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.

 

Do's

Don'ts

Calculate the annual cost of electricity for your business or operation on the basis of dollars per item produced or service rendered. For example, if your company manufactures widgets, calculate the cost of electricity per widget produced. If you operate a commercial venture, calculate the cost of electricity per customer serviced and per dollar revenue generated. It is very important to understand the relative significance of electricity expenditures. Install meters to monitor and record your use of electricity for the various components of your operation. Your local utility should be able to assist you with this activity. Examine your various opportunities to modify your load profile to reduce demand charges and/or to make yourself more attractive to an electricity generation supplier. Consider using other forms of energy in place of electricity in the various phases of your operation. For example, you may want to consider using natural gas or propane as the energy source for heating water. But before making any conversions to other forms of energy, be sure to evaluate the total expenditures involved, including initial investment and anticipated costs for operation and maintenance. Explore the benefits of aggregation; that is, a grouping of electricity consumers (generally residential and small business/commercial consumers) into a larger purchasing unit for the purpose of gaining more bargaining power with the electricity generation suppliers. Carefully study the offers from the various electricity-generation suppliers that you will be receiving. Find out exactly how much it would cost for your electricity (including all charges) to meet your electricity needs. Shop around with various electricity-generation suppliers before making a commitment. Begin now to become more educated on the topic of deregulation of electricity generation so that you will be an informed shopper.

Don't sign a contract for a period longer than one year. There are still some uncertainties concerning how electricity will be bought and sold as a commodity in the deregulated environment. Until the dust settles, contracts should not be longer than one year for your own protection. Don't be swayed by free gifts and other "come-ons." Beware of "wise men bearing gifts." You may be receiving many offers with attractive signing bonuses. Be sure to evaluate the true value of these signing bonuses. Just how much is another toaster or a bird feeder worth to you? Or how valuable is a free month of electricity each year or a frequent flyer mile for each 100 kWh purchased? Insist on knowing how much electricity is going to cost you for your operation on a per kWh basis, including all the involved charges. Don't assume your local utility will provide you with the very best deal for electricity. But at the same time, certainly include your local utility company as one of the electricity generation suppliers that you will consider. Don't ignore deregulation. You need to figure out how to take advantage of the opportunities of deregulation. Don't expect to reap huge savings because of deregulation. On the other hand, don't assume that deregulation is "small potatoes" and won't make any difference in your operation. You actually could lose money because of deregulation if you do not become an informed shopper.