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Effect of Utility Deregulation and Mergers on Consumer Welfare

Ralph Sonenshine


In the late 1990s, many U.S. states deregulated electric utilities, allowing for competition among power generators.   Deregulated states then adopted retail choice programs, allowing customers to choose their power provider.  In addition, a significant merger wave among large utilities ensued.  How did these events impact consumer welfare? This study examines the effects of utility deregulation and mergers, by analyzing electricity price and output changes among deregulated and regulated states.  I find that deregulation may have had a positive effect when states adopted certain measures, such as retail choice or fuel changes, that enhanced competition and lowered costs.  Mergers also affected consumer welfare, with differential impacts found between the merger of generation firms versus the merger of generation and transmission companies. 


Deregulation, Mergers, Regulated Industries, natural monopoly

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DOI: http://dx.doi.org/10.18686/fm.v2i2.967