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  3. American Economic Review
  4. April 2021
  5. When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation: Reply

When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation: Reply

  • Steve Cicala
American Economic Review
vol. 111, no. 4, April 2021
(pp. 1373-81)
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Abstract

The average effect of deregulatory policies on fuel prices at coal-fired power plants is strongly influenced by plants that were initially paying the highest prices for fuel. Primary sources document that these plants were locked into long-term, high-cost fuel contracts, and only secured market rates post-deregulation. While these plants' fuel costs were unusual, their response to deregulation was not: both coal- and gas-fired plants reduce fuel prices one-for-one with the amount they were initially paying above their neighbors' costs. Our understanding of deregulation is not improved by excluding those who stand to benefit most.

Citation

Cicala, Steve. 2021. "When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation: Reply." American Economic Review, 111 (4): 1373-81. DOI: 10.1257/aer.20201872

Additional Materials

JEL Classification

  • L51 Economics of Regulation
  • L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
  • L94 Electric Utilities
  • L98 Industry Studies: Utilities and Transportation: Government Policy
  • Q35 Hydrocarbon Resources
  • Q41 Energy: Demand and Supply; Prices
  • Q48 Energy: Government Policy