When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation
American Economic Review · 2015 · Volume 105 · Issue 1
Abstract
This paper evaluates changes in fuel procurement practices by coal and gas-fired power plants in the United States following state-level legislation that ended cost-of-service regulation of electricity generation. I find that deregulated plants substantially reduce the price paid for coal (but not gas) and tend to employ less capital-intensive sulfur abatement techniques relative to matched plants that were not subject to any regulatory change. Deregulation also led to a shift toward more productive coal mines. I show how these results lend support to theories of asymmetric information, capital bias, and regulatory capture as important sources of regulatory distortion. (JEL L51, L71, L94, L98, Q35, Q41, Q48)
Keywords
Economics of Regulation, Mining, Extraction, and Refining: Hydrocarbon Fuels, Electric Utilities, Industry Studies: Utilities and Transportation: Government Policy, Hydrocarbon Resources, Energy: Demand and Supply, Prices, Energy: Government Policy
Enable JavaScript for citation tools and additional paper interactions.