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Who Pays for Retail Electric Deregulation? Evidence of Cross-Subsidization from Complete Bill Data

Abstract:
Retail electric deregulation has been identified in the literature to have favorable price impacts to businesses and households because of the introduction of competition into rate-setting. Those studies often ignore the important role of regulatory intervention. They are also generally national or multi-state aggregated studies that ignore state- and utility-specific dynamics, and most rely on Energy Information Administration (EIA) price data that does not account for riders and surcharges on consumer bills, which can total more than 60 percent of bills. Using a unique panel of representative, complete electricity bill data from the Public Utilities Commission of Ohio (PUCO), this paper provides a multi-utility panel regression analysis of the effect of retail deregulation on total electric bills in Ohio. The results identify two main sources of cross-subsidization that have generally cancelled out the favorable effects of restructuring. Both types of cross-subsidies result in substantial burden shifts to residential consumers.

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Keywords: Deregulation, Public utilities, Electricity markets, Cross-subsidization, Divestiture

DOI: 10.5547/01956574.40.2.ndor

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Published in Volume 40, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.