Restructuring the U.S. Electric Power Sector: A Review of Recent Studies

Abstract

The restructuring of the U.S. electric power industry has been described as "one of the largest single industrial reorganizations in the history of the world." As with deregulation and reform of other industries, electricity restructuring was intended to produce cost efficiencies and price benefits to consumers. Whether it has achieved its stated objective is the focus of a number of recent studies that are examined in this review. The studies differ in numerous important ways -most importantly, in their methodologies and their conclusions. The focus of this review is on the strengths and limitations of their specific methodologies and, hence, on the confidence one might place in their conclusions. The article begins by setting out the basic methodological approaches employed in public policy evaluation. It then illustrates these points with examples from methodologies employed in several studies of electricity restructuring, concluding that several methodological deficiencies call into question the study results. In particular, despite much advocacy, there is little reliable and convincing evidence that consumers are better off as a result of the restructuring of the U.S. electric power industry.

Retail competition in electricity supply—Survey results in North Carolina

“…As discussed in Kwoka (2008) some states introduced competition as early as 1996 and rates were initially capped to allow utilities to recover stranded costs. Rate caps made market entry unattractive and the impact of competition on retail prices could not therefore be accurately determined.…”

Effect of Utility Deregulation and Mergers on Consumer Welfare

“…These studies provided little evidence of gains in efficiency or benefits due to deregulation in the United States [20] . The methodological approaches of these studies differed, but can generally be classified, according to Kwoka [21] in four ways. First, studies compared electricity prices in regulated versus non-regulated states.…”

“…Kwoka [21] points to several problems with these studies, most significant of which are the complexities of deregulation. Electricity deregulation, Kwoka [21] asserts, was often a phased approach, versus an event in a single year.…”

“…Electricity deregulation, Kwoka [21] asserts, was often a phased approach, versus an event in a single year.…”

“…These effects then would dissipate over time. Finally, Kwoka [21] argues that there was excessive expansion of generation capacity around 2004, which depressed prices for a period thereafter, and thus masked the effect of deregulation.…”