Motivations for market restructuring: Evidence from U.S. electricity deregulation

- We find that a 1% increase in average profit is associated with an increase in the likelihood of restructuring of a little over 1%.
- We find that stronger political influence of residential customers implies a greater chance of restructuring.
- An increase in median income of 1000 dollars (or more ability to lobby) increases the probability of restructuring of between 10 and 14%.
- Results indicate that consumer lobbying power is less important as electricity prices rise.

The purpose of this paper is to examine whether electricity restructuring was brought about due to the Public Interest Theory (that regulatory changes are undertaken to benefit society) or the Interest Group Theory (that groups hoping to gain from deregulation lobby for regulatory changes). From 1996 to 2002 eighteen states developed restructuring programs targeted at improving efficiency through the use of increased wholesale trading, abolition of 'cost of service' regulation, measures to open electricity production to non-utility entities, and the unbundling of transmission and distribution. Results indicate some evidence of the Public Interest Theory and strong evidence of the Interest Group Theory.