Electric Utility Deregulation: The Basics

Article excerpt

Electric utility deregulation is beginning happen at both the federal and state levels. This will have a large impact on municipalities. To understand the impact, it is helpful to learn the terms and issues that will be debated. This list is intended as a starting point for local officials to begin understanding a very complex and broad policy area.

Electric Utilities Today

Electric utilities are currently regulated monopolies by state public utility commissions. In most states, utilities are given the exclusive right to serve an area. The utility must serve anyone in the area that wants electricity. The price of electricity is based on the costs the utility incurs, both fixed costs (the generating plants and transmission lines) and variable costs (fuel charges for running the plant).

Wholesale and Retail Wheeling

Wheeling is the selling of electricity over the transmission lines. The utility has two types of sales: wholesale (wheeling) and retail (wheeling). The difference is that wholesale wheeling is one where the electricity is for resale (the electricity is bought by with the purpose to resell it not to use it) and retail wheeling is where the utility sells the electricity to an end-user-the person or organization who will use t he electricity. The type of sale is extremely important in understanding competition in the electricity industry. According to the Energy Policy Act of 1991, the Federal Energy Regulatory Commission (FERC) has the jurisdiction to begin wholesale wheeling (selling power along the transmission lines), but retail wheeling can only be decided by Congress.

Transmission Versus Distribution

When energy is moved from point A to point B, it is either transmitted or distributed. The differences between the two terms are based on the voltage at which the power is moved and who delivers it. If the voltage is less than 69 kilovolts, and the receiver is an end-user, then the electricity is being distributed. Distribution is regulated by the states. Transmission, usually between utilities, is regulated by FERC.

Suppliers and Customers

Who Supplies Electricity? …