions, decisions, and methods for implementing it can greatly vary. Some states have seen the benefits and have written legislation regarding energy deregulation. Other states have not been so eager to embrace the idea, thereby denying their residents the power to choose.
When it is available, the options provided by energy deregulation may go beyond giving consumers a list of companies from which to choose. Consumers may be able to choose between different types of companies. In California, for example, consumers have had the option to choose between investor-owned utilities, local publicly-owned electric utilities, and independent electric service providers.

The right to choose electricity providers can also empower consumers to support their environmental beliefs. Some people, for example, are against the use of coal due to its negative effect on the environment. These people therefore can choose cleaner energy sources, such as wind or hydro power.
Energy deregulation also provides users with an additional means of recourse when they are not satisfied. A consumer may not be happy with the services provided or she may not agree with an energy company’s business practices. Such individuals can take action by spending their money elsewhere.

When there were no options, many people simply paid their bills and usually took no further interest in electricity. Energy deregulation often results in consumers becoming more knowledgeable about the industry. People tend to know more know about electricity generation, transmission, and pricing. This is true even among people who are in states where energy has not been deregulated.