When Does Regulation Distort Costs? Lessons from Fuel Procurement in U.S. Electricity Generation

68 Pages Posted: 14 May 2014

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Date Written: May 2014

Abstract

This paper evaluates changes in fuel procurement practices by coal- and gas-fired power plants in the United States following state-level legislation that ended cost-of-service regulation of electricity generation. I find that deregulated plants substantially reduce the price paid for coal (but not gas), and tend to employ less capital-intensive sulfur abatement techniques relative to matched plants that were not subject to any regulatory change. Deregulation also led to a shift toward more productive coal mines. I show how these results lend support to theories of asymmetric information, capital bias, and regulatory capture as important sources of regulatory distortion.

Suggested Citation

Cicala, Steve, When Does Regulation Distort Costs? Lessons from Fuel Procurement in U.S. Electricity Generation (May 2014). NBER Working Paper No. w20109, Available at SSRN: https://ssrn.com/abstract=2436717

Steve Cicala (Contact Author)

University of Chicago ( email )

1155 East 60th Street
Chicago, IL 60637
United States

HOME PAGE: http://home.uchicago.edu/~scicala

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