Deregulated Utility Savings

October 19, 2009

About Electric & Natural Gas Deregulation

Regulation of public utilities by federal and state governing bodies dates back to the 1930s and was instrumental in forming the vast infrastructure we have today. Without the oversight and a guarantee of financial return on investment, we would not have had the money or rules needed to build the reliable systems that now span the continental U.S. Through the years, there have been a number of regulations (Federal Power Act of 1935, Public Utilities Holding Company Act of 1935, Natural Gas Act of 1938, Public Utilities Regulatory Policy Act of 1978, Energy Policy Act of 2005, et. al.) that have helped shape the relationship between utilities and their customers. Though the rules have changed over time, allowing deregulation of the natural gas and electric industries, two things remain constant. Federal regulation of interstate commerce is performed by the Federal Energy Regulatory Commission (FERC), and regulation of intrastate affairs is handled by the respective state Public Utilities Commissions.

The electric and natural gas industries are very similar in their structure and operation. Each has three distinct components (i) the commodity SUPPLY portion (ii) the long-distance TRANSMISSION of the commodity and finally (iii) the local DISTRIBUTION of the commodity to our homes and businesses. For many years, your local utility handled all three phases of the business in a “vertically integrated” manner. After decades of growth, construction, and addition of market participants, it was determined that competition could safely be introduced via deregulation of the natural gas and electric industries. To address the needs of a competitive environment, those three phases of utility operations were separated, rearranged and in some cases sold off to other companies or regional transmission organizations.

Deregulation of the electric and natural gas markets came on the heels of deregulation in the airline and telephone industries. Those industries underwent drastic changes during periods of expansion and contraction. Today, airfare and phone rates adjusted-for-inflation, are considerably less than they were in the 1980s and many new products and services exist. In deregulation of the natural gas and electric industries, only the price of the commodity supply has been opened to competition. This means consumers in many states, who are served by investor-owned utilities, are now able to choose who supplies their natural gas and/or electricity. The transmission and distribution of natural gas and electricity is not open to choice, and the price for those services continues to be set by state and federally approved tariffs. The push for deregulation of natural gas and electric came when the FERC decided it should limit its authority to wholesale transactions. This move cleared the way for individual states to determine if and how they should allow retail price competition.

Our perspective:

Currently there are many companies taking advantage of this opportunity. Natural gas and electric market prices are the lowest they have been in the last 3 to 4 years.

Should you want to know more about this opportunity for your company; you may email george@hbsadvantage.com or call and ask about our no cost evaluation 856-857-1230

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