What Is Electricity?

Electricity is the “juice” that flows to your business and home to provide you with the means to enjoy the life you live. It helps you stay cool, see at night, keeps your food from spoiling, keeps drinks cold, and provides you with fantastic entertainment options. All by just flipping a switch!

Electricity As Commodity

Electricity is also a commodity that can be bought and sold in a marketplace. The price is set by supply and demand factors.

Wholesale transactions are normally cleared and settled by an Independent System Operator, commonly known as ISO. Each ISO has a designated generating and transmission region. Here in Texas, this ISO is called ERCOT which stands for Electricity Reliability Council of Texas.

Purpose of ISO

These ISOs ensure reliability between the generating utilities (the actual power plant that produces the electricity) and the end users who are you and me. They do this by managing the demand as well as the generating and transmission assets of its region.

Demand, sometimes called load, is how much electricity users need during a specific time period.

Other Electricity Financial Instruments

There are also markets for electricity derivatives. Derivatives are simply other financial instruments derived from electricity, for instance, futures, options, and OTC (over the counter) financial transactions.

Deregulation: Curse or Blessing

All these electricity financial instruments resulted from deregulation which is the process of removing or simplifying government rules and regulations. This occurred in Texas in January 1 , 2002.

Bringing Meaning To Madness

Electricity is a more complicated issue than you think, but a little education goes a long way toward helping you make an informed decision about your provider.