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The US Electricity Industry After 20 Years of Restructuring

Author

Listed:
  • Severin Borenstein

    () (Haas School of Business and Energy Institute at Haas, University of California, Berkeley, California 94720
    National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • James Bushnell

    () (Department of Economics, University of California, Davis, California 95616
    National Bureau of Economic Research, Cambridge, Massachusetts 02138)

Abstract

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.

Suggested Citation

  • Severin Borenstein & James Bushnell, 2015. "The US Electricity Industry After 20 Years of Restructuring," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 437-463, August.
  • Handle: RePEc:anr:reveco:v:7:y:2015:p:437-463
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    References listed on IDEAS

    as
    1. Paul Joskow & Jean Tirole, 2006. "Retail electricity competition," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 799-815, December.
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    16. repec:rje:randje:v:37:y:2006:i:4:p:799-815 is not listed on IDEAS
    17. Wolak, Frank A., 2003. "Diagnosing the California Electricity Crisis," The Electricity Journal, Elsevier, vol. 16(7), pages 11-37.
    18. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
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    21. Borenstein, Severin & Bushnell, James, 2000. "Electricity Restructuring: Deregulation or Reregulation?," Competition Policy Center, Working Paper Series qt22d2q3fn, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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    More about this item

    Keywords

    deregulation; utilities;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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