Common Tragedies: Injecting a Little Substance into Blogging on Energy, Environment and Economics

Michael Giberson

I stumbled across another blog post on the New York Times article discussed here earlier in the week. Rich Sweeny, at Common Tragedies, wants to inject a little more research-based thinking into the discussion:

What I really wanted to add to this debate, though, is a discussion of how elecricity costs have been affected by deregulation, as opposed to customer prices. In September Kira R. Fabrizio, Nancy L. Rose, and Catherine D. Wolfram published a paper in the AER called, “Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency”. Using a large, firm level data set, the authors find,

Restructuring reduced labor and nonfuel expenses, holding output constant, by 3 to 5 percent relative to other investor-owned utility plants, and by 6 to 12 percent relative to government- and cooperatively owned plants that were largely insulated from restructuring incentives.

This suggests that while the jury may still be out on the end use electricity price reductions from deregulation, the market is working in terms of promoting efficiency at the producer level. In fact, this is first order justification for deregulation in the first place, to provide market incentives for producers to minimize the cost of generating electricity. As to why these efficiency gains aren’t being passed on to end users, that involves a whole different set of issues.

Sweeney also links to a prior post by Common Tragedies co-blogger Daniel Hall in which Hall actually examines the Power in the Public Interest study. Hall says the report is “a useful starting point for showing correlation, but hardly a definitive end point for demonstrating causation.” He then lists five general considerations that might guide a more thoughtful study into the effect of regulation.

Hall links to a handful of blog posts in response to the Times article, and then gives his vote for best response to, ahem, me:

My vote for best response so far goes to Michael Giberson, who in a short but nuanced post seems cautiously optimistic about the future prospects for deregulation but acknowledges that it is hard to design competitive electricity markets and that fuel costs have played a role in price increases.

Cautiously optimistic? No, not really. I’m crazy in love with the future prospects. But, you know, we aren’t there yet.

The crew at Common Tragedies, all research assistants at Resources for the Future, is doing a great job with their two-month old blog. Of course, they’re blogging about energy, environment and economics, so what’s not to like?