Substitution in the electric power industry: An interregional comparison in the eastern US

- All the own price elasticities in the static and dynamic models are negative.
- Oil has the largest own price elasticities while coal has the smallest.
- Complementarity exists between coal and oil in both static and dynamic models.
- Substitutability exists between coal and gas, oil and gas in both models.
- New York and Texas have opposite signs for cross price elasticities.

The electric power industry is restructuring as regulations move from states to regional and national levels. Estimates of regional fuel and input substitution are essential for practitioners and policy makers. This paper estimates substitution under static and dynamic scenarios, examining changes in technology and total factor productivity from 2001 to 2008. Two-stage estimation reveals regional characteristics and underlying elements in fuel and factor choice processes. Substitution varies widely depending on the region, coal technology, capital investment, and R&D activities.