The Practical Matter
of Controlling the Operating Costs of Your Utility Bills Part 2: Procurement
Understanding the alternative procurement options in front
of rate-payers requires an explanation of the three parts of an electricity bill.
One of those sections, the supply of
electricity, has a complex retail marketplace that many consumers do not fully
understand, despite the potential advantages of participation for your business
or home. Like any marketplace, however,
risks of participation are inherent.
The rate-payer's electricity bill can be divided into three
parts, supply charges, delivery charges and tariffs. Supply charges are the fees that the end-user pays for the
generation of electricity. In New England, these charges have tended to be
extremely volatile and historically the most expensive part of the rate-payer’s
bill. Delivery charges are the fees
the utility company receives for maintaining and repairing the transmission and
distribution lines of the electrical grid. Tariffs
are charges that the end-user pays for legislated utility upgrades and
investments.
In 1998, the electricity markets in New England were
restructured. Until that time, utility companies had complete vertical control of
the rate-payer’s utility bill. These utility monopolies owned entire regional
power grids from power plants to transmission lines to distribution lines. In
1998 utilities were required to sell most power plants to private companies,
but maintained ownership of transmission and distribution power lines and the
obligation to service and repair those lines. Legislation also obligated the
utilities to the open transmission of power for generation plants (roughly 350
in New England alone).
For large end-users of electricity there are a number of private
companies who own diversified types of power plants that may be willing to
offer a variety of products, prices and terms on the supply portion of the
rate-payer’s electricity bill. The utility company’s limited options of 3-6
month supply terms can create difficult budgeting challenges for large
end-users of power. Planning a budget a year in advance for one of the largest
expenses many businesses have using the utility companies short terms and
sometimes volatile pricing is daunting for the best number crunchers to face.
Fortunately, since 1998 the utility supply charge is not the
only option for large end-users. For most large end-users of power, terms of up
to three years are available, locking down budget certainty for a considerable
period.
There is also a retail marketplace starting to emerge in
Massachusetts for residential end-users. Currently this marketplace can best be
described as “immature”. Although
customer choice is a positive development for residential end-users,
participation is best for consumers who understand the specifics of the
marketplace and willing to keep track of supply charges on their electricity
bills. Compelling “teaser rates” can quickly sour if the residential end-user
does not monitor their bills carefully.
Many Massachusetts residential end-users may be wise to have the market
mature a bit before participating.
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