Analysis of the U.S. Electric Power Industry

In the U.S., the power industry is a primary energy consumption sector. Accurate knowledge on production efficiency in the industry has vital welfare implication from both economic and environmental perspectives. The first two essays investigate the causal impact of the vertical separation of the electricity transmission sector from the generation sector on production efficiency. In the first essay, I ask whether the specific market restructuring is sufficient to enhance how efficiently production is allocated among producers. Based on a difference-in-difference comparison on cost-sensitivity of utilization between coal-fired generators in the treatment region (Southwest Power Pool) and that in a control region, I fail to find any significant private cost savings by reallocating production across firms. My second essay takes a further step and looks into one potential explanation of the results: enabled market power under restructuring. Following a common method to measure competition, I simulate the prices that would have occurred had the wholesale market been competitive. Then I compare the simulated prices with the best estimates available for actual wholesale prices to measure the market price-cost margins. Empirical results demonstrate that the vertical separation of the electricity transmission sector actually led to an increase in the markup in the wholesale market, indicating evidence of market power exercised. In the last essay, we propose to investigate whether there is stickiness in the pass-through from fossil fuel spot prices to the fossil-fuel procurement costs for the U.S. electric power producers, and if there is, to what extent the sluggishness is, and how it varies across different types of fossil fuels.