When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation: Reply
American Economic Review · 2021 · Volume 111 · Issue 4
Abstract
The average effect of deregulatory policies on fuel prices at coal-fired power plants is strongly influenced by plants that were initially paying the highest prices for fuel. Primary sources document that these plants were locked into long-term, high-cost fuel contracts, and only secured market rates post-deregulation. While these plants' fuel costs were unusual, their response to deregulation was not: both coal- and gas-fired plants reduce fuel prices one-for-one with the amount they were initially paying above their neighbors' costs. Our understanding of deregulation is not improved by excluding those who stand to benefit most.
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
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