- Competitive power supplier: Also known as "power producer" or "power generator," this is a company or group that creates and sells the electricity that is delivered to your home or business by your electric distribution company.
- Distribution company: Still referred to by many consumers as their "electric company," this is the local company that delivers electricity to customers. Distribution companies also read meters, maintain local power lines and restore power when there is an outage.
- Kilowatt-hour (kWh): Electricity is measured in units called kilowatt-hours. One kWh is equal to 1,000 watts of power used over a period of one hour - for example, ten 100-watt light bulbs turned on for one hour. A monthly electric bill is calculated by multiplying the cost of one kilowatt-hour by the number of hours of electricity use.
The Electric Restructuring Act required former, traditional electric utilities to remove themselves from the power generation business (i.e., owning power plants and other power-generating facilities) under a process known as "divestiture." They continue to operate as distribution companies, purchasing electricity from competitive power suppliers and using power wires and poles to deliver it to customers. The rates charged for electricity vary among the different distribution companies, generally ranging from approximately 9 cents to 13 cents per kilowatt-hour in Massachusetts.
Electric bills can be reduced by reducing electricity usage. The amount of an electric bill is greatly influenced by heating and air conditioning, the number of computers and appliances used and other factors (see Energy Saving Tips for more information).A typical customer's electric bill in Massachusetts contains two parts: the delivery rate and the generation rate (or supply rate). Generally, the delivery rate is approximately one-third of a customer's bill and the generation rate is two-thirds. The delivery rate is made up of the distribution rate, transition rate, transmission rate and State program charges paid by residential and business customers.
Customers pay a distribution rate for the delivery of electricity to their door via local power transmission lines. This charge also includes metering, billing and other customer services. Distribution rates are subject to the sole jurisdiction of the Massachusetts Department of Public Utilities (DPU). If an electric distribution company seeks to increase its distribution rate, it must apply to the DPU and subject its costs and revenues to regulatory scrutiny in a rate case.
The transition rate (or transition charge) is a fixed cost associated with the financing that utilities invested in building power-generating facilities (when they had the authority to do so) and the costs associated with divesting themselves of those properties, as required by the 1997 Electric Restructuring Act. These rates enable a utility to recover costs associated with meeting the law's requirements including the divesture of its power-generating facilities. The transition charge is reviewed and reconciled each year by the DPU.
The transmission rate is the cost to deliver electricity over high-voltage lines running from power-generating facilities to electric substations, where it enters the distribution system and travels over local power lines to individual homes and businesses. Transmission rates are filed with the Federal Energy Regulatory Commission (FERC), which sets the actual rates. The Massachusetts DPU then oversees the incorporation of the federally approved transmission cost into the rates that power distribution companies in the Commonwealth charge their customers.
In addition, each customer's bill contains two State program charges: Demand Side Management and Renewable Energy. Each of these is required by State law to fund the Commonwealth's energy efficiency and renewable energy programs.
The generation rate (or charge) accounts for the amount of electricity that a customer actually uses. Consumers may choose their power-generating company. For the many customers who do not select a particular power generator, the generation charge is based on their distribution company's "basic service" rate, which is measured per kilowatt-hour. These rates are set through private contracts and the wholesale electricity market, which is regulated by the FERC. Like electric transmission rates, the DPU oversees the incorporation of the generation charge into the rates that Massachusetts power distribution companies charge their customers.