Regulated Deregulation: The New York Experience in Electric Utility Deregulation

Posted: 2 Dec 2002

See all articles by Harry First

Harry First

New York University School of Law

Abstract

Conventional wisdom has been that public utility regulation of electric utilities was a failed enterprise and that better public policy would be to deregulate electricity, much as we have deregulated other industries. This article describes how that deregulation has been done in New York State. The article argues that rather than full deregulation, New York has replaced one regulatory system with another, albeit one that is more sensitive to economic incentives.

The article reviews the process followed by New York in adopting electricity deregulation, particularly the collaborative effort between the New York Public Service Commission and the industry to articulate a "vision" for the electric utility industry in New York, and describes the difficulties in implementing deregulation. Four factors help explain the deregulation shortfall: the institutions of deregulation; the approach that regulators have taken to "market power"; the industrial facts of electricity markets; and the design of the wholesale auction market.

The article concludes that although structural and design factors have led (predictably) to more of a regulated electric market than was promised, the goal of deregulation should not be abandoned. Instead, the PSC will need to move from regulatory agency to "supervisor of competitive markets," with a focus on market-set prices rather than regulated ones and on the incentives necessary for capital investment in generation and transmission capacity.

JEL Classification: G18, L43, L94

Suggested Citation

First, Harry, Regulated Deregulation: The New York Experience in Electric Utility Deregulation. Available at SSRN: https://ssrn.com/abstract=353742

Harry First (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6211 (Phone)
212-995-4760 (Fax)

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