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Electricity deregulation 15 years later yields mixed results

If you ask the folks who run the state’s power grid about the first 15 years of deregulation, they’ll tell you it was a rousing success.

Wholesale electricity prices in 2013 were only 2 percent higher than they were when deregulation started, back in 2000. If you factor in inflation, the real cost of electricity has dropped by 34 percent.

The state’s power plants, on the whole, are much more efficient than they were at the turn of the century, with New York’s generators now needing about 27 percent less fuel to produce the same amount of electricity.

With fuel efficiency rising, carbon dioxide emissions from the state’s power plants have dropped by more than 40 percent, while power plants are spewing 94 percent less sulfur dioxide into the atmosphere and 81 percent less nitrogen dioxide.

“The way we generate electricity over the last 15 years has really improved,” said Gavin Donohue, the president and chief executive officer of the Independent Power Producers of New York, a trade group that represents power plant operators.

To mark the 15th anniversary of the state’s deregulated electricity generation market, the power producers group issued a report quantifying the changes that have taken place since the state forced utilities, like National Grid and New York State Electric & Gas Corp., to sell their power plants and focus entirely on delivering power to homes and businesses.

The nonprofit organization that runs the state’s power grid, the New York Independent System Operator, released a report of its own last week, reaching the same conclusions as the power producers.

Deregulation – at least when it comes to power generation – has worked.

But what deregulation means for consumers depends largely on what kind of consumer you are.

If you’re a big, power-hungry industrial consumer, deregulation has been great, with the average bill dropping by 10 percent for NYSEG customers, but up 11 percent at National Grid.

If you’re a small business, deregulation has been decent, down 6 percent at NYSEG but up 10 percent at National Grid.

If you’re a residential customer, deregulation hasn’t made a huge difference, with bills down 4 percent at NYSEG but up 25 percent at National Grid.

Stephen F. Brady, a National Grid spokesman, said the utility’s commodity costs were lower in deregulation’s early days because of greater price hedging.

Some of it also has to do with what goes into our electric bills. For residential customers, the cost of the power itself amounts to less than half of their total bill. The delivery charges paid to the utility and the surcharges imposed by the state cost more than the actual electricity.

But if you own a factory that guzzles electricity, the cost of the power makes up anywhere from 55 percent to two-thirds of the total bill, according to data from the state Public Service Commission.

Part of that is because it costs more, on a percentage basis, for a utility to run the power lines and install the meter to each of the hundreds of thousands of individual homes it serves, than it does to a single factory. Part of it also is that the state has been steadily tacking on surcharges to electric bills, adding $5 to $8 a month to the costs for residential customers.

“The problem with high bills in New York is clearly on the delivery side and in taxes and new fees,” Donohue said.

Still, the reports show that the last 15 years have brought generally positive changes to the state’s power producers. During that time about 6,000 megawatts of less efficient generating capacity has been replaced by more than 10,000 megawatts of new generation, mostly downstate, mostly powered by natural gas.

With private companies owning the power plants, it’s in their best interest to keep them in tip-top shape so that they can produce electricity whenever the demand is there. Back in 2000, the state’s power plants were unavailable to produce electricity about 10 percent of the time. By last year, the state’s generators were down only about 5 percent of the time.

That’s important because having generators available more often has allowed the state to get by with a smaller surplus in generating capacity, which is needed to cover downtime at other power plants and when demand for power spikes during summer heat waves.

Before deregulation, the state typically had 22 percent more generating capacity on hand than it needed to meet peak demand. Now, its cushion has shrunk to 17 percent, reducing overhead costs by about $540 million, the ISO estimated.

And with the state pushing for more renewable energy, wind power has become a much bigger component in the state’s power market than it was before deregulation. While the state generated 48 megawatts of wind energy in 2003, it produced 1,700 megawatts of wind power last year.

“The competitive power markets, combined with New York state’s renewable energy policies, created fertile ground for cleaner electricity generation, especially wind power,” said Anne Reynolds, the executive director of the Alliance for Clean Energy New York.