Energy Deregulation Primer

The energy deregulation industry was born with the enactment of the Federal Energy Policy Act of 1992 which incented states to provide greater competition in the bulk power market.

From then It took almost a decade but by the early 2000’s states like New York, New Jersey, Pennsylvania, Ohio, Illinois, and a dozen others had opened up competition for electricity and natural gas.  For the first time in history, consumers were able to pick a different utility company than the one they had been forced to deal with for years.   For most deregulated states, this resulted in consumer savings of millions of dollars in retail utility costs every year, while providing utility companies new markets for their excess capacity.

Even better for consumers was the fact that taking advantage of deregulation required no changes to their power delivery systems or wiring and has no impact on the reliability or safety of the electricity.  Purchasing power from a different source is purely a consumer economic decision which your utility is required to honor with your new provider.  Power is still delivered by your traditional utility company wiring at the reduced cost.  Even the billing still comes from your traditional utility company, only the cost of the energy is different.

Energy Deliver Under Deregualtion is unchanged

Energy is still delivered from your utility but at the reduced price of your new supplier who agrees to inject your usage into the grid at the reduced rate. These contracts between suppliers are transparent to consumers and are a by-product of the unique nature of supply/demand management on the electrical grid.

Figure 1.

Energy is still delivered from your utility but at the reduced price of your new supplier who agrees to inject your usage into the grid at the reduced rate.  These contracts between suppliers are transparent to consumers and are a by-product of the unique nature of supply/demand management on the electrical grid.

What does that mean for you? If you live in a deregulated state, you now have the power to choose energy providers based on what matters most to you, whether that’s price, contract terms, service, or even the availability of green options.

Residential vs. Corporate Energy Savings

According to the Energy Information Administration, a typical U.S. residence in 2010 used 11,496 kWh of power.  Usage profiles for businesses, hotels, and factories can be 10’s of thousands or even millions of times this amount.  Due to the scale of these of usages, competing utility companies are highly motivated to offer pricing and contract profiles based on the quantity of usage your business represents. In general the more power your facility uses in a year the more attractive the pricing and contract terms become. The problem historically however is that consumers were not well placed to know or understand the pricing of more than one or two alternate providers at a time.  The first time a business switched to an alternate energy provider, savings seemed significant when compared to traditional utility costs, but customers entering into their second or third round of energy contracts began to bottom out or even increase their energy costs on subsequent contracts.

Enter Energy Consultants and “Reverse Auctions”

In order to stimulate competition among the growing number of out of state utility companies eligible to deliver energy into a given state, energy consultants (sometimes referred to as energy brokers) appeared.  These brokers would typically represent two or three utility companies and attempt to steer clients to terms most favorable, providing some improvement in competition but typically suffering from a limited group of suppliers, and a lack visibility between suppliers as to the prices others were offering.  This structure put deal making in the hands of the broker and did not always motivate suppliers to bid harder nor provide transparency to consumers.

These drawbacks to traditional brokering are what drove Premiere Energy to create a unique version of supply auctions known as “Reverse Open Auctions”.   The characteristics of the reverse auction process as practiced by Premiere have insure the integrity and competitiveness of the process for both consumers, and suppliers.

  1. The network of suppliers Premeire has licensed  to bid for your business is greatly expanded; typically 10 – 20 utilities will bid on an average sized business depending on what state you are in.
  2. The auction process is “open” because of a technology platform that allows suppliers to see exactly who is bidding and what each other are bidding. It is the “open” part of the process which encourages suppliers to drive down their initial bids in order to win business, providing much lower prices to end consumers.
  3. The auction process is completely transparent to consumers and suppliers.
  4. Premiere holds no allegiance to any supplier.  We negotiate your contract terms 100% on your behalf.
  5. The cost of conducting this process is typically paid for by the Energy Broker (Premiere) who is then compensated by the winning utility company.  There is no cost to client companies.

Final Thoughts

Here at Premiere Energy, we are true energy consultants with deep and broad knowledge of the energy industry.  Every member of our team is qualified to advise you on the best way to structure your energy contracts and discuss your strategic energy plan.

For information on the availability of our Reverse Open Auction services in your state, please enter your state in the box below: