2016-08 Effect of utility deregulation and mergers on consumer welfare

In the late 1990s many US states deregulated their electric utilities, separating generation from transmission, allowing for competition among power generators. As a result there was a significant merger wave among large utility companies. To-date the effect of utility deregulation and mergers on electricity prices, while widely studied, remains ambiguous. This study examines the effects of these events by analyzing statewide electricity price and output changes among deregulated and regulated states from the period 2001 through 2014. The study finds that deregulation appears to have a positive impact on social welfare by lowering prices and output by improving efficiencies in part through retail choice programs. However, mergers appear to have a slightly negative effect on social welfare by raising prices and possibly output in deregulated states.