Energy choice or energy deregulation is spreading across the nation. Florida is the most recent state to push for the customer’s right to choose but is meeting strong resistance from the large investor-owned utility companies. Energy choice will demonopolize the energy market by allowing residential and business customers the option to select a retail energy supplier other than their own utility company. The increase in competition will push down energy prices as now you have multiple competitors fighting to earn the customer’s business.
You don’t have to be a genius to figure out its free-market capitalism that pushes down prices and increases the standard of living for the average American. Whether it’s a cell phone, computer, iPad, or any other gadget, companies have to efficiently utilize their resources to effectively compete. Those who don’t will lose market share to competitors that do. This is the beauty of energy choice! By opening up the energy market to competition, residential and business customers shopping for energy suppliers are assured to receive the best bang for their buck.
The Market before Energy Deregulation
Before energy deregulation, a customer had to go through the local utility company for power. The utility company was in charge of generating the electricity, delivering the electricity, maintaining the lines and wires, and customer billing. The energy charge billed by the utility company was regulated by the state’s public utility commission or by the federal government. If the customer was unhappy with a bill, they could file a complaint with the public utility commission, but there was little else they could do.
The Market after Energy Deregulation
Along with energy deregulation came energy choice! The responsibility of the utility company was “unbundled” and as a result, the utility company was no longer the sole producers of electricity. Residential and business customers now had a choice to select an alternative energy supplier to generate their power. The main responsibility of the utility company became to maintain the lines and wires to safely deliver the power to the point of service. This means the utility company is still responsible for any power outages or disruption of service.
The Benefits of Energy Deregulation
It’s all about energy choice! Opening up the energy market to outside competition allows the customer to choose the exact rate product that fits their needs. Retail energy suppliers provide different rate products including fixed, variable, index, and block pricing. The rate plan the customer selects depends on their risk tolerance. The fixed-rate product is often considered the most conservative. Locking in a fixed rate will protect the customer from the volatility of the energy market while allowing them to predict and budget for future energy costs. Given the minimal oversight needed and security that is provided, it’s no surprise the fixed-rate product is the most popular.
Energy deregulation also allows residential and business customers to choose how their power is generated. The majority of power generated in the United States comes from nuclear, coal, and natural gas. However, energy suppliers are increasingly offering customers alternative choices for renewable energy sources. Electricity generated from renewable energy sources includes wind, hydropower, and solar. Residential and business customers looking to cut down on their carbon footprint now have the choice of selecting these green energy plans.
What will Change on my Electric Bill?
A residential customer looking to switch to a competitive energy supplier will still receive one electric bill from their local utility company. The electric bill has two main charges which include the delivery and supply charge. After the customer switches to an alternative energy supplier, they will still receive one bill from the utility company that will incorporate both the delivery and supply charge. This method of billing is known as single billing.
- Delivery charge – This is the regulated portion of the electric bill. This is the cost associated with maintaining the lines and wires to deliver the electricity from the generation plants to the point of service, whether it be the customer’s home or business. This charge is regulated by the state and charged by the utility company. The customer will not be able to shop around for this portion of the electric bill
- Supply charge – This is the deregulated portion of the electric bill and is the cost of generating the power the customer is estimated to use during a given time period. Residential and business customers in deregulated service areas have the choice to shop around for a lower generation rate and do not have to go through their local utility company.
What is the Price to Compare?
The price to compare is the generation rate offered by the utility company for a given time period. This is the generation rate the customer will use while shopping around for an alternative energy supplier. If the rate being offered by the energy supplier is lower than the price to compare, then the customer will be saving money. The utility company’s price to compare often changes every three to six months.
While shopping for a competitive rate, the customer needs to compare apples-to-apples. This applies more to commercial customers than for residential customers. It is not uncommon for a few energy suppliers to provide a rate that does not include all the components of the supply charge. For example, an energy supplier may leave off a line loss charge to make the rate appear lower than it is. Unless the customer is reading the terms and conditions carefully, they might fall victim to a higher rate.
If you’re a customer in the market for a lower rate, let the supplier know you want an apples-to-apples comparison to the utility’s price to compare rate.
Sample Bill of the Price to Compare
The example bill above is from the PPL (Pennsylvania Power and Light) service area. The rate highlighted in yellow is the customer’s price to compare.
Is Energy Choice available in my State?
While legislation to deregulate the energy market is slowly making its way across the nation, it is not available everywhere. Below is a list of states where customers can enjoy the benefits of energy choice.
| State | Electricity Deregulated | Natural Gas Deregulated |
|---|---|---|