Traditional Electric Utility:
Many of us think of our electric utility as providing all aspects of electricity from the generation of the electricity to delivering it to our homes and businesses. This has been typically how electric utilities were organized; they were vertically integrated meaning they owned everything from the generating station to the poles and wires running down your street. They were in fact monopolies and as such were regulated at the state and federal levels to insure they were providing reliable service at a reasonable price.
Winds of Change:
In the 1980’s entrepreneurs began pressuring regulators and law makers to allow them to build new generating plants and to sell the electricity to a utility company. This became the first attempt at bringing competition to the utility industry. As a result, Congress passed the Public Utilities Regulator Policy Act (PURPA) which among other things required electric utilities to purchase power from independent power producers. Electric utilities no longer had a monopoly on building power plants to serve their customers.
Introduction of Competition:
In the early 1990,s, after the break up of AT&T, regulators and policy makers at the state level began to look at ways to introduce more competition to the electric utility industry. Utilities were well aware of the pressure being put on them to provide competition in the marketplace. To their credit, utilities in Massachusetts and New Hampshire took the initiative and began to build consensus on a plan that would introduce competition and allow customers a choice.
In the late 1990’s both Massachusetts and New Hampshire adopted legislation to restructure the electric utility industry in their states. The restructuring of the industry allowed for customers to have a choice as to who would supply the generation of the electricity for their homes or businesses. As part of the process, most utilities were required to sell their generating stations.
The introduction of customer choice created “Competitive Electricity Suppliers”. These suppliers have a portfolio of generation assets and also trade in a real time market to provide customers with a market based price for their electricity. It is similar to the stock market where prices change every day if not every hour. Brokers like ALLMass Energy, LLC work directly with these suppliers to obtain the best price the marketplace has to offer. This allows customers to lock in a price over a term of 1, 2 or 3 years.
Your electric utility continues to provide generation supply for those customers who have yet to choose a competitive supplier. Generation supply represents approximately 70% of a customers total bill. Your electric utility does not make a profit on providing generation supply. It is strictly a pass through.
Restructuring of the Electric Utility Industry-Massachusetts and New Hampshire
Prior to the restructuring of the electric utility industry in Massachusetts and New Hampshire, consumers had no choice as who they bought their electricity from or what price they would pay for that electricity.
Now commercial and industrial consumers have a choice of price and who generates the electricity they use in their business based on the best available price.
The three core components of the electric industry are:
Prior to restructuring, electric utilities owned everything from the generating station to the poles and wires running down your street.
Under restructuring, most utilities have sold their generating stations to other entities. They no longer own generation assets. This now means customers can shop around for the generation supply portion of their electric bill. The generation supply portion normally represents approximately 70% of the total bill.
The Transmission and Distribution components remain with your electric utility and together are called the delivery portion of your electric bill.