When Does Regulation Distort Costs? Lessons from Fuel Procurement in U.S. Electricity Generation
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.
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Copy CitationSteve Cicala, "When Does Regulation Distort Costs? Lessons from Fuel Procurement in U.S. Electricity Generation," NBER Working Paper 20109 (2014), https://doi.org/10.3386/w20109.
Published Versions
Steve Cicala, 2015. "When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation," American Economic Review, American Economic Association, vol. 105(1), pages 411-44, January. citation courtesy of 
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