RATES AND RELIABILITY: INSIGHTS INTO THE NEW YORK ELECTRICITY MARKET

The lowering of rates for consumers and the continuing reliability of service were two of the major goals that the New York Public Service Commission (PSC) sought to achieve when it restructured the New York electricity industry in the late 1990s. This thesis seeks to gain insights into just how successful industry deregulation has been in achieving these goals. To investigate the lowering of rates for consumers, this thesis examines the evolution of the average cost per ultimate consumer kWh. Upon finding that costs have not fallen since deregulation, we subsequently decompose them into three components: (i) capacity markets and other add-ons, (ii) wholesale prices, and (iii) distribution costs. We then attempt to identify possible causes behind the evolution of each of the three components. The analysis is focused on three major New York electricity distribution companies: New York State Electric & Gas Corporation (NYSEG); Niagara Mohawk (NiMo); and Consolidated Edison Company of New York (ConEd). Our analysis suggests that incentive regulation has not had a substantial impact on reducing distribution costs; that the Installed Capacity market (ICAP) is creating a large premium over wholesale costs in the New York City Area; and that rising fuel costs have been a major factor in the increase in the wholesale price of electricity. To investigate the effect deregulation has had on the reliability of the system, we examine the integration of the New York Electricity Market by estimating the pair-wise relationships between day-ahead zonal price data. As reliability and competition are maximized when the pool market is integrated, the insights that this thesis provides into when and how the New York electricity market segments offer useful information for policy makers. The analysis indicates that the overall market is becoming more segmented over time, and that the main locations of the segmentation are between zones C and G, and G and J