Imperfect Markets versus Imperfect Regulation in U.S. Electricity Generation

Steve Cicala

No 23053, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper measures changes in electricity generation costs caused by the introduction of market mechanisms to determine output decisions in service areas that were previously using command-and-control-type operations. I use the staggered transition to markets from 1999- 2012 to evaluate the causal impact of liberalization using a nationwide panel of hourly data on electricity demand and unit-level costs, capacities, and output. To address the potentially confounding effects of unrelated fuel price changes, I use machine learning methods to predict the allocation of output to generating units in the absence of markets for counterfactual production patterns. I find that markets reduce production costs by $3B per year by reallocating output among existing power plants: Gains from trade across service areas increase by 20% based on a 10% increase in traded electricity, and costs from using uneconomical units fall 20% from a 10% reduction in their operation.

JEL-codes: D4 D61 L1 L5 L94 Q4 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
Note: EEE IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published as Steve Cicala, 2022. "Imperfect Markets versus Imperfect Regulation in US Electricity Generation," American Economic Review, American Economic Association, vol. 112(2), pages 409-441, February.

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