The US Electricity Industry After 20 Years of Restructuring

Electricity restructuring in the 1990s ended the era of vertically integrated monopolies in many states, allowing nonutility generators to sell electricity to utilities and, in fewer states, allowing retail service providers to buy electricity from generators and sell to end-use customers. We review the economic arguments for restructuring and the resulting effects in subsequent years. We argue that the greatest political motivation for restructuring was rent shifting, not efficiency improvements. Although electricity restructuring has brought efficiency improvements, it has generally been viewed as a disappointment because the price-reduction promises made by some advocates were based on politically unsustainable rent transfers. In reality, electricity rate changes since restructuring have been driven more by exogenous factors, such as generation technology advances and natural gas price fluctuations, than by restructuring. We argue that a similar dynamic underpins the current political momentum behind distributed generation, primarily rooftop solar photovoltaic systems, which remains costly from a societal viewpoint, but privately economic owing to the rent transfers it enables.