What is Deregulation?
Deregulation, Deregulating –
the act of freeing from regulation (especially from governmental regulations).
A long time ago, in order to ensure a reliable supply of electricity at a "reasonable" cost to everyone, our government created rules that forbade anyone from competing with the local electricity companies. Unfortunately, the absence of competition stifled creativity and removed incentives for improving technologies or reducing costs.
Since deregulation has been successful in reducing costs and promoting innovation in other industries such as airlines and telecommunications, federal and state legislators decided to give deregulation a try in the electricity industry.
Many states have chosen to deregulate their electricity markets much in the same way that the telephone companies were deregulated. In deregulated states, utilities are no longer allowed to own all three components of the electricity industry: generation facilities, wires to deliver the electricity, and the retail end of the business – states require that the utility pick one of those three market sectors, so that competitive electricity retail companies can enter the market. Most new entrants have chosen the retail sector. Your current provider usually becomes something more akin to a delivery service, bringing what you ordered to your door.
Since 1978, the electricity industry has deregulated by sector, starting with wholesale markets and then retail markets. Today, almost half of the States have passed major legislation and/or regulations to restructure their electric power industry, and sixteen have opened competitive retail markets.
1978
Congress passed the Public Utility Regulatory Policies Act. Opened wholesale power markets to non-utility producers of electricity.1992
Congress opened up interstate electric grids for wholesale trading.1996
FERC issued Orders 888 & 889 which allowed states to open retail sector to Competition.1998
Electricity deregulation goes into effect. Retail energy companies entered to provide service to Customers. NY opened to retail competition.2000
MD opened to retail competition.2002
TX opened to retail competition.What are the benefits of deregulation?
States are encouraging competition among electricity providers in order to: lower electricity prices, prevent a small number of companies from dominating the market, and improve customer service. In addition, competition should encourage the use of renewable energy options as well as the construction of new, cleaner, and more efficient power plants to increase generation capacity and keep electricity prices from increasing.
What is changing in the electricity industry?
The electric power industry is transitioning from highly regulated, monopolistic utilities which provided their customers with a total package of electric services' towards competitive markets in which each phase of electrical service is separate: generation, transmission, and retail sales. Generation, also called wholesale electricity, and retail electricity are now deregulated in most states. States now own and regulate the transmission wires and lease them to retail electricity providers. In most states, utilities now provide the generation services, while retail electricity providers design new ways of packaging and pricing electricity to reduce costs for customers.
Energy Market Structure TODAY
In the electricity market, generation facilities produce electricity and sell it to wholesalers. Your current provider usually becomes something more akin to a delivery service, bringing what you ordered to your door. So energy providers, like Liberty Power, purchase power from the wholesalers and ÒshipÓ it to you using the delivery services of your current provider. They deliver the power to your meter using the existing power lines. Finally, Liberty Power manages all customer relationship aspects including account service, billing, etc.
Wire companies are responsible for maintaining the poles and wires, and responding to emergencies and power outages. The Public Utility Commission in each state is in charge for regulating the state's public utilities, ensuring customers are protected, and guaranteeing delivery of energy safely and reliably by the local wires company.
The States that have opened their market to competition, allowing customers to choose their energy service company, are: Arizona, Connecticut, Delaware, District of Columbia, Illinois, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, and Virginia.
What is staying the same?
Your current Transmission and Distribution Utility, or "local wires company" is still regulated by the PUC and continues to deliver electricity to your home. Your local wires company still responds to service interruptions and continues to maintain the poles and wires as well. You will continue to receive the same reliable service you are used to with your local wires company, regardless of which Retail Electric Provider you receive service from.
Liberty Power also offers additional information for you on our Glossary and FAQs pages in our Resource Center.