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Deregulation:  Here is what it means to you

The company that maintains the wires that come to your home or business, delivers the electricity to your home, reads your meter, sends you a bill, repairs the wires after a storm, and the company that you call for customer service if you have any kind of problem is called your incumbent electricity company. Regardless of where you live, your incumbent electricity company will probably NOT change. The only thing that may change (if you so choose) is your choice of the company that actually produces the electricity that your incumbent electricity company delivers to your home or business.  Numerous electricity providers maintain generating facilities (coal, natural gas, nuclear, wind, solar, hydroelectric) that produce the electricity which is then delivered to “the grid”. Deregulation simply means that you can choose the specific electricity generating and supply company from which you purchase your electricity.  Maybe you prefer solar, wind or some other alternative energy for its “green” nature. Maybe you simply want the lowest price.  Maybe you own stock in a certain company so you want to also be their customer.  Whatever reason you may have, in states that have deregulated their electricity marketplace, you are now permitted to choose the company that produces the electricity that your incumbent electricity delivers to you.

There are many issues that may be important to you…

Consumers Now Have Choices

Deregulated Electricity Competition

Free market competition now exists in the deregulated states. To understand why this is, it is important to remember this one simple fact:  The companies that generate electricity have to be able to produce enough electricity to satisfy the peak demand for electricity.  Peak demand usually occurs on the hottest day of the summer when everyone is running their air conditioners at full blast.  Every other day of the year, the ability to supply electricity usually exceeds the amount that is actually needed. Since electricity generating companies primarily have fixed costs (the cost of building their generating plants), the only way for them to be more profitable is to run their generating plants as close to full capacity as possible.  Since most electricity generating companies would like to make as much money as possible,  they want to convince YOU to purchase your electricity from them, rather than from their competitors.  Their desire to attract your business has created one of the biggest business opportunities of all time.

Deregulated Electricity Business Opportunities

Many marketing and promotional companies have been started to try to get you to purchase electricity from them. Quite a number of these companies have chosen to encourage regular people to join their sales organizations and promote their companies through their “friends and families”, in much the same way that long distance telephone companies marketed their services when the telephone industry was deregulated a few decades ago. If any of your “friends or family” have approached you and encouraged you to “join” any of these multi-level-marketing companies, there are many issues of which you should be very aware.  If you are thinking of joining the marketing division of any of these companies, this website will help you to analyze these different companies, compare them, and choose the company that is right for you. So far, with only one exception, every energy marketing company that we have reviewed charges people hundreds of dollars to sign up as a marketing representative in order to promote their business and they also charge their representatives various fees each and every month in order to maintain their marketing rep status.

The only electricity company that we have been able to find that is 
100% completely free to join, requires NO purchases of any kind, 
and allows you to remain a member for life is…

The Energy Market Exchange

CLICK HERE FOR COMPLETE INFO

However, there are a number of energy marketing companies that charge an upfront fee of around $400 to be able to “sell” electricity service. They will also charge you around $30 per month in order to have a website or portal that allows you sign up energy customers.

WATCH VIDEO: Business Opportunity Scams

Many of these companies are actually members of the Direct Sellers Association. The DSA guidelines clearly state:

WATCH VIDEO: The King of Queens Gets Duped

Only ONE of the following companies does not charge you to work for them!

The only electricity company that we have been able to find that is 100% completely free 
to join, requires NO purchases of any kind, and allows you to remain a member for life is…

The Energy Market Exchange

CLICK HERE FOR COMPLETE INFO

What are the Benefits of consulting an Independent Energy Broker?

Anyone can become a deregulated electricity representative.

The Deregulated Electricity Market enables everyone to pursue the great American dream to own your own business and take control of your own personal financial future. To learn more, CLICK HERE.

So, we have the generators of power, the transmitters of power and the suppliers of power. Traditionally, the generators of power and the suppliers are one in the same. If you are generating power to the grid, you have the right to sell that supply on the open market in deregulated states.

What most conglomerates don’t want you to know is that if you switch suppliers in a deregulated state, it has NO EFFECT on your service. If there is a storm and power is knocked out, the utility that has contracted with the state to fix those outages will still fix the problem. If you lose power to your home or business, you still call the utility that charges you for transmission on your bill for service. The only change is in the price your new supplier charges you for electricity that you consume.

For the electric industry, deregulation means the generation portion of electricity service will be open to competition. However, the transmission and distribution of the electricity will remain regulated and your local utility company will continue to distribute electricity to you and provide customer services to you. Only the generation of electricity is being deregulated, which means you will have the opportunity to shop around for the electricity-generation supplier of choice.

Your local utility will also serve as “the electricity generator of last resort.” In other words, if your selected electricity-generation supplier is unable to provide the electricity you need, your local utility company will supply you with electricity at the prevailing price. When you shop for electricity, you should certainly consider your local utility company as one of the possible suppliers of your electricity.

Your local utility company – whether it is an investor-owned company or a rural electric co-op – will continue to distribute electricity to you and provide customer services to you. It does not matter who you may select as your electricity-generation supplier, you will remain a customer of your local utility company for transmission, distribution, and local services. These services will remain regulated for the foreseeable future. Your local utility company will be responsible for providing line repair and maintenance, restoring service after storms and accidents, and providing customer services, including metering and billing. When your local utility company is restoring electrical service after a storm or accident, the line crews cannot give preferential treatment to those customers purchasing electricity from the company.

With deregulation, consumers can purchase electricity service from a variety of Retail Electricity Providers (REPs) that purchase power from power plants and handle billing and customer service. As the electricity is still delivered over the same wires and poles by the incumbent, the switch is painless for the consumer.

If you are a huge conglomerate and have been supplying power to consumers in an area for years, deregulation scares you because now that means competition. You don’t want the average consumer to be educated because that means you will lose business. If you are charging everyone a flat rate of $0.077 per kilowatt hour (kWh) for energy and a supplier comes along offering the same electricity for $0.066 per kWh, you are going to lose customers.

There are websites in every state put together by state commerce commissions which explain your rights as a consumer to choose what price you want to pay for electricity and how that affects your service.

www.PowerToChoose.org (Texas)

www.CTEnergyInfo.com (Connecticut)

Utilities will continue their veiled attempts to keep the average consumer in the dark about deregulation because they do not want to lose customers and desire to continue to charge bloated rates for supplying power to the masses. They want things to remain status quo and to make money from the uneducated masses.  They don’t want deregulation to affect their bottom line. People once thought deregulating their phone service was a bad choice, but the products out there today have proven that that thought process was misunderstood also, and that the deregulation of the telecommunications industry not only promoted competition but innovation also.

This is quite simple: Switching suppliers to save money on your bill will have no effect on your service. There are laws in place in every deregulated state to protect consumers from fraudulent suppliers and from having your service interrupted without cause and notice by a utility.

The most important part of deregulation is education. But until people start educating themselves about how they can save money on their bills and ignore the scare tactics used by their current utility, deregulation will continue to be a misunderstood and misinterpreted benefit for consumers.

To understand electricity deregulation, one should first understand how the electricity industry originally developed and how it has traditionally functioned.

In the earliest days, there was no regulation of the electric power industry. Small companies operated small generators in municipal areas and sold power to industries and other users in that area. In 1896, Westinghouse pioneered the use of alternating current to deliver electricity over a long distance from its hydroelectric plant at Niagara Falls. This generating and delivery system was far more efficient and quickly became the national standard. This development quickly led to the formation of large “public utility” companies.

It soon became clear that generation, distribution and sale of electricity was virtually a monopoly. Some municipalities established publicly owned utilities, but most electric power was provided by private companies. Although these electric utilities did purchase some electricity, most of the electricity they sold was generated by the company itself. The distribution and sale of electricity to users was clearly a monopoly because it only made sense to have one set of power lines leading to each consumer. Because its monopolistic nature, states quickly established “Public Utility Commissions” (PUCs) to regulate the price of electricity sold to consumers. Under the standard type of regulation, the utility would justify its rates by accounting for the cost of producing, distributing and marketing the electricity and would be entitled to a “fair” rate of return.

As the industry continued to develop, utilities combined into large financial holding companies. In 1935, almost half of the generation of electricity in the country was under the control of three large holding companies. Because of the size, complexity and interstate nature of these trusts, their effective regulation by state public utility commissions became impossible. Not surprisingly, these trusts were accused of manipulating the cost of electricity in an anti-competitive fashion.

The origins of the current system of energy production and delivery date back to the New Deal era, when Congress brought an end to the tight reign of large interstate holding companies that controlled more than 75 percent of the country’s electric generating capacity. The Public Utility Holding Company Act of 1935 (PUHCA) forced the holding companies to break up, and gave utilities a government-sanctioned monopoly over a limited territory. In exchange, utilities agreed to provide reliable electric service to all customers at a regulated rate. The law resulted in the formation of nearly 300 power systems and 800 rural cooperatives.

The result was the onset of federal regulation of electric power. The Securities and Exchange Commission was provided with authority to require that the interstate holding companies divest their holdings until each became a single consolidated system serving a prescribed geographic area. At the same time, the Federal Power Commission, now the Federal Energy Regulatory Commission (FERC) was created for the purpose of regulating the interstate wholesale electricity market.

Under the resulting system, the electric power industry became a group of geographically contained “vertical” monopolies which controlled the generation, distribution and marketing of power in each company’s territory. Because they controlled the generation of power using primarily fossil fuels , the existence of this system has discouraged the development of renewable and other innovative energy sources because companies attempting to develop such new technologies did not have access to the country’s power system. Moreover, because the profitability of the public utilities depended on increased consumption and thus there was no incentive for the utilities to encourage energy conservation.

In the United States, all three of these vertically related sectors have typically been tied together within a utility, which has been either investor-owned and state-regulated or owned by the local municipality. For many years, each sector was thought of as a natural monopoly. In the transmission and distribution sectors, effective competition would require that rival firms duplicate one another’s wire networks, which would be inefficient. If wires owned by different companies were allowed to interconnect to form a single network, the laws of physics demonstrate that there would be significant externalities: the flow on one line affects the capacity of other lines in the system to carry power.

Generation was argued to be a natural monopoly because of the large scale of efficient generation plants and the losses that occurred with long-distance transmission, which made it more efficient to have local areas served by one or a small number of generating plants. Few people argue that the basic economics of transmission and distribution have changed. But, over time, the optimal scale of generating plants has declined, not increased, as many thought it would in the 1960s and 1970s with the growth of nuclear power. In addition, technology improvements reduced the losses that occurred during transmission, making it more feasible for plants hundreds of miles apart to compete with one another.

OPEC’s worldwide oil embargo in 1973 had a dramatic impact on the electric industry. Although the embargo was most famous for creating interminable lines at the gas pump, it also produced sharp increases in electric utilities’ costs. The result was a surge of interest in alternative forms of energy. In 1978, Congress passed legislation to require utilities to purchase power from companies which generated power using renewable sources or through “cogeneration”.  The Public Utility Regulatory Policies Act (PURPA) required utilities to use “renewable” energy, which is produced from wind, solar, and other sources. Both PUHCA and PURPA would later be viewed as impediments to workable national electricity deregulation.

Thus, in the 1980s, a movement began to increase the efficiency of the generation sector by letting independent entrepreneurs compete to supply power to the utility.

In the 1990s, deregulation was pushed by commercial customers rankled by utilities that built too many power plants and saddled customers with the tab. Deregulation was supposed to let customers buy electricity from more-efficient, competing suppliers. To prevent utilities from favoring their own plants, many had to sell the generation facilities to unregulated affiliates or to independent power wholesalers.

By the mid-1990s, large industrial consumers sought to escape the high costs of power in some parts of the country, like California, that came as a result of building expensive nuclear power plants. At the same time, independent power producers like Enron were actively lobbying to be able to sell power to these big consumers. Political pressure for deregulation mounted because the breakup of the $300 billion dollar utility industry meant huge amounts of money could be made. Enron, an important campaign contributor to the Republican Party and to President Bush, lobbied for deregulation not only in California, but at state legislatures across the nation and in Congress.

The intent and purpose of deregulation was presented as a way to improve the quality of people’s lives by lowering the cost of a critical commodity: Electricity. Deregulation was supposed to do for the power industry what it did in the airline and telecommunications industries: bring consumers lower prices and more competition.

The federal legislation which permitted companies to market their power was the first step towards a realization that the electric power industry was not necessarily a natural monopoly at least when it came to generating electricity. Other industries such as the banking industry, the airline industry and the telecommunications industry had successfully underwent deregulation. Many consumers in states with high rates anticipated that deregulation would reduce prices. Moreover, new technologies for generating electricity using modern turbines allow cost effective smaller scale generating systems.

The main argument used to support deregulation is that a freer market promotes efficiency. In a regulated environment, for example, wholesale and retail electricity power prices are calculated based on a utility’s costs. If a utility invests in what turns out to be an uneconomical project, it can still add the costs of the investment to the price it charges for electricity. Thus, the risks and economic consequences of a poor investment are passed to the electricity customer.

Despite efforts to manufacture an appearance of grassroots support, deregulation was primarily driven by large industrial users, who thought they could save money, and energy companies, who thought they could make money out of it. The case for deregulation could not be presented in self-interested terms to the public. It had to be presented as being in the interests of the wider public. Groups such as large industrial energy users used the language of free-market advocates to state their case in terms that disguised their self-interest.

The Heritage Foundation, a conservative think tank, helped spread the rationale for deregulation. Texas Congressman Thomas DeLay set out his “free-market vision” for the electricity industry at a Heritage Foundation lecture: “Bringing electricity into the competitive world will unleash new products, greater efficiencies, business synergies, and entrepreneurial success stories,” he said. “It will create new industries, new entrepreneurs, and new jobs.” Delay, the majority whip in the U.S. House of Representatives, was closely connected to Enron and a beneficiary of Enron donations. Two influential members of his “kitchen cabinet” were used as lobbyists by Enron. In Texas, his efforts to promote deregulation earned him the nickname DeReg.

In Energizing America: A Blueprint for Deregulating the Electricity Market, Adam Thierer, a fellow of the Heritage Foundation, argued that regulation of electricity monopolies had caused a “lack of price competition and consumer choices, limited innovations, and a lackluster environmental record” whereas “deregulation of the electricity marketplace” promised “rich rewards.” These rewards, he argued, included lower prices, lower operating costs for industry, more jobs, increased reliability of service and a cleaner environment.

Even the more centrist think tank, the Brookings Institute, produced a report supporting electricity deregulation for its potential consumer savings. The report was financed by companies lobbying for deregulation including Enron, Pennsylvania Power and Light, Wisconsin Electric Power, Cinergy and the Electricity Consumers Resource Council, a coalition of large electricity users.

Advocates of deregulation also formed a plethora of corporate front groups and coalitions, including the Alliance for Competitive Electricity, Citizens for State Power, Electric Utilities Shareholders’ Alliances, the Alliance for Power Privatization, and the Coalition for Customer Choice in Electricity. The campaign was coordinated by Americans for Affordable Electricity (AAE), whose members included the Ford Motor Company, Enron and various utilities. AAE raised millions of dollars for lobbying and advertising, spending $4 million a year on top of what each of its members spent. Member companies and groups also donated the time of their public relations, legal, policy and lobbying personnel.

Citizens for a Sound Economy (CSE), a front group with close Republican ties, spent tens of thousands on advertising in various states and even used banners from airplanes to promote “consumer choice.” It commissioned a study (funded in part by Enron) claiming that deregulation would reduce the average electricity bill by 43 percent. Politicians financed by business interests were eager to use think tank and front group data in their arguments for deregulation. After CSE’s figure of 43 percent was cited by the Heritage Foundation, the Foundation’s report was publicized by others as a confirmation of CSE’s study. A press release from the House Commerce Committee claimed that “yet another academic study” had concluded “that giving consumers the freedom to choose their own electric utility will result in lower rates, improved service and better reliability.” The Committee also cited the Brookings Institute report.

Politicians promoted the concept of consumer choice as a primary benefit of deregulation because they wanted wide voter support, which is why the actual legislation had names like the “Electric Consumers’ Power to Choose Act.” When the chair of the Commerce Committee, Tom Bliley, appeared at a press conference promoting the bill, he brought along representatives of what were supposed to be hundreds of consumer groups that wanted consumer choice. This was to avoid the impression that the bill was being introduced for the benefit of big business. The press conference announced a “media outreach” initiative telling consumers that deregulation could save up to 43% on their power bills.

Political campaign donations helped Enron play a major role in the deregulation campaign. In total, Enron donated just under $6 million to election campaigns beginning with the 1989-90 election cycle. It became the sixth highest contributor during the 1994 election cycle and by 2000 was the top contributor of all corporations in the Energy/Natural Resources sector. Enron also spent millions lobbying Congress, the White House and federal agencies. Like the EEI, Enron drew its lobbyists from both the Republican and Democrat parties. By the late 1990s it employed more than 150 people on state and federal government affairs in Washington, DC.

The battle for deregulation at the state level was equally well financed. Following their successes in Congress, the power companies spent large amounts of money on lobbying for deregulation at the state level. Enron’s lobbyists sought out consumer groups, schools and other community groups that would benefit from cheaper electricity and tried to persuade them that deregulation would be good for them.

Enron CEO Ken Lay “is pulling out all stops to hasten deregulation,” Business Week reported. “In April [1997], he launched a $25 million-a-year nationwide ad campaign and says he’ll spend up to $200 million to argue the merits of free-market electricity.

In Texas, Enron spent $5.8 million between 1998 and 2000 on funding state politicians, hiring 83 lobbyists, advertising, and donations to Texan charities. It used its enormous political influence to overcome the resistance of the existing regulated utilities in Texas and persuade the public (which was already paying low prices for electricity) that they would be better off with deregulation.

In California, big electricity users formed Californians for Competitive Electricity to lobby for deregulation. It encompassed a range of other coalitions including the California League of Food Processors, the California Manufacturers Association, the California Large Energy Consumers Association – a coalition of cement companies, steel manufacturers and a gold mining company, and the California Independent Energy Producers Association. The California Manufacturers Association spent $1.7 million on lobbying in 1995 and 1996. The California Large Energy Consumers Association and Californians for Competitive Electricity also spent hundreds of thousands of dollars.

Existing regulated utilities also participated in the campaign for deregulation. The Center for Public Integrity estimates that three major Californian utilities spent $69 million between 1994 and 2000 on lobbying and political spending. In return for giving up their monopoly status, the regulated utilities negotiated a deal assuring them that $28.5 billion of ratepayer money would be used to pay off past debts from capital investment (‘stranded costs’) incurred by the construction of nuclear power plants.

The utilities were influential supporters of deregulation. For decades they had been giving campaign contributions and other donations to local politicians to ensure that the issue of public power was kept off the political agenda. They also donated money to a variety of community and civic groups and charities. According to the San Francisco Bay Guardian, the Pacific Gas & Electric Company (PG&E) “infused itself into San Francisco politics, society, culture and business – using its money to make connections that have insulated the company from criticism or political challenge.”

“The politicians and the community groups are all neutralized by the money, and there’s no countervailing force to fight the utility,” observed consumer advocate Ralph Nader. PG&E insinuated itself into several influential business organizations and onto the boards of large companies in the area. Even after prices for electricity soared and service deteriorated, business groups refused to publicly support a shift to publicly-owned utilities. According to Nader, PG&E also spread large amounts of “money around to the big law firms, so there’s no major firm that can take on PG&E. Then they enlist the political power of these law firms to press their agenda.”

The revolving door between business and government also helped the deregulators line up bipartisan support. California’s Republican Governor Pete Wilson led the push for deregulation. Democratic Senator Steve Peace was also a key advocate and received $277,000 in campaign contributions from the three large utilities. David Takashima, who had been Peace’s chief of staff in the 1980s before working as a lobbyist for utility SoCalEd, returned to work for Senator Peace and helped shape the deregulation bill. Takashima then left to be director of government affairs for PG&E.

In addition to campaign contributions, legislators also reaped personal benefits. Energy companies supported an organization called the California Foundation on the Environment and Economy (CFEE), which had representatives of the three main utilities on its board of directors. CFEE paid for various overseas trips for politicians and members of the Californian Public Utilities Commission (PUC) to “study deregulation.”

The state government also spent tens of millions on an “education program” in preparation for deregulation. “Plug in, California” was an $89 million government advertising campaign aimed at householders and small businesses that promised degulation would mean cost savings, reliability and consumer rights. It included television, radio and newspaper ads as well as direct mail and trained speakers talking to 84 community groups.

Enron spent more than $345,000 lobbying for deregulation in California and another $438,155 on political contributions. It hired former legislators and Californian PUC officials to shape legislation that created the disastrous energy market which would later be referred to as “the Enron model.”

What really happened in California?

The legislation, written primarily by California’s utilities, was extremely complex, a vast program for a vast state. It was wrangled over in a series of rapid-fire hearings, and rammed through the legislature at the last minute in a process that took only three weeks. It was unanimously passed and signed into law by Governor Pete Wilson in the fall of 1996.

The legislation, written and supported by utilities, privatized their profit and socialized their risks. The most glaring example of this was the $28 billion dollar consumer-funded bailout for their so-called “stranded costs.” Stranded costs are essentially mortgage payments that the utilities make to cover their purchase of expensive boondoggle nuclear power plants. The utilities argued that the bailout was necessary because they would now be assuming marketplace risk, and the uncertainty of their future profits made the paying off of debts they incurred under regulation too burdensome. To accomplish this bailout, rates were artificially frozen for 4 years, at what was then 50% above the national average cost of electricity.

As of March 31, 1998, California was one of the first states to deregulate their electrical industry. For about a year and a half, deregulation worked fairly well in California, but their success did not last. Around June of 2000, prices of wholesale electricity in California began to rise to all time highs. Because of these problems and others that ensued because of it, the state is not currently deregulated. Other states have had some problems with deregulation, but some states like Texas are truly succeeding with their new restructured electrical industry.

In California and some other states, the utilities were required to divest themselves of power generating assets. In California, utilities were subject to a rate cap until they recovered their “stranded costs” and completed divestment. A nonprofit “Power Exchange” or “PX” was created as an auction market for the buying and selling of electricity. This feature was discontinued when it was realized that a reliance on “spot market” pricing was contributing to the high cost. Now utilities contract with power suppliers directly and are able to structure contracts which provide more price stability. Under all plans, the costs and profits associated with the transmission, delivery and sale of electricity to consumers remain regulated.

Also, the legislation provided incentives for California’s utilities to sell their power plants to unregulated companies. They sold most of their fossil fuel plants at above the book value, providing them with a significant profit. However, they retained their nuclear and hydro-power generation, along with a small amount of fossil-fuel plants.

The power-generation price on the bill was no longer regulated, but states continued to oversee utilities and the separate price they charged to maintain the wires to homes and businesses. Customers could buy from the new competitors or stay with their utility, which itself would have to purchase power from the wholesalers. To ensure instant benefits for consumers, states froze residential rates for five to 10 years.

Under the legislation, the price of electricity was temporarily fixed at 6.5 cents per killowat hour which was substantially higher than the market price. The utilities were allowed to use the difference to recover “stranded” costs which were costs for equipment which could not be sold to producers. The wholesale price for electricity generation precipitously jumped in the summer of 2000 less than a year after one of the three major utilities (San Diego Gas & Electric) was allowed by the legislation to charge consumers an unregulated price after recovering these stranded costs.   The rise in price was unrelated to any increased demand when compared to the previous year.    The causes of such a dramatic rise are not completely clear although it is becoming more clear that power companies took advantage of the absence of regulation to close plants for maintenance to create artificial shortages. Indeed, the pattern of plant closures was abnormal when compared to the previous year.

Because they had not recovered stranded costs, the other two major utilities in California, Southern California Edison and Pacific Gas and Electric were required to charge consumers no more than 6.5¢ per kilowatt hour until March 2002. Because this rate had become much lower than the market rate, both utilities began to lose vast sums of money because they had to purchase power at the unregulated market rates. Their requests to raise rates above the legislative cap were refused and Pacific Gas and Electricity declared bankruptcy. Because San Diego Gas & Electric was exempted from the cap, the State government has been purchasing power over 6.5¢ on behalf of San Diego consumers since September 2000. For many months in the fall of 2000 and spring of 2001, the Federal Energy Regulatory Commission and the Bush Administration refused to regulate the wholesale prices despite the requests of California Governor Gray Davis and most members of California’s Congressional delegation. Finally in April 2001, the FERC did institute a temporary wholesale price cap formula only after the state began purchasing power under long term contracts. The result has been a form of new regulation. In order to pay for purchases of power, the state has authorized rate increases and the issuance of a $12.5 billion bond measure. Shortly after the negotiation of these contracts, the cost of electricity substantially decreased but the state is locked into long-term contracts which are substantially higher than the present market rate.

Enron made huge amounts of money from Californian energy deregulation. A significant proportion of California’s electricity and natural gas market operated through Enron’s online auction. According to Public Citizen, the auction “allowed Enron’s unregulated energy trading subsidiary to manipulate supply in such a way as to threaten millions of California households and businesses with power outages for the sole purpose of increasing the company’s profits.”

California utilities, claiming bankruptcy as a result of the price manipulation by unregulated power companies, used their information channels to ensure that the crisis was not depicted as a failure of deregulation. PG&E inserted a letter into 4.6 million ratepayers’ bills saying that “the state’s booming economy can be a mixed blessing,” referring to rapidly growing population and the “multiple electronic devices” of the Internet age: “New energy supplies have not kept pace with that growth.”

What about other states?

Many states have takes the view that “If it isn’t broken, don’t fix it.” The electric power system under the federal/state regulation system has kept up with demand and produced electricity at relatively stable prices over a long period of time.   At the same time, it has provided a stable financial return for investors.

Restructuring has not caused the problems that California has experienced, probably because no “spot market” for power was created and long term contracts guarantee a steady electricity supply. In Pennsylvania, many consumers have begun to choose different electricity suppliers and the rates have actually decreased. Pennsylvania, unlike California, did not require their utilities to divest themselves of power generation.

But while 60% or more of commercial customers in many deregulated states switched to rivals and realized at least some savings, fewer than 10% of consumers have defected, says a study by Michigan State and Ohio State universities.

Richard Rathvon, head of the Retail Energy Supply Association, blames the rate caps, which kept prices artificially low and left rivals no room to undercut the utility. “Competition hasn’t failed,” he says. “It hasn’t been allowed to work.” Proof, he says, lies in Texas, where utilities have been able to raise their rates in response to fuel price increases and this year were freed of all price restraints. About 60% of Texas consumers have chosen an alternative power supplier.

D’Lana Motta, 52, of DeSoto, Texas, switched from utility TXU (TXU) to Reliant Energy (RRI) earlier this year to light her home and clothing boutique. She’s saving about 10% on her electric bill. “In running a business, you want to save money,” she says. “And maybe it’s a little more personal service.”

Natural gas represents a small portion of electricity generation but has a disproportionate effect on wholesale prices. That’s because idle natural gas plants that rev up to meet excess demand on hot days charge high prices that all generators, even low-cost coal plants, receive. Such “spot market” prices also affect rates for long-term contracts. By contrast, regulated utilities must charge customers the average cost of all their generation.

To discourage manipulation of wholesale purchases, the Federal Energy Regulatory Commission (FERC) has proposed new rules, including making suppliers disclose their bids to other bidders after a brief lag. Bids are now kept secret for six months. “We’re trying to increase the transparency,” says FERC Chairman Joseph Kelliher. He says FERC is closely monitoring power markets and, with a 2005 law, can now impose hefty fines for manipulation.

Yet officials say scrapping deregulation brings its own perils. Bill Massey, a former FERC commissioner and a lawyer for Compete, a group of wholesalers, utilities and customers, says free markets have led to more efficient and innovative plants. Now, rivals are best able to offer conservation and energy efficiency services to cut global warming emissions, he says.

Electricity deregulation has passed (or been adopted by a regulatory process) in 23 states plus the District of Columbia. However, because of the situation in California, Utah repealed its deregulation bill and New Mexico has delayed implementation of its deregulation legislation. Of the states that passed bills, only a handful of them have begun changing their energy supply systems. Some places, like Washington, D.C., negotiated long-term contracts at reasonable rates, which will put off by several years the disasters of a truly deregulated market. And in almost all states, deregulation is to be phased in over a period of years. To make the legislation politically viable, price caps, mandated rate reductions and other benefits that will be sunset were included.

In a deregulated marketplace, the price of electricity fluctuates by the season, the weather, and by the time of day. Prices are governed by the amount of available generating capacity and the amount of demand. But consumers are charged just a flat fee for their use of electricity that does not vary with the cost of electricity that they are using. The technology for charging consumers varying prices based upon the time that they use electricity has been developed but it is still several years away from being implemented. Thus consumers are not encouraged to use electricity in an economically prudent way. Many economists believe that until there is a way for the demand for electricity to respond to changes in price, there has to be some type of regulatory price cap on the cost of electricity.

Electricity Deregulation in Pennsylvania

Pennsylvania was a totally regulated market until 1997, but the road to Pennsylvania electricity deregulation began with the passing of House Bill 1509 (also known as the Electricity Generation Customer Choice and Competition Act) back in 1995. The bill eliminated the monopolies held by incumbent providers and set the stage for lower electricity prices. Slowly but surely, pockets of the state began becoming deregulated in August 1997, with the roll-out complete by January 2000. Since the process of deregulation began, hundreds of thousands of Pennsylvanians have switched their electricity provider for lower rates. Thanks to deregulation, everyone in Pennsylvania has the option to switch providers, though it doesn’t make sense for everyone right now. Some areas still have rate caps in place for the incumbent provider, meaning that switching to a new provider could actually raise rates for some consumers. These rate caps will all expire on December 31st, 2010.

The power of competition has led to more than 30 power providers competing to serve residents, businesses, schools, universities, hospitals and units of local government where PPL used to have sole purview, resulting in an array of new options and lower rates for customers. As a result, in just more than six months, more than 389,000 residential users opted for a new company to deliver their electric needs. PPL estimates that 40 percent of small commercial customers have taken advantage of the competitive marketplace and switched to other suppliers, and almost 80 percent of large commercial and industrial and public sector users have switched or are shopping for a new power provider.

In the Allegheny Power, Metropolitan Edison, PECO and Penelec markets, 67 power providers have entered the marketplace to provide energy to businesses and commercial electricity users, ahead of the Jan. 1, 2011 expiration of rate caps in those service territories. Businesses, universities and local governments such as Warren Twp. and Allegheny College in the Allegheny Energy service territory and Ursinus College in the PECO service territory already have taken advantage of historically low electricity rates. They all have entered into long-term agreements that will ensure their ability to take advantage of today’s rates for years to come.

There is at least one benefit of the economic downturn: Residential electricity prices are falling, or at least holding steady. When PPL Electric Utilities deregulated nearly a year ago, the price it charged customers for power rose 30 percent. Though other suppliers came in with competing offers for PPL customers, their prices were still generally 10 to 20 percent higher than what PPL charged before deregulation. But wholesale electric prices paid by suppliers have declined during 2010, resulting in lower retail prices. Met-Ed has announced that the price it will charge customers in January will rise by just 2.2 percent, to 8.3 cents per kilowatt hour. That’s because Met-Ed’s parent company — FirstEnergy — was able to contract for electricity at lower prices.

The 8.3 cents per kwh is the so-called “price to compare” figure Met-Ed residential customers can use to shop for competing offers. So far, one competitor — Palmco Power PA — is offering Met-Ed residential customers a rate of about 7.5 cents per kwh. Other companies also are expected to enter the Met-Ed market as it gets closer to January.

PPL spokesman Ryan Hill said its rate has dropped this year from about 10.45 to 9.4 cents per kwh. Under deregulation, utilities like Met-Ed and PPL Electric Utilities are reducing their role in selling electricity to customers, though they will still do so as the “supplier of last resort” if customers fail to select a new supplier. Both companies encourage their customers to shop around.

“It’s certainly in the customer’s interest to continue to explore and get the lowest possible cost,” Hill said. So far, about 35 percent of PPL Electric customers have contracted with an alternative supplier.

About 70 percent of the Met-Ed customer billing charge — covering the cost of electricity and cost to transmit it along power lines — is part of deregulation and open to competition. Met-Ed — which has 37,000 customers in Monroe and Pike counties — will continue to maintain and operate those lines and facilities, just as PPL Electric does now.

On Jan. 1, 2011, the price of electricity for PPL residential and business customers in Clinton, Juniata, Lycoming, Snyder, and Union Counties will become deregulated under Pennsylvania’s 1996 electricity deregulation law.

PPL estimates that its “GS-1” small business customers, which are businesses with a maximum 25 kilowatt peak demand such as small retail stores and small restaurants, will see an 18.4 percent increase in their electric bills next year.

The increase for larger “GS-3” small business customers, the top end being a “big box” store, will see a price hike of about 36 percent.

Allegheny Power, which serves all or parts of 23 Southwestern and Central Pennsylvania counties, began to phase in its deregulation in 2006 with incremental annual rate increases. In January 2009, Allegheny Power’s rates increased by approximately 12 percent for residential and commercial customers, and 14 percent for industrial customers.

With the rate increase already in place for 2010, the expected remaining increase for Allegheny’s customers would be 14 percent for residential customers, 13 percent for commercial customers and 10 percent for industrial customers.

Even if customers choose a new generation company, the traditional utilities will continue to handle customer billing and respond to emergencies such as power failures.
Customers considering a switch are expected to call various suppliers to ask what they would charge. Customers should ask if the price includes the cost of the electricity, the transmission cost of that energy, which companies will charge back to consumers after paying the traditional utilities to transmit it, and taxes. Customers also should ask if there is a cancellation fee if they decide to leave a supplier before the contract expires.

This level of performance reveals how Pennsylvania is well on its way to having one of the most successful competitive electric markets in the nation. States from Texas to New York have opened their electric markets to retail competition, but none has shown such immediate and dramatic results. Pennsylvania’s status as a leading competitive electric market only will continue as more businesses and other customers explore an open and competitive market after Jan. 1, 2011.

Electricity Deregulation in New York

New York remained a regulated market until 1996, when the New York State Public Service Commission (or PSC) started “unbundling” electricity bills in the state by separating the charges for electricity delivery and the electricity itself. By separating the transmission from the electricity itself, consumers gained the ability to choose their electricity supplier and save on their bill while retaining the same wires and poles.

Consumers in New York enjoy a deregulated electricity market, meaning they have the power to choose their electricity provider. Energy providers in New York are known as Energy Service Companies (or ESCOs). According to the PSC, over six million customers in New York have the ability to switch and over one million now get their power from an ESCO.

ESCOs purchase the electricity you use from power plants and are available to answer any questions you may have about your service. These providers also may offer products the incumbent did not, including fixed rate plans and plans that use renewable energy.

The power is still transmitted over the same wires and poles by the incumbent, making the switch to a new electric provider almost invisible for the consumer. You will still get a bill from the incumbent and they are still the ones to call if there any outages. To start new service you will still have to set up your initial service with the incumbent, and then switch to a ESCO.

Deregulation in New York forces the incumbent, along with the newcomers, to compete on the basis of price and service. Instead of being forced to accept one price and one level of service, consumers have the freedom to seek out the best electricity rate and service on the market with deregulation.

Electricity Deregulation in Texas

Texas is a massive electricity market, the largest in the country. In fact, if Texas was a country, it would rank as the 11th highest in the world for electricity consumption. So, when Texas decided to deregulate its electricity market back in 2002, it was big news. The process of Texas deregulation started back in 1999 when Texas state senator David Sibley introduced legislation that would eliminate regulated electricity rates and break monopolies in the electricity market with the goal of lowering energy prices. This was Senate Bill 7, and after much debate it finally became law on January 1st, 2002. Since deregulation in Texas took effect, about 40 percent of Texas households and 85 percent of Texas businesses have switched electricity providers at least once. Deregulation affects most regions in Texas. Anyone served by an electric company that is not owned by a municipality or utility cooperative (unless they have decided to opt-in) has the power to choose.

Although the idea has been contemplated years earlier, it was only in 1999 when Senator David Sibley formally introduced into the Texas state legislation the deregulation of electricity rates and finally put an end to the monopolies that controlled the Texas electricity market. Senate Bill 7, as it was officially known, passed through much debacle before it was officially promulgated into law on 1st of January in 2002.

Since then, a significant number of Texas households and businesses switched to different electricity providers in almost all the regions in Texas. Consumers serviced by the several retail electricity providers that emerged after deregulation now has the power to choose which Texas electric company will provide their energy. This new era for a competitive market in this industry has spurred all players to provide better quality services, promos and special offers in a bid to capture an ample share of the market.

In the deregulated Texas electricity market, the consumers purchase their electrical services from Retail Electricity Providers or REPs. These REPs communicate directly with customers and is responsible with coordinating with the local Transmission and Distribution Service Provider or TDSP to ensure that the electrical service is turned on according to the logged order from the consumer. The REPs take care of all customer services including billing and pricing rates, while the TDSPs continue to maintain the transmission wires, poles and other electrical infrastructure.

REPs purchases electrical power wholesale from the power generation companies who make use of different energy sources: coal, natural gas, wind, nuclear energy, biomass and hydroelectricity — to provide power to the households and businesses in Texas. The generation of electricity as well as the transmission and distribution of electrical power is still under the regulation of the Public Utility Commission of the state of Texas.

On January 1, 2001 the following service areas were deregulated: TXU Electric, Relaint HL&P, Central Power & Light, West Texas Utilities, Southwestern Electric Service Company, and Texas New Mexico Power Company.

Municipally-owned utilities and rural electric cooperatives can opt in to the market. Only Nueces and San Patricio Rural Electric Cooperatives have opted in to the deregulated market. All others are regulated by city council or the electric cooperative board.

Under regulation your utility company was responsible for all aspects of your electric service. Now there are three types of companies companies– power generators, retailers and the transmission and distribution utility or wires company. The wires company remains regulated.

The Public Utility Commission encourages consumers to shop for a new electric provider. According to prices posted on www.powertochoose.com residential customers should be able to lower their bills by switching to another provider. When you shop, be sure to compare electricity facts labels, know the rate you are being charged, how often the rate can change, and read the terms of service carefully to check for penalties for changing your mind, and collection and disconnection policies.
Since 1999, when then-Gov. George Bush signed a law that deregulated the Texas electricity market, a debate has raged about whether and how much the move has benefited ordinary Texans.

Deregulation aimed to introduce market competition as a way to increase options to consumers and force down prices. Clearly, the ramifications hardly have broken down so simply, and some believe the industry and large industrial customers have benefited more than the workaday electric consumer — who generally pays rates higher than the national average. Last week, the Legislature’s Sunset Advisory Commission, which is currently evaluating the Public Utility Commission and ERCOT, the grid operator, recommended several important changes, including making it easier for Texas ratepayers to lodge complaints against electric companies.

The broader questions about the merits of deregulation remain a wonkish but important dispute. Conservative groups assert that deregulation has allowed consumers to choose lower electricity prices, caused old plants to be replaced with efficient new ones and encouraged renewable energy. Some ratepayer groups argue that deregulation has caused rates for ordinary Texans to be higher than they would have been otherwise.

“It’s a very, very difficult question,” says Steve Minick, the vice president for governmental affairs at the Texas Association of Business. Many factors, especially the price of natural gas — which has fluctuated widely in the past 10 years — determine the cost of electricity. His group, which represents both electric companies and large users of electricity like manufacturers, favors competition and thinks that deregulation has worked, but also acknowledges the “growing pains” of the market.

So has deregulation caused the cost of electricity to go up or down for ordinary Texans? That answer is complicated by the fact that no one knows how rates might have increased without it. “Most Texans can easily buy electricity today below 2001 regulated prices,” asserts the conservative Texas Public Policy Foundation, in a recent paper. With inflation adjustments, the group says, “the average competitive price today is 9.46 percent lower than regulated prices in Texas in 2001.”

That depends on your definition of “price”: In this study, it’s not what consumers actually pay, according to Bill Peacock, the group’s vice president of research. Rather, it reflects the offers available at powertochoose.org. “We don’t know what choices customers made,” Peacock acknowledges. The “offers” the foundation tracked do not necessarily translate into customers — an important distinction in the literature on deregulation. In other words, how many people will take up tantalizingly low offers — some of which may be here one day and gone tomorrow — is unclear.

From 2002 to mid-2009, 86 percent of customers made at least one observable switch, whether between providers or to a different plan offered by the same provider.

Electricity Deregulation in Maine

In 1999, the year before deregulation took effect, Maine’s average retail electricity price was 9.8 cents per kilowatt-hour, 48 percent higher than the national average of 6.6 cents. So far in 2010, Maine’s average price is 30 percent higher than the national average of 9.7 cents. While electricity costs are high here, the trend is in the right direction. So, the question isn’t how to undo the damage done by deregulation. Rather, it is how to speed up Maine’s movement toward the national average.

It has become gospel in Maine that electricity prices here are outrageously high. A corollary is that utility deregulation is to blame. As with much else involving state government, the picture isn’t as clear as it initially seems.
So far this year, Maine, according to figures from the Energy Information Administration, has the lowest average retail price for electricity, per kilowatt-hour, in New England. Through June 2010, the average retail price in Maine was 12.6 cents per kilowatt-hour; the New England average was 15 cents. Maine’s price for industrial users — 9.2 cents per kilowatt-hour — was well below the New England average of 12.6 cents.

For perspective, New England has the highest average retail electricity rates in the country. This is largely because the region lacks the low-cost coal or huge government-funded hydroelectric facilities that power electricity generating plants in much of the rest of the country. Instead, New England, and especially Maine, is heavily reliant on natural gas to produce electricity. When natural gas prices are high, so are electricity prices here.

Sitting a coal-fired power plant — or a nuclear plant — in Maine is a remote possibility in the near future. Instead, power generation companies will continue to look to the sky and water. These, however, won’t reduce prices in the short term. Offshore wind, for example, is in its infancy and years from reality here. Land-based wind remains highly subsidized and increasingly controversial, so large amounts of electricity won’t come from this source or solar anytime soon. Maine could be more aggressive in working with neighboring Canadian provinces, which have large energy resources they want to export to the Maine market.

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