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Deregulation does not mean elimination of laws against fraud, but eliminating/
reducing government control on business methodology, thereby moving toward a
more free market.
Electricity was produced and distributed regionally with consumers paying the
regional rate.
Consumers located near to large hydroelectric plants had to pay the least
amount.
Consumers living in areas that relied on natural gas or coal generation
frequently paid two to three times the hydroelectric rate.
Conservative Business Approach:
Utilities tended to be conservative and took few risks that might endanger their
ability to serve their customers.
New products and system expansions were planned years in advance.
This approach to business led to a very reliable, but somewhat costly, supply of
electricity.
Motivation behind deregulation
A look at the nationwide cost of energy in the United States can easily explain the
need of deregulation.
For example, consumers in different states were paying following regional energy
costs on the same day:
This difference in energy costs from one region to another was the driving force
towards deregulation. Consumers need the cheapest energy sources without any
consideration for their location.
ELECTRICITY DEREGULATION
Electricity has special physical characteristics that make electricity markets
different from most other commodity markets.
Unlike many other commodities such as gas, metal etc., electricity cannot be
easily stored—it must be produced at the moment of need.
Electrical energy is injected into the transmission grid by all generators and
withdrawn by all end users. There is usually no way to identify the power
generated by producer A to match with the power utilized by consumer B.
Electricity grid can be analogous to a big pond with producers (generators) putting
water (electricity) into the pond (grid) while consumers are simultaneously
withdrawing water (electricity) from the pond (grid).
However, the injection and withdrawal of energy must he carefully regulated, as
electricity cannot be stored economically, therefore
The amount generated at every point in time must equal the amount consumed.
The characteristics of the delivered power must be carefully maintained.
In order to maintain the frequency within a certain narrow hand of tolerance,
the quantity injected must closely match the quantity withdrawn moment by
moment.
To extend the pond analogy, it is as if producers must fill the pond at the same
rate consumers withdraw from it. The level of the pond must be nearly constant at
every point in time for the system to operate properly.
Therefore, along with the ability to generate the electricity, the ability to
transmit it from the point of generation to the consumption point must also
exist.
Although cheap generation resources may exist, if the electric power cannot be
transmitted to the demand site, the customer does not benefit from the lower
prices, or vice-versa.
Therefore, electric power deregulation is a two-sided issue: it concerns both the
generation and the transmission of electricity.
One problem that unbundling transmission and generation has produced is the
increased overload of certain transmission corridors. Like highways during rush
hour, transmission lines are also susceptible to congestion and overload.
In reality, however, power flows across the path of least impedance. The power may
actually flow over a collection of parallel paths to its destination.
This can cause overloads on transmission lines covering large geographic areas. These
overloads are very difficult to predict and control.
Systems that suffer from severe congestion are said to be transmission limited
and are susceptible to cascading failures.
On the other hand, systems that do not have sufficient generation are said to be
generation limited.
In the regulated power system, an electric utility was responsible for generating
electric power, transmitting that power from the generator to a substation, and
distributing it to consumers (domestic, commercial, and industrial) within its
service area.
At the point of consumption, the utility maintaines a meter to measure the amount
of electric energy used by the customer, for a fixed cyclic duration (preferably
monthly) which used to serve as the basis for electric service charges, i.e. single
rate applied to the number of kilowatthours consumed.
This rate incorporates charges for all of the various functions involved in supply of
of electric service to the consumer.
In the deregulated electric market, no single entity is responsible for all of the
operations, i.e. the generation, transmission, and distribution of electric power.
one entity will be responsible for generating electric power, another for the
transmission of power from place to place, another for the distribution of that power to
the consumer, and possibly another for the metering thereof.