Electricity Choices in the USA
In several states in the US electricity is deregulated. It happens to be the same way in countries like France as well. When considering France is a more socialist nation than the USA while operating a capitalistic deregulated electricity market it becomes clear that deregulation over time helps in lowering the cost of electricity service to consumers.
When an energy market becomes deregulated it often times causes confusion to its consumers. Since electricity service can only have one pole and wire to a home or business it is a bit confusing to understand how multiple companies can now sell you electricity service.
The way most governments and states deregulate their energy markets is by using a benchmark state that has done it successfully. In the USA Texas remains the state to look at when deregulating energy.
Texas put in a lot of rules and regulations and a good effort in educating the public about electricity deregulation. Quite a few people have switched from the previous monopoly electric companies like TXU Energy and Reliant Energy. If memory serves me correctly Reliant at one time was called Houston Power and Light. TXU at one time was known as TU Electric.
Some of the old time customers of these monopoly providers still refer to the companies by their old names. The Texas government split up these companies into two 3 segments. The distribution side which consists of the delivery of electricity are the poles wires, and transformers. In the Dallas area this transmission and distribution company is now called Oncor although it used to be TU Electric back before deregulation. In the Houston area this distribution part of the business is called Centerpoint although it was once one and the same company with Houston Power and Light.
Like we said earlier, many Texas residents and businesses have switched from the old monopoly electricity companies to some new providers. The new electricity providers are more of a paper trading and billing portion of the puzzle. Most electricity providers do not own power generation facilities although they are required to be backed by one. These electricity companies hedge commodities or hire companies to hedge their energy for them. Hedging energy is a risky venture and requires planning and proper execution to offer a competitive electricity price.
Many Texas electricity companies that started up with the minimum financial requirement of $100,000 have gone out of business because they did not properly hedge their energy. Larger electricity companies in Texas have also gone under for all practical puposes as they are no longer on the radar selling electricity. Some very well known multi-million dollar electricity providers have embarrassingly enough speculated and hedged incorrectly while offering spectacular electricity prices to their customers.
This speculation and over leveraging among some larger players in the Texas electricity market had caused some of these companies to refuse new commercial business.
Just because a Texas electricity company is new and small doesn't mean they are not a good provider. When considering large established brands have gone out of business or stopped business operation shows that size is not a concern when operating a successful retail electricity provider.
We have focused on Texas to explain how deregulation works and what to expect when your state or country decides to deregulate the electricity market. A popular electricity rate offered in deregulated markets are fixed rate products. Fixed electricity rates do not change for the entire term of the energy contract. When choosing a variable rate the price may start out low but could change each and every month with the commodities market.
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