New York Deregulation Failing, Says Central Hudson Executive

According to the Poughkeepsie Journal, the President of CH Energy Group, the holding company that owns Central Hudson Gas & Electric Corporation, has acknowledged the failure of deregulation to bring lower prices.

The deregulation of the electric power industry, by and large, has not achieved the goals that advocates claimed for it, says the head of CH Energy Group, parent of Central Hudson Gas & Electric Corp.

A few benefits have been realized, but lower costs - the key piece - would be hard to prove, said Steven Lant, chairman, president and CEO of the Poughkeepsie-based utility.

Given the chance, Lant said, Central Hudson would like to go back into the generation business that the state stripped away from it in the deregulation program announced by the Public Service Commission in 1996.

If it's ever allowed to go back to building generating plants, Central Hudson would likely do it in the renewable energy areas, he said. ****

Deregulation meant utilities had to sell their generating plants. Central Hudson now buys power from independent owners and the New York Independent System Operator and delivers it to customers. The deregulators' theory was that competition among generators would lead to lower prices and that giving consumers a choice of suppliers would help.****

A flaw in the system is that incumbent generators have an incentive to throw out new generation, which would increase supply and competition. Tight markets mean higher prices for generators, he said.

"They benefit from scarcity, and I don't think you can get away from that," Lant said.

Craig Wolf, CH Chief Says Utility Deregulation has Disappointed, Poughkeepsie Journal, Oct. 30, 2009. Central Hudson's electric rates were once the state's lowest. For several years, the company protected its consumers by resisting the sale of its power plants, but it finally divested them under pressure from PSC regulators to align with its "vision" of wholesale and retail deregulation, and also adopted the PSC-favored monthly variable pricing regime.

Central Hudson's electric rates dipped temporarily for a few years while the proceeds of the sale of the power plants were used to depress rates. Later, when buyback contracts with the new owners expired, and more energy had to be purchased at wholesale market rates influenced by the NYISO spot market (instead of being based on the cost of production, as had been the case when Central Hudson owned the plants), Central Hudson's residential customers began to see higher, destablilized, and unpredictably spiking rates by 2007. See PULP's chart of New York utilities' typical bills for residential electric service.

As shown by the chart linked above, Rochester Gas & Electric (Energy East), which retained its power plants under traditional cost-based regulation the longest of the New York utilities, displaced Central Hudson and became the state's lowest price investor-owned utility.

That may change, however, because, as a condition of its merger with Iberdrola, RG&E/Energy East agreed to divest power plants. Apparently the utility's power plant assets were so much more valuable in the hands of merchant power entities -- who hoped to sell the output at market prices rather than cost -- and the pressure from PSC regulators so intense, RG&E/Energy East drank the deregulation Kool-Aid and sold the plants. It may just be a matter of time, when RG&E buyback contracts end, that we begin to see higher, destabilized prices in RG&E territory too.