Who (Else) Benefits From Electricity Deregulation? Coal Prices, Natural Gas, and Price Discrimination

Abstract

Deregulation of major industries over the past 40 years has produced large efficiency gains. However, distributional effects have been more difficult to assess. In the electricity sector, deregulation has vastly increased information available to market participants through the formation of wholesale markets. We test whether upstream suppliers, specifically railroads that transport coal from mines to power plants, use this information to capture economic rents that would otherwise accrue to electricity generators. We find railroads charge higher markups when rents are larger. This effect is larger for deregulated plants, highlighting an important distributional impact of deregulation. (JEL L11, L51, Q48) * We thank Matthew Butner, Harrison Fell, Dan Kaffine, Pete Maniloff, attendees of the 2016 AERE summer conference, Front Range Energy Camp, the EI@Haas summer conference, the editor, and three anonymous referees for helpful comments and suggestions.

The Fall of Coal: Joint Impacts of Fuel Prices and Renewables on Generation and Emissions

“…The CEMS database also includes hourly CO 2 emissions by unit and we use this to create our emissions variable. 4 The CO 2 emissions dependent variable, E it , is a generation capacity-weighted measure, specifically E it = (C O 2 ) it /GenCapacit y i , where emissions of CO 2 are measured in tons/day. We use a generation capacity weighted emissions measure to directly remove the variation in emissions due to the size of the generating unit and to make parameters more interpretable across heterogeneously sized coal-fired units.…”

“…The coal price, P it C , is an ABB-modeled monthly estimate of the $/MMBtu cost of coal for unit i based on running averages of publicly available delivered coal prices given in EIA 923 forms, and is therefore constant for all days t within a given month-year. This is not a major limiting factor as coal is typically contracted over 4 Units subject to CEMS requirements are mandated to report continuous hourly emissions based on either direct gas measurements or continuous fuel feed monitoring and mass balance calculations. As noted in Kaffine, McBee, and Lieskovsky (2013) and Linn, Muehlenbachs, and Wang (2014), units below 25 MW capacity are not required to report, though these excluded generators are only a small percentage of the total market.…”

The producer benefits of implicit fossil fuel subsidies in the United States

“…For all four fuels, the implied pass-through is close to 0.85 in 2018 (see the “Baseline row” in Table 1 ), and the estimates vary little from year to year. A growing number of studies estimate pass-through rates for fossil fuels as a measure of incidence without needing to make assumptions about elasticities ( 12 – 20 ). Although none are directly comparable to the setting under study here, the range of estimates provides useful points of comparison that reinforce the reasonableness of the underlying elasticity assumptions ( SI Appendix ).…”

Electricity Markets Instability: Causes of Price Dispersion

“…The heterogeneity of national electricity markets leads to constant price discrimination (both of demand and supply bids). Hughes and Lange note that the deregulation of electricity markets have improved their efficiency, and it also appears to have facilitated price discrimination, allowing suppliers to gain larger profits than they would have in a regulated market [10]. So, the economic heterogeneity of electricity, supported by price discrimination, leads to imperfect competition, i.e., instability in the electricity markets.…”