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Electricity retailing

Electricity retailing is the final process in the delivery of electricity from generation to the consumer. The other main processes are transmission and distribution.

Electricity retailing began at the end of the 19th century when the bodies who generated electricity for their own use made supply available to third parties. In the beginning, electricity was primarily used for streetlighting[?] and trams. The provision of these services was generally the responsibility of municipal authorities[?] who either set up their own departments or contracted the services from private entrepeneurs. Residential, commercial and industrial use of electricity was confined, initially, to lighting but this changed dramatically with the development of electric motors, heaters[?] and communication devices.

The rapid growth in electric appliances in the early part of the 20th century contributed to an explosive growth in electrification around the world. The supply of electricity to homes, offices, shops, factories, farms, and mines became the responsibility of public utilities, which were either private organisation subject to monopoly regulation or public authorities owned by local, state or national bodies. In some countries a statutory or government-granted monopoly was created, which was controlled by legislation (for example Eskom[?] in South Africa).

Electricity retailing in the period from approximately 1890 to 1990 consisted of managing the connection, disconnection and billing of electricity consumers by the local monopoly supplier. In many utilities there was a marketing function which encouraged electricity usage when there was excess capacity to supply and encouraged conservation when supply was tight.

In 1990 there was a significant development in the way electricity was bought and sold. In the United Kingdom the Electricity Supply Industry[?] was radically reformed to establish competition in electricity supply. This trend continued in other countries (see New Zealand Electricity Market) and the role of electricity retailing changed from what was essentially an administrative function within an integrated utility to a become a risk management function within a competitive electricity market.

Electricity retailers now provide fixed prices for electricity to their customers and manage the risk involved in purchasing electricity from spot markets[?] or electricity pools[?]. This development has not been without casualties. The most notable example of poor risk management (coupled with poor market regulation) occurred in California in the summer of 2001, when Pacific Gas and Electric[?] and Southern California Edison[?] were driven into bankruptcy by having to purchase electricity at high spot prices and sell at low fixed rates.

See also distributed generation.

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