NY Electricity Prices Have Fallen 34% under Deregulation

Nominal wholesale electricity prices in New York were just 2 percent higher in 2013 than at the outset of deregulation in 2000, writes The Buffalo News. Inflation-adjusted (“real”) electricity prices are 34 percent lower than in 2000. Meanwhile, the state’s generation fleet runs far more efficiently now, using 27 percent less fuel to produce the same amount of energy, and its surplus capacity margin has shrunk from 22 percent to 17 percent, which is cheaper to maintain. The COMPETE Coalition reports that the state has achieved $6.4 billion in fuel cost savings during this period.

The Independent Power Producers of New York (IPPNY) have released a report entitled 15 Years of Competitive Markets to celebrate the state’s accomplishments. The report states that the state has added more than 1,700 MW of renewables, improved power plant efficiency, shifted risk from ratepayers to power producers, and increased fuel diversity. The state has nearly divested itself of coal and now relies on nuclear, hydro and other renewables for more than 50 percent of its electricity generation.

NY Electricity Generation

This greater efficiency, combined with a shift from coal to a greater reliance on natural gas and renewables, has led carbon dioxide emissions to fall by 40 percent, sulfur dioxide emissions by 94 percent, and nitrogen dioxide emissions by 81 percent.

NY Emissions Chart

Furthermore, one benefit of deregulation is that independent power producers are incentivized to operate more efficient power plants and to retire or suspend plants that cannot compete effectively in wholesale markets, whereas traditional utilities are simply allowed to recover the costs of power plants throughout their useful lives. This has helped New York to add over 10,000 MW of capacity while retiring nearly 6,000 MW of coal-fired capacity and other aging generation facilities.

Finally, the New York Independent System Operator has established several pricing zones across the state to encourage generation to be built near the customers it will serve. Of the new additions, nearly 80 percent were located in Downstate New York (Long Island, New York City, and the Hudson Valley) where demand is greatest.

Industrial Customers Have Benefitted Most

The Buffalo News explains that industrial customers have seen the greatest benefit, as can be seen in the following table, which shows total changes in electricity rates from 2000 to 2013 for industrial, small business, and residential customers at two of the state’s largest utilities – NYSEG and National Grid.

NY Electricity Bills: 2000 vs. 2013*
Customer Class NYSEG National Grid
Industrial -10% +11%
Small Commercial -6% +10%
Residential -4% +25%

*The figures represent nominal values (i.e. they have not been adjusted for inflation).

In part, industrial customers benefit from lower distribution rates because the utilities that serve them gain economies of scale by building and maintaining distribution infrastructure (power lines, meters, etc.) to serve large-scale facilities, whereas far more investment is required per kWh of electricity to build and maintain residential distribution infrastructure. Residential customers also incur higher fees on electricity bills (on a per-kWh basis) to cover the utilities’ billing expenses compared with larger customers – though the article suggests that the state has added a greater amount to surcharges for residential than business customers in recent years.

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