Deregulation of the Electric Power Industry: The Earnings, Risk, and Return Effects

Emeka T Nwaeze

Journal of Regulatory Economics, 2000, vol. 17, issue 1, 49-67

Abstract: This study tests whether recent reforms of the electric power industry reverse the predicted effects of regulation on profits, risk, and return for electric utilities. The analysis also considers potential variation in the effects of the reforms across utility sizes. The empirical predictions are derived from theories of economic regulation which argue that regulation reduces earnings variability and risk, and enhances share value by buffering the regulated firms against the profit effects of cost and demand shocks and by shifting the burden of inefficiencies to consumers. These views motivate an opposite argument that reductions of regulation would reverse the predicted effects of regulation. The results reveal (1) a reversal of the buffering effects of regulation, (2) the existence of subsidies attributable to regulation, and (3) a redistribution of shareholder wealth during the reforms. Copyright 2000 by Kluwer Academic Publishers

Date: 2000
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