Electricity Basics

Depending on whether your state is regulated or deregulated, electricity can be purchased in a bundled or unbundled supply format. The regulated format bundles the individual components shown below into a tariff service rate charged by a local utility that provides all of the service components.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For those doing business in a deregulated state, the end-user has the additional choice of buying electricity service in an unbundled format. In the chart below, each component of the electric supply is broken out and priced separately.

 

The services bracketed on the left side are bundled by an LSE but are also generally available for purchase separately; those bundled by the EDC are not (they are still regulated).

 

The CTC (Competitive Transition Charges) refers to certain utility company obligations under the regulated environment that utility company is allowed to charge off and recoup over a number of prescribed transitional years toward complete deregulation.

 

Each of the states that chose a deregulated market structure are at different stages of implementation. The electricity in those states is traded and transmitted on Regional Transmission Organizations or Independent System Operators (ISOs typically perform the same functions as RTOs, but cover a smaller geographic area, or are not subject to FERC jurisdiction, like ERCOT).

 

They include the California Independent System Operator (California ISO); the Electric Reliability Council of Texas (ERCOT, an ISO); ISO New England (ISO-NE, an RTO); the Midwest Independent Transmission System Operator (Midwest ISO, an RTO); the New York Independent System Operator (NYISO); PJM Interconnection (PJM, an RTO); and the Southwest Power Pool (SPP, an RTO).

The expectation for deregulated electricity market was to improve market efficiency and drive prices lower in the traditionally higher priced states. The opposite effect has occurred.

 Prices have increased in deregulated states at a pace greater than dictated by increases in fuel cost.

 The disparity in prices between regulated and deregulated states has actually increased.

 

Electricity deregulation therefore can be considered to be a failed effort by much of the end-user community. Some of the reasons include:

Suspected market power abuses by large generation owners.

Limited supplier access to end users.

Sub-optimized resource mix.

Market structure that promotes short term focus in contracting behavior.

LMP model does not result in price efficiency.

Limited new generation capacity build>

Un-addressed aging Infrastructure issues.

 

There is now effort/thought on how to overhaul the established competitive markets or to re-regulate. Please contact ESA for further insights and assistance.