Electricity Prices and Costs Under Regulation and Restructuring

Abstract

Restructuring of the electricity industry was expected to improve the operating efficiency of electric power generators, leading to lower production costs and retail prices. Most studies conclude that there have been some efficiency gains, but the subject of whether retail prices have fallen has been contentious. The existing literature has a number of shortcomings, including the use of blunt or inappropriate definitions of restructuring, failure to incorporate the effects of regulatory decisions regarding price caps and stranded cost recovery, and the use of highly aggregated data. Our study addresses many of these problems and thus represents a significant improvement on existing work. We use a detailed firm-level data set to estimate how the markets and institutions established as a part of "restructuring" have affected the difference between prices and costs. Based on a number of different definitions, we find that utilities that have undergone restructuring display significantly higher price-cost markups than utilities that remained traditionally regulated. We find that some elements of restructuring are associated with higher price-cost margins, while others appear to be uncorrelated with prices and costs. The combination of introducing retail competition into an electric utility's operating territory and divestiture of that utility's generating assets has increased costs, but has increased prices even more. In particular, we find an average difference of 2 to 3 cents per kWh between prices and costs that is explained by restructuring rather than by increases in fuel prices. We conclude that restructuring has been beneficial to companies that restructured, but the evidence is far less clear concerning benefits to consumers.

The Environmental Influence of Tax Regimes in Selected European Union Economies

“…Fourth, when short-run green research and development increased by 1% then environmental sustainability will significantly decrease by 0.75%. This finding conflicts with [85] study on US electric generators who adds that short-run decisions to integrate green technologies also provide significant emission reduction opportunities even before new technologies have been fully integrated on a broadened scale. Furthermore, income is also found to be lowering environmental sustainability in the short-run for the studied EU countries.…”

Sources of Gains in Corporate Mergers: Refined Tests from a Neglected Industry

“…Our source for the firm-level data is "Average Rates and Typical Bills" published by the Edison Electric Institute (EEI). EEI collects electric rate data (cents per kilowatt-hour) beginning in 1990 (see Blumsack, Lave, and Apt (2008) for a detailed description). The EEI data are segmented by utility as well as by rate class: overall, residential, commercial, and industrial.…”

The U.S. electricity market twenty years after restructuring: A review experience in the state of Delaware

“…The prices in non-restructured states showed an upward trend. Blumsack et al (2008) found that the price-cost margins were significantly higher in restructured markets because of productivity and efficiency improvement and that the gains from restructuring have benefited the producers rather than the consumers. Razeghi et al (2017) noted that it is difficult to determine the impact of restructuring since the trends in electricity rates are similar in states with or without restructuring.…”