Working Paper: NBER ID: w20109
Authors: Steve Cicala
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.
Keywords: Regulation; Electricity Generation; Cost of Service; Deregulation; Fuel Procurement
JEL Codes: D24; D72; D82; L11; L43; L51; L94; L98; Q4; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deregulation (L51) | Reduction in price paid for coal (Q31) |
| Deregulation (L51) | Shift toward more productive coal mines (L71) |
| Deregulation (L51) | Less capital-intensive sulfur abatement techniques (Q52) |
| Divested plants (G33) | Switch from bituminous to low-sulfur subbituminous coal (L71) |
| Regulated plants (L51) | Installation of scrubbers (Q52) |
| Deregulation (L51) | Increase in out-of-state coal purchases (H79) |
| Regulation (L51) | Hindered efficient procurement practices (H57) |
| Deregulation (L51) | Purchase from mines with lower extraction costs (L72) |
| Regulatory capture (G18) | Distorted procurement decisions (H57) |
| Deregulation (L51) | No significant impact on price of fuel paid by gas-fired generators (L94) |
| Asymmetric information (D82) | Distorted procurement decisions under regulation (H57) |