A Consumers' Guide to the Issues in the Restructuring of Electric Utilities

(Frequently Asked Questions)

Here are some answers to questions that consumers from around the country have asked us:

There are many ways to describe the historic changes now occurring in the electric utility industry -- including "deregulation," "restructuring", "retail choice," "retail wheeling," or "customer choice." They all roughly mean the same thing. In short, the electric utility industry is moving away from a monopoly structure to one which allows for more competition between various suppliers. Under the monopoly structure, one utility was granted the right to serve a particular geographic service area. In return, the government guaranteed that the utility would receive a fair rate of return on its investment.

Customers will now be allowed to choose who supplies their electricity and other related services. "Restructuring" is the best way to describe the changes because some parts of the business will remain regulated monopolies -- the "wires" part of the business -- and, at least for the time being, the amount of regulations governing the industry will remain the same or may even increase a little so it is not quite correct to describe the changes as "deregulation."

Just like you would choose a long-distance telephone provider. Easier said than done, as you know. Companies will market their services to you through the mail, television, radio, newspapers, and, heaven forbid, the dreaded calls during dinner. CECA/RF is working on proposals to limit annoying phone calls. If you think you can get a better deal, you can sign up with the company of your choice. You will continue to receive electricity from the same utility that you always have -- by law, they have to allow other companies to use their wires to deliver electricity to your home -- but you will be billed by the new company which actually supplied the electricity. A small delivery charge from your old utility will show up as a line on your new bill. It is like rent for using their line.

Even if you do nothing, that's a choice. At least for now, you will continue to receive electricity AND be billed from the same company that you always have. As shown by past experience with telephones, probably 50 percent or more of all customers will choose to stay with their local electric utility at first.

By law, there will be at least one company required to serve you -- even if you live in a rural area or inner city. In fact, companies that now own the lines to your home will continue to be "providers of last resort." What that means is these local companies must arrange to provide electricity to all customers willing to pay for it in their territory. Why? The local distribution companies will remain monopolies and must play the "provider of last resort" role in order to continue earning a rate of return set by the local government.

For most consumers, your monthly bill will probably be lower. Some studies estimate consumer savings of 15 to 43 percent. However, at first, the decrease in your monthly bill will most likely be a small one -- something like 10 percent. Many individual states, like California, have actually mandated a 10 percent reduction in consumer bills as part of recently passed legislation to bring competition to the electric utility industry in their state.

A word of warning though: Some consumer advocates fear that the changes will increase your monthly bill. Why? A few possible reasons are: 1) Something called "rate rebalancing" -- basically shifting current costs from large consumers of electricity, i.e., auto manufacturers, to smaller ones because of the large consumers' claim that everyone should pay the true cost of providing electricity to each consumer; 2) Consumers paying "stranded cost" charges for past investments, i.e., nuclear plants, that perhaps are no longer economic in the new market but still need to be paid for; 3) The possibility that the price of electricity will average out, meaning consumers in high-cost states will see a decrease and consumers in low-cost states could see an increase; and 4) Individual consumers simply don't have the bargaining power that a major manufacturer would have.

You will call your local electric utility -- even if you have chosen a new supplier of electricity. Your local electric utility will be in charge of all repairs and line maintenance. If you have chosen a new supplier, the local utility will be paid a set fee for these services by your new supplier.

With more companies competing for your business, there is a good chance that customer service will actually improve. Companies won't be able to take your business for granted anymore and will look for new ways to make you a more satisfied customer so that you will stay with them. It is also expected that companies will develop new services and products to sell to you. In addition to lower monthly bills, innovation is a key benefit expected to be a result of the changes in the electric utility industry. With telephone deregulation, cellular phones, digital phones, telecommuting and other technologies proliferated. Some consumers use the new services. Some aren't interested. The same will happen with electricity.

This is a good question. After the reguatory changes are implemented, your first bill will probably look very different. Beforehand, all of the costs associated with the electricity business -- generating electricity, delivering it to your house, taxes, research, special programs, etc. -- were rolled into one price which appeared on your monthly bill. As a customer, you never saw all the itemized costs -- just the total cost. Your bill now will be "unbundled" -- meaning that each separate cost will be listed on your bill. As a result, your bill may look much bigger, with perhaps 10 lines or more of separate charges. It is important to note, though, that the total cost -- the amount that you actually pay -- will probably be a little lower due to more competition.

If you have any questions regarding restructuring please submit them below and one of our on-line staff will reply as soon as possible.

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