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Retail Electricity Market Restructuring and Retail Rates

Kenneth Rose, Brittany Tarufelli, and Gregory B. Upton Jr.

Year: 2024
Volume: Volume 45
Number: Number 1
DOI: 10.5547/01956574.45.1.kros
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Abstract:
Prior to the 1990s, all U.S. states used a "cost of service (COS)" regulation regime in which investor-owned utilities were allowed to recover prudently incurred costs plus a rate of return on capital expenditures, and retail customers were unable to choose their electricity supplier. From 1996–2000, multiple states passed retail electricity market "restructuring." This empirical research examines the effect of retail restructuring on electricity prices to final consumers. We find that rates increased in restructured states relative to plausible counterfactuals in the years post-restructuring. But by twelve years after retail restructuring, we no longer observe any difference. We investigate plausible mechanisms, finding evidence that retail prices became more responsive to natural gas prices due to retail restructuring, the timing of which coincided with increases in natural gas prices nationally. We also test for whether restructuring had distributional effects across customer classes and find that in the short run residential customers benefited relative to industrial customers during transition periods, but that this difference does not persist into full implementation.



Measuring Switching Costs in the Italian Residential Electricity Market

Marco Magnani, Fabio M. Manenti, and Paola Valbonesi

Year: 2024
Volume: Volume 45
Number: Number 2
DOI: 10.5547/01956574.45.2.mmag
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Abstract:
Residential electricity markets in European countries are still characterized by low consumer engagement, especially where regulated and liberalized markets coexist. Using an original dataset on 2015-2018 prices for the Italian electricity market, augmented with the number of residential consumers, we study the presence and magnitude of switching costs-i.e., time-based and cognitive-based costs on consumers changing providers-in the liberalized market. We find that switching from the incumbent involves high costs-almost as high as the yearly energy expenditure-while switching from competitors is less expensive. We also carry out two counterfactual analyses. In the first, we show that consumers would have incurred lower average switching costs over the years had the markset been less concentrated. In the second, we simulate how switching costs could evolve once regulated prices are phased out, and the market is fully liberalized.





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