What is Deregulation?
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of
In the world of electricity, deregulation simply means .In many of today’s markets, customers now have the choice to receive their electricity supply from their Local Distribution Company (LDC / Utility) or from a qualified, licensed third party supplier known as a Retail Electric Provider (REP). Your energy will still be delivered and billed through the infrastructure owned, operated and regulated by the LDC; however, you will now have the option to choose who supplies your energy, how they supply it, and what the cost will be.
How Deregulation Works
Under the traditional energy delivery system, a network of power plants produce electrical energy to be released into the Energy Grid. Local Distribution Companies (LDCs) purchase this energy in very large blocks to then be supplied to the customer, or end-user. Nominations will be set daily by LDCs as to how much power is needed and it is the Regional Transmission Organization’s (RTO) or Independent Systems Operator’s (ISO) task to manage and control the wholesale power released into the grid each day.
Deregulation effectively allows Retail Energy Providers (REPs) to enter the marketplace and purchase energy from
the Energy Grid to sell to end-users at market prices. Because of strict regulatory control, non-profit st atus and the way in which energy is purchased by the LDC, REPs are
typically able to purchase and provide the energy to end-users at a
The LDC will always remain the “default”
provider of electricity for the customer at all times. If the REP chooses to no longer serve the client, or their contract expires, the customer’s account will be switched back to the LDC automatically. A customer will never be without power.
Local Distribution Companies (LDC)
The Local Distribution Company (LDC) or Utility is a Transmission System Operator (TSO) who is responsible for delivering electrical energy to the end-user and maintaining a safe and reliable infrastructure through which the energy can be delivered. In most deregulated markets, in addition to delivering your energy, the LDC is also the default supplier of energy to the end user.
End-users have the option of choosing a third party supplier, or Retail Electric Provider
(REP), to supply their electricity, but the energy will always be delivered by the LDC.
Examples of LDC’s include: Pennsylvania Power and Light (PPL), Public Service Enterprise Group (PSE&G), Commonwealth Edison (ComEd), Baltimore Gas and Electric (BG&E) and National Grid.
Retail Electric Provider (REP)
A Retail Electric Provider (REP) is a third party supplier who purchases power from the Energy Grid and sells it to end-users at a market-based rate. REPs have the ability to offer several product types typically not offered by the LDC, such as long-term fixed pricing.
A utility tariff is a system of rates and
definitions created by the LDC in order to assign a dollar value for its services. Tariffs are used to calculate the cost of delivering and supplying the energy provided to an LDCs customers based on the assigned rate class. Tariffs are generally drafted by the LDC and presented to the state’s regulating body for approval once a year or as needed. The regulating body must approve any changes in proposed billing rates. Tariffs are generally available for viewing on the LDC’s website.
A rate class is code assigned by the LDC as a way to identify the power requirements of an enduser.An end-users rate class determines the rate in which they are billed for their delivery and energy supply services by the LDC.
More About Deregulation
In the past, one utility provided the three components of your energy service: generation, transmission and
distribution. Legislatures and the public utility commissions (PUC) of many states have created competition for electricity and natural gas supply. This allows
consumers to choose their energy supplier, while the delivery of the energy is still regulated and is the responsibility of the local utility company.With deregulation, you’re able to go direct and choose the company that produces energy, or the company who buys it on your behalf to sell to you. Deregulated energy markets throughout the United States can mean substantial cost savings for businesses aware of the opportunities.
Energy Deregulation = Opportunity to Manage Exposure
Competitive marketplace among energy suppliers
Flexibility to create an energy strategy that suits your individual needs
Freedom to choose suppliers, products, prices and terms
Reliability-transmission and distribution regulated and guaranteed by the PUC
Price protection from market volatility and rising costs-budget certainty
Potential savings, including tax savings in some markets
41 states in the U.S. are deregulated to some degree
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