Deregulation of utilities means that the historical monopolies granted to a few large utilities providing electricity, telephone and natural gas are eliminated. These companies will just operate the distribution systems, the wires and the pipes. Competitors then enter the market with different pricing and service offerings. With the onset of deregulation in all of these industries, it is possible for consumers to realize significant savings by shopping around for these commodities.
Utility deregulation is complicated since there is a fixed and very expensive distribution system already in place – pipelines, power and phone lines. It's just too expensive, disruptive and environmentally harmful to construct parallel distribution systems. This is different from deregulation of airlines or financial services where no such fixed infrastructure existed. As a result, only the commodity, gas, electricity or telecom, is deregulated.
Historically, consumers received supply and delivery of natural gas from a single company who had the monopoly franchise for the region in which they lived. These companies bought gas on the wholesale market and sold it to consumers in their jurisdictions according to regulated rates set by the local regulatory agency, an energy board or public service commission.
Get an explanation of retail gas contracts you'll be asked to sign.
Natural gas is being deregulated in many jurisdictions. Examples are, Ontario, Alberta, Maryland, California, Georgia and Pennsylvania. This means that a householder or business can buy gas directly from a supplier at a competitive price -- not just from the gas utility. These utilities, however, continue to have the franchise to distribute gas and charge a regulated fee.
Deregulation separates the sale of the gas as a commodity from it's distribution. The product is available at a competitive price and under competitive conditions but the delivery is a standard regulated charge. This would be similar to a situation where you might buy milk by phone, and it is delivered by a large courier service such as Federal Express. The milk is a commodity, and it would be priced differently between suppliers, but the supplier relies on a distribution system provided by Federal Express trucks. A portion of what you pay would be for the commodity (milk), and a portion for the distribution (Fed Ex). In the case of utilities, the distribution will remain regulated, but the commodity supply will be a free market.
The U.S. initiated deregulation in the gas industry at the wholesale level in the mid 1980s which resulted in gas prices declining about 35 per cent for large commercial and industrial customers, according to a Harvard University study. Prices for residential consumers changed only slightly.
Consumers choosing to shop around for their natural gas supplies can benefit from the price swings and variations inherent in a competitive energy marketplace. But where do consumers go to buy natural gas? Deregulation has given rise to a number of sources of gas supply.
First, you can continue to let your distributing utility purchase gas on your behalf and deliver it to you with no change in the process.
Or you can look into purchasing it from an agent, broker or marketer. These are independent companies that either sell on behalf of gas producers or purchase supplies of gas and re-sell it to consumers. Securing a long term supply from one of these energy marketers when the gas prices are lower can result in significant savings over the term of your contract.
Should you choose to buy from a gas marketer, nothing about your service will change. You will still get a bill from your distributing utility which will indicate a regulated Delivery Charge. This is about 1/3 of your bill and a Gas Supply Charge which is the remaining 2/3. The delivery charge will be kept by your distributing utility and the gas supply charge will be forwarded to the gas marketer or supplier you chose. Should you choose some value-added services offered by gas brokers, such as energy cost comparisons, rental gas equipment or an equipment service contract, these will also be added to your bill. If you switch to a gas marketer, there is no interruption of service nor any other additional fee charged.
This cost split is a key point to remember when you are comparing costs or considering an appeal from one of the gas suppliers or marketers. You have no doubt received promotional materials from one of these either by phone, by mail or from someone knocking on your door. The suppliers, brokers and marketers are only dealing with 2/3 of your bill. The distribution charge, which is 1/3 of your bill, is fixed and regulated by regulatory boards. They have periodic hearings to evaluate and set this rate. The remaining 2/3 is variable depending on which supplier you choose. As a result, when a promotional message claims a 10% saving, it is referring to 10% of the 2/3.
Take, as an example a fairly typical annual gas bill of $ 1,500. One third of that, $500, is a fixed distribution charge. The remainder, $1,000, is the gas supply charge. A supplier offering a 10% saving is offering a saving of $ 100, which is 10 % of the $ 1000 gas supply charge. The saving on the total energy bill is 6.7 %, ($100 saving on a $1,500 gas bill).
Gas marketers offer varying contract terms and conditions. In general, however, you have two basic choices. You can sign on for a single or multi-year contract at a fixed price or you can choose a rebate option which means you pay the regulated price set by your distributing utility and will receive a rebate if your marketer can buy the supply for less than that price.
If you have any questions or concerns, you should contact the following organizations.
In Ontario, contact the Ontario Energy Board (OEB), the regulator of the energy marketplace. The OEB can be reached at 1-877-632-2727, or on their web site, http://www.oeb.gov.on.ca.
In Maryland, contact the Maryland Public Service Commission at (410) 767-8028 or (800) 492-0474, or check out their Web site http://www.psc.state.md.us.
Energyshop.com helps you become an informed energy consumer. It is completely independent and was developed to help you evaluate your energy choices on-line, making it easier for you to switch to an alternative gas supplier should you choose to do so. It lays out a range of supplier prices, other options and services, and current promotions. For example, one supplier may have a low price but no additional services. Another may have a slightly higher price but feature an annual furnace inspection at no charge or a free CO2 monitor upon sign-up.
Energyshop.com allows you to compare each supplier and determine which, if any, meet your needs. We provide an objective listing of recognized gas suppliers and we will not recommend any specific supplier. We simply give you the information you need to make an informed choice. Should you decide to switch to a participating supplier, Energyshop.com enables you to complete the transaction in a few keystrokes at no cost to you.
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For almost 100 years, Ontario Hydro has been the producer and supplier of electricity in the province, either directly or through Ontario's network of municipal utilities. The price of electricity is reviewed each year by the Ontario Energy Board, the province's energy regulatory body, and they advise the Ministry of Energy and the Ontario Hydro Board of Directors on appropriate rates.
Ontario is undergoing an historic restructuring of the provincial electricity system which will introduce competition at both the wholesale and retail levels.
Ontario Hydro's monopoly has come to an end and the company has been split into separate companies including: Ontario Power Generation (OPG), HydroOne and the Independent Market Operator (IMO). This has, in effect, separated the sale of electricity from the delivery of it over the province's transmission and distribution lines. OPG will produce and sell power to consumers in the province and elsewhere, competing against other power producers and marketers. HydroOne will operate the province's transmission grid which will be a regulated activity. This completes the formal separation of the transmission of electricity, which is a natural monopoly similar to a gas pipeline system, from the generation of electricity. This generation can be done by businesses developing facilities that can generate electricity, or even by a homeowner with an array of solar panels.
The Independent Market Operator, IMO will act as a clearinghouse for electricity sales and ensure equal access to the grid by all suppliers. It is to be a Crown Corporation independent of all other companies in the electricity business.
Currently, if you live in a municipality, your municipal utility "owns" the distribution wires in your community. As deregulation proceeds, individual municipalities may choose to keep their municipal utilities as the distributor for electricity or they may choose to franchise electricity distribution to another supplier. In any case, no matter who your distribution agent is in the future, there will be no change to the actual delivery of electricity to your home or business. Ontario had over 300 municipal utilities in 1999, but mergers and acquisitions have reduced that to fewer than 100.
In short, the actual delivery of power to your doorstep will be a regulated process but the sale of electricity as a commodity and any other related services will be deregulated. This approach is similar to your phone service where you can purchase long distance service from one supplier but your phone lines from another. In the case of electricity, you'll be paying one charge for delivery and another for the creation of that energy.
Closer to home, the U.S. is introducing greater competition on a state-by-state basis over the next few years. In some cases, such as California and New York, states have already implemented complete retail access so customers can now buy their electricity from any supplier they choose. Most other U.S. states are in varying stages of deregulation. Based on the number of studies and pilot projects, deregulation is expected to reduce electricity prices by about 15 to 30 per cent overall.
In a competitive energy market, you can purchase power from Hydro Quebec, Niagara Mohawk in New York, an independent generator in the province or elsewhere -- you will no longer be obligated to buy power directly or indirectly from Ontario Hydro. While the actual electricity may originate from a range of sources, the delivery will continue to come through the existing transmission and distribution network. In order to deliver their product to you, every electricity supplier will have equal access to Ontario's network of wires for which they will pay a standard delivery charge.
EnergyShop.com lists the prices and features of each of these companies as information becomes available.
So keep checking our website for news of electricity deregulation and the potential savings it means to you
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