Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency

Karl Markiewicz, Nancy Rose and Catherine Wolfram

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investor-owned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach.

Keywords: Efficiency; Production; Competition; Electricity restructuring; Electric Generation; Regulation (search for similar items in EconPapers)
JEL-codes: D24 L11 L43 L51 L94 (search for similar items in EconPapers)
Pages: 54
Date: 2004-11
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
Note: CMI, IO
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency (2004)
Working Paper: Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency (2004)
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