L ead to L ower Consumer P rices Evidence from US Utility Companies R esearch question Does deregulation of electricity utilities lead to lower prices for endusers To answer this question we use data ID: 261877
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Slide1
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 LandgraveAlexis ButterworthStephen Ellingsen
Seal Beach Power Plant, circa 1930s.Slide2
ModelThere 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.
Slide3
Summary Statistics
Variable
MeanStd. ErrorMinMax
Average Price (cents/kWh)
10.44
0.08
0.01
56.57
Deregulated
0.23
0.01
0.00
1.00
Sales (Millions of mWh)1.500.130.00103.06Gov_Dum0.450.010.001.00Private_Dum0.130.010.001.00Coop_Dum0.410.010.001.00
Data Source: EIA http://www.eia.gov/electricity/data.cfm#salesData 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 ownedSlide4
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)
Intercept
20.25***
(1.14)
Deregulated
0.34
(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 Square0.32Adjusted 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.Slide5
ConclusionWe 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.