Brennan Says Deregulation of Electricity Prices in New York is a Failure and State Should Take Steps to Regain Control and Cut Prices

Study comparing New York’s “deregulated” electricity prices with regulated states shows New Yorkers paying $1.6-$2.3 billion a year above the rate of increase in the regulated states since 2000
September 14, 2007
A leading national utility analyst, Marilyn Showalter of Power in the Public Interest, has compared New York’s “deregulated” electric prices since 2000 with the prices of the remaining regulated states in the nation. Ms. Showalter’s work was cited in the New York Times, “A New Push to Regulate Power Costs,” September 4, 2007, where she conducted a review at the national level showing far higher prices in “unregulated” states than regulated states (study and article attached).

The Pataki administration deregulated New York’s utilities in 1999-2000, resulting in most of the state’s companies, including Con Edison, selling their power plants to independent companies, and then buying their power in unregulated wholesale markets. Ms. Showalter provided the New York study at Mr. Brennan’s request.

The review showed that electric prices in the regulated states rose over 27% between 2000 and 2007, from six cents per kilowatt-hour to 7.6 cents per kilowatt-hour. By contrast, New York prices rose from 10.4 cents per kilowatt-hour in 2000 to 14.4 cents per kilowatt-hour in 2007. Had New York prices risen only at the same rate as the regulated states, they would have risen to 13.2 cents per kilowatt-hour, rather than 14.4. New York’s “excess cost” above the regulated states’ rate of increase totaled $1.65 billion in 2007 and $2.3 billion in 2006.

Ms. Showalter cautioned that the difference could not be attributed solely to deregulation, but that the trend strongly suggested that deregulation was a major factor in “excess” price rises. Critics of deregulation across the nation say there is little competition in wholesale electric markets, which allow a small handful of powerful producers of electricity to control prices far above those that would exist with genuine competition.

Brennan Alternative Analysis Shows $3.5 Billion in Excess Costs to New York Consumers

Ms. Showalter’s review showed that the price difference between New York and regulated states was 4.4 cents per kilowatt-hour in 2000, and 6.8 cents per kilowatt-hour in 2007. Had the “excess cost” difference under deregulation been calculated at 2.4 cents, which represents the increase in this price spread between New York and regulated states, the “excess cost” would rise to $3.5 billion in 2007. Ms. Showalter commented that the Brennan analysis was a “logical and defensible,” alternative approach to the calculation but once again cautioned that the differentials could not be attributed solely to deregulation.

Brennan Bill Would Force Utilities to Competitively Bid for Long-Term Contracts for Power

Assemblymember Brennan has recently introduced legislation that requires utilities to put out bids for long-term contracts for electric power. A major problem cited by analysts of deregulation involves high prices on the wholesale “spot market” for electricity, which requires the local utilities to pay the producers the highest price on the market at the time of the purchase, no matter what it cost the provider. Brennan’s bill directs the Public Service Commission to adjust rates to assure utilities engage in the most prudent purchases.

Brennan also suggested the follow additional steps:

  • State and local governments should compete with unregulated producers by producing and selling electric power to local utilities at actual cost. The State Power Authority should step up its production of electricity for direct contracts with local utilities;
  • The Attorney General should determine whether the private “Independent System Operator,” a consortium that controls wholesale electric power, violates the State’s antitrust laws; Brennan has written State Attorney General Andrew Cuomo with this request;
  • The Governor and the State Public Service Commission should review State regulatory policies to take steps to reduce prices.