Retail Electricity Market Restructuring and Retail Rates

67 Pages Posted: 28 Jul 2020 Last revised: 22 Aug 2022

See all articles by Kenneth Rose

Kenneth Rose

DePaul University; Michigan State University

Brittany Tarufelli

Louisiana State University, Baton Rouge

Gregory Upton

Louisiana State University, Baton Rouge

Date Written: August 19, 2022

Abstract

Prior to the 1990s, all U.S. 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, and retail customers were unable to choose their electricity supplier. From 1996-2000, multiple states passed retail electricity market “restructuring.” This empirical research examines the effect of retail restructuring on electricity prices to final consumers. We find that rates increased in restructured states relative to plausible counterfactuals in the years post-restructuring. But by twelve years after restructuring, we no longer observe any difference. We investigate plausible mechanisms, finding evidence that retail prices became more responsive to natural gas prices due to restructuring, the timing of which coincided with increases in natural gas prices nationally. We also test for whether restructuring had distributional effects across customer classes and find that in the short-run residential customers benefited relative to industrial customers during transition periods, but that this difference does not persist into full implementation.

Keywords: electricity market restructuring; retail choice; retail competition

JEL Classification: D42, K23, L52, Q48

Suggested Citation

Rose, Kenneth and Tarufelli, Brittany and Upton, Gregory, Retail Electricity Market Restructuring and Retail Rates (August 19, 2022). USAEE Working Paper No. 20-462, Available at SSRN: https://ssrn.com/abstract=3660974 or http://dx.doi.org/10.2139/ssrn.3660974

Kenneth Rose

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

Michigan State University ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States

Brittany Tarufelli

Louisiana State University, Baton Rouge ( email )

Baton Rouge, LA 70803
United States

Gregory Upton (Contact Author)

Louisiana State University, Baton Rouge ( email )

Baton Rouge, LA 70803
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
443
Abstract Views
1,951
rank
94,097
PlumX Metrics