Does Deregulation in Electricity Lead to Lower Consumer Prices? Evidence from U.S. Utility Companies Research question: Does deregulation of electricity.

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Presentation transcript:

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 state’s electricity markets. Michelangelo Landgrave Alexis Butterworth Stephen Ellingsen Seal Beach Power Plant, circa 1930s.

Model There are 2,067 observations at the utility company level for 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.

Summary Statistics VariableMean Std. Error MinMax Average Price (cents/kWh) Deregulated Sales (Millions of mWh) Gov_Dum Private_Dum Coop_Dum Data Source: EIA Data Count: 2067 (SPP) Southwest Power Pool (MISO) Midcontinent ISO (PJM) Pennsylvania – New Jersey - Maryland Average price of electricity is (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

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) (0.01) 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.

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 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.