The U.S. electricity industry after 20 years of restructuring

The U.S. electricity industry after 20 years of restructuring / Severin Borenstein and James Bushnell. Energy Institute at Haas, September 2014, 45 p. (EI @ Haas WP 252)

Authors’s abstract :

During the 1990s, the traditional U.S. model of a vertically- integrated, cost-of-service regulated utility was disrupted by a variety of state restructuring plans, which allowed some combination of sales by unregulated merchant generators to retailers and unregulated retailing of electricity to end-use customers. We review the original economic arguments for electricity restructuring, the potential winners and losers from such regulatory reform, and what has actually happened in the subsequent years. We argue that the greatest motivation for restructuring was rent shifting not efficiency improvements, and that this explanation makes sense of the cycles of enthusiasm for electricity reform. While electricity restructuring has brought significant efficiency improvements in generation, it has generally been viewed as a disappointment, because the outsized promises made by some advocates were based on politically unsustainable rent transfers. In reality, the electricity rate impacts of restructuring have been more driven by exogenous factors, like generation technologies and natural gas prices, than by the endogenous effects of restructuring itself. We then apply the same premise to the current political momentum behind distributed generation (primarily rooftop solar PV) which remains costly from a societal viewpoint, but privately economic due to the rent transfers it enables.

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