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

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  • Markiewicz, K.
  • Rose, N.L.
  • Wolfram, C.

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.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0472.

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Length: 54
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:cam:camdae:0472

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Related research

Keywords: Efficiency; Production; Competition; Electricity restructuring; Electric Generation; Regulation;

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Cited by:
  1. Kwoka, J. & Pollitt, M., 2007. "Industry Restructuring, Mergers, And Efficiency: Evidence From Electric Power," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0725, Faculty of Economics, University of Cambridge.
  2. FitzGerald, John & Keeney, Mary J. & McCarthy, Niamh & O'Malley, Eoin & Scott, Susan, 2005. "Aspects of Irish Energy Policy," Research Series, Economic and Social Research Institute (ESRI), Economic and Social Research Institute (ESRI), number PRS57.
  3. Goto, Mika & Makhija, Anil K., 2007. "The Impact of Competition and Corporate Structure on Productive Efficiency: The Case of the U.S. Electric Utility Industry, 1990-2004," Working Paper Series, Ohio State University, Charles A. Dice Center for Research in Financial Economics 2007-10, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  4. Supawat Rungsuriyawiboon & Spyro Stefanou, 2004. "The Dynamics of Efficiency and Productivity Growth in U. S. Electric Utilities," Working Papers, University of Crete, Department of Economics 0711, University of Crete, Department of Economics, revised 00 Aug 2006.

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