In the U.S., energy deregulation was a process that started in the 1970’s with the Public Utilities Regulatory Policies Act. The energy industry was restructured and, in 1992, the Energy Policy Act opened the market further.
While the Energy Policy Act goals were an increased use of renewable energy and energy efficiency, it effectively ended the energy monopolies of utility companies within their territories in deregulated markets. An increasing consumer control over decision-making processes is further pushing the expansion of deregulated markets.
New York’s energy market has been deregulated for both, electricity and natural gas since the late 1990s when New Yorkers started to be able to shop for their energy providers. The New York Public Service Commission (PSC) developed unbundled utility bills to be issued to full service customers, which separated charges for delivering energy from charges for the kilowatt-hours (kWh) of electricity or therms of gas used.
Utilities were required to offer retail choice to their customers who could now shop for cheaper or better electricity services. Energy Supply Companies (ESCO) entered the market, supplying natural gas and electricity by purchasing the energy on the wholesale market and selling it to customers directly, using the local utilities’ infrastructure to deliver it to consumers.
Regulated and Deregulated Markets
In regulated markets, utility companies take care of the entire process of the energy supply. Utilities own all infrastructures and deliver the energy to the individual customers. This monopoly is intended to give utilities the incentive to build and maintain the infrastructure and to keep electricity and gas prices reasonable under government regulation. At the same time, it’s restricting customer choice.
In deregulated markets, competitors can buy electricity from generation plant owners and sell it on the wholesale market to retail suppliers. Retail suppliers set the prices for consumers and customers can compare rates, contract structures or options to participate in green pricing programs to purchase renewable energy. The local utility distributors continue to deliver the electricity or natural gas for a fee.
The deregulation of energy markets is a decision made by each state individually and every state takes a different approach. In some states, only the electricity market is deregulated, in others only the natural gas market. Some states have deregulated markets for both.
According to the Energy Information Administration (EIA), seventeen states and the District of Columbia have adopted electric retail choice programs, while 23 states and the District of Columbia have deregulated natural gas markets. They allow end-use customers to buy electricity or natural gas from competitive retail suppliers.
Deregulation in New York
In New York, the largest utility company by number of customers is Consolidated Edison (ConEdison), which serves the city of New York and its metropolitan area. Until 1998, ConEdison had the biggest monopoly (about 2.48 million customers in 2014) on the New York energy market. The utility generated, supplied and delivered electricity to all electric customers in their area as the only company in that market.
In 1996, the New York Public Service Commission (PSC) passed legislation to open the state’s residential energy markets to competition. A year later, in 1997, a competitive wholesale electricity and natural gas market was established, and competition began with pilot programs for large power users. In 1998, New York utility companies started to phase in competition.
The first utility to offer choice to some of its customers in New York was Orange & Rockland in May 1998; within a year, electric choice was available for all Orange & Rockland customers. New York’s biggest utility, ConEdison, followed shortly after in June 1998 but it took until December 2001 for all ConEdison’s customers to be able to choose their electricity and natural gas suppliers.
By the early 2000s, most New York residents could choose their own providers from direct utilities to commercial ESCOs.
New York State is primarily served by seven large electric utilities, which distribute the electricity and natural gas purchased by the local consumers in their respective areas. Most of the energy infrastructure is still owned by those companies.
New York Energy Prices After Deregulation
According to the New York State Energy Research and Development Authority (NYSERDA), nominal residential energy prices have fallen under deregulation.
While nominal residential electricity prices were 32% higher in 2015 (18.54 cents per kWh) than in 2001 (14.04 cents per kWh), inflation adjusted “real” electricity prices went down 1.4% from 18.80 2015-cents per kWh to 18.54 cents per kWh in 2015 (deflator factor 0.747).
At the same time, nominal residential natural gas prices were 4.7% lower in 2015 ($11.20 per MCF) than in 2001 ($11.75 per MCF). Inflation adjusted natural gas prices were 28.8% lower in 2015 (15.73 2015-dollars in 2001) than in 2001. Industrial customers have benefitted most from deregulation with even bigger declines in energy prices.
Each utility company in New York continues to offer a default service for those customers who have never shopped for an alternate energy provider. This default service serves as a benchmark for energy pricing in the market.
Deregulation Helped Increase Efficiency
According to the Independent Power Producers of New York (IPPNY), the state of New York has added over 1,700 MW of renewable energy generation, improved the efficiency of its power plants and increased fuel diversity significantly in the first 15-years of competitive energy markets. New York went away from coal for the most part. In 2017, coal was used to fuel less than 1% of the state’s electricity generating plants. New York now relies mainly on natural gas and nuclear power as well as on renewable generation.
As a benefit of deregulation, an increasing number of older power plants cannot compete effectively in wholesale markets anymore and have since been retired. Independent power producers in New York are incentivized to shut down less efficient power plants.
New York was able to retire nearly 6,000 MW of coal-fired generating capacity along with other aging generation infrastructure, while adding over 10,000 MW of modern natural gas and renewable generation capacity. In total, 7,224 MW of renewable energy capacity were installed in New York by the end of 2018.
At the same time New York’s carbon dioxide emissions from fossil fuel consumption in the electric power sector fell by 19.4% from 203.2 metric tons in 1998 when deregulation kicked in to 163.7 metric tons in 2016.
Today, New York’s “Reforming the Energy Vision” (REV) initiative is promoting more energy efficiency, more renewable energy generation, a wider deployment of distributed energy generation, and energy storage.