Does Deregulation in Electricity Lead to Lower Consumer Prices?
Evidence from U.S. Utility Companies Research question: Does
deregulation of electricity utilities lead to lower prices for end-
users? To answer this question we use data provided by the U.S.
Energy Information Administration (EIA) and run ordinary least
squares. Our results have immediate policy implications by
providing empirical evidence for policy makers who are considering
deregulating their states electricity markets. Michelangelo
Landgrave Alexis Butterworth Stephen Ellingsen Seal Beach Power
Plant, circa 1930s.
Slide 3
Model There are 2,067 observations at the utility company level
for 2013. Every utility company in the US is included. Dependent
Variable: Deregulation Dummy: Coded 1 if the state the utility
company is in has deregulated its electricity sector. Independent
Variables: Sales: Sales of electricity measured in millions of
megawatt-hours of the utility company. Ownership: Ownership
dummies. Government, Private, Co-op, & Other Federal Energy
Regulatory Commission (FERC): Regional dummies corresponding to
FERC regions.
Slide 4
Summary Statistics VariableMean Std. Error MinMax Average Price
(cents/kWh) 10.440.080.0156.57 Deregulated 0.230.010.001.00 Sales
(Millions of mWh) 1.500.130.00103.06 Gov_Dum 0.450.010.001.00
Private_Dum 0.130.010.001.00 Coop_Dum 0.410.010.001.00 Data Source:
EIA http://www.eia.gov/electricity/data.cfm#sales
http://www.eia.gov/electricity/data.cfm#sales Data Count: 2067
(SPP) Southwest Power Pool (MISO) Midcontinent ISO (PJM)
Pennsylvania New Jersey - Maryland Average price of electricity is
10.44 (cents/kWh) Average number of sales is 1,500,000 (mWh) 45% of
utilities are government owned 13% of utilities are privately owned
41% of utilities are cooperatively owned
Slide 5
Deregulation does not have a statistically significant
coefficient at the 5% level. At the 1% level we find that
government ownership of a utility company decreases average price
of electricity by 3 cents. Electricity prices changed substantially
across FERC regions with all FERC dummy variables being significant
at the 1% level. Texas for example had prices 9.35 cents lower,
everything else held constant. VariablesPrice (cents/kWh)
Intercept20.25*** (1.14) Deregulated0.34 (0.23) Sales (Millions
MWh) -0.03 (0.01) Gov_Dum-3.09*** (1.11) Private_Dum-1.68 (1.12)
Coop_Dum-1.18 (1.11) R Square0.32 Adjusted R Square0.31
Observations2076 Note: *** indicates statistical significance at
the 1% and 5% (2-sided) levels respectively. Standard errors are
given in parenthesis FERC Region Dummies omitted.
Slide 6
Conclusion We found that deregulation does not have a
statistically significant affect on end-user prices. This suggests
that deregulation should not be a priority for policy makers
concerned about lowering costs for end users. Future Research Our
data is exclusively for 2013. Future research should attempt to be
inclusive of additional years with panel data. We did not account
for difference sources of electricity (e.g. nuclear, coal, hydro).
This could be built into future models. Alamitos Power Plant.