Association Webinars: Electricity Market Restructuring and Retail Rates



State-regulated investor-owned utilities serve over 70 percent of electricity to final end-use retail consumers in the U.S. Prior to the 1990s, all states used a “cost of service (COS)” regulation regime in which investor-owned utilities were allowed to recover prudently incurred costs plus a rate of return on capital expenditures. From 1996-2000, some states passed electricity market “restructuring” that, over time, required utilities to separate the generation portion of their operations and allowed customers to purchase power from third party providers (commonly referred to as “retail choice”). This empirical research examines the effect of restructuring on electricity prices to final consumers. While these policies were generally advertised to reduce rates for final customers, in fact rates increased in restructured states relative to plausible counterfactual synthetic controls in years following restructuring. We investigate plausible mechanisms for this finding; we find evidence that retail rates in restructured states are more responsive to natural gas price changes, the marginal fuel source during the period of analysis, and natural gas prices nationally increased in the post-restructuring era. After 10 years, and coincident with natural gas price reductions, this effect dissipates and we therefore do not find evidence that restructuring impacted retail rates in the long run.

Read the USAEE/IAEE working paper by Ken Rose, Brittany Tarufelli, and Greg Upton: Electricity Market Restructuring and Retail Rates

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Dr. Greg Upton is Associate Research Professor at the Louisiana State University Center for Energy Studies. His research interests are related to the analysis of economic, environmental and public policy issues in the energy industry.

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Event Date: July 28, 2021

Event Time: 10:00 - 11:00 AM Eastern Time

Topic: Electricity Market Restructuring and Retail Rates

Speaker: Greg Upton

Price: FREE

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