Deregulation Has Not “Enriched” Delivery Utilities

ALBANY, NY (11/09/2007)(readMedia)-- In recent weeks there has been much discussion, in the form of reports, legislative proposals and comments in the media, about electric deregulation and how well it is working in New York. This complex issue is worthy of thoughtful public attention. How the developing markets are working and whether deregulation has to date raised or lowered electric bills in New York are fair questions that merit fair and careful study.

What is not debatable is that it is categorically and factually incorrect to assert, as some have, that deregulation has “enriched” the delivery “utilities”. It must be understood that generating electricity and delivering the electricity to customers have become separate businesses run by separate groups of companies. Electric utilities deliver electricity and have been forced almost entirely out of the electric generation business. They must buy electricity from generation companies in an open market. That was the point of “deregulation”. The utilities have no control over the cost of the electricity itself. They deliver it to customers at cost, without a markup.

As a result of deregulation (and at least in part to make it more politically attractive while the competitive markets developed and matured), utility rates for delivery service in New York were basically held flat by the State for a decade, while the utilities’ costs of doing business went up like everyone else’s. This created a tougher challenge for utilities to be able to invest every year the billions of dollars necessary to maintain and enhance the reliability of the electric grid.

Most experts point to a combination of factors that drive up the price of electricity in New York: 1) some of the toughest environmental emissions policies in the nation that result in far greater use of relatively high cost natural gas to generate electricity, and far less use of cheap coal than is typical in many other states; 2) generally higher costs of doing business that impact all industries in New York, including the industries that produce and delivery energy; 3) the fact that New York is at or near the end of the delivery supply “pipelines” for natural gas and oil; 4) some of highest government-added costs to energy bills in the country, including state and local taxes, state program charges, support for state agencies, and regulatory policies, that collectively often make up 20% or more of a customer’s bill.

It is important to understand that with or without deregulation, all of these factors would be present and making energy more expensive in New York. But whatever the effect of deregulation on energy prices, it certainly has not enriched New York’s delivery utilities.

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