State-level electricity generation efficiency: Do restructuring and regulatory institutions matter in the US?

This paper examines the impact of deregulation and the political support for it on the electric power industry using a consistent state-level electricity generation dataset for the US contiguous states from 1997 to 2014. Recent analyses of productivity growth suggests that institutional factors are important and we wish to study the role of deregulation as a state-level institutional change through two measures: (a) restructuring and (b) the political support for it, measured by the majority political affiliation of public utility commissions. We find evidence of positive impacts of deregulation (both restructuring and the political support for it) on technical efficiency across the models estimated. Our preferred model which allows for the control for deregulation variables on the mean and variance of the inefficiency shows an average technical efficiency of 73.1 percent. The results of the marginal effects reveal that the impact of deregulation including its political support on inefficiency is negative and monotonic, with a potential reduction in technical inefficiency by 8.4%, thereby suggesting a compelling evidence for generation efficiency improvement via deregulation. • We investigate the impact of restructuring and regulatory institutions on the state-level power generation in the US. • We estimate stochastic production frontier using a translog function for five competing models. • Restructuring through deregulation and continued political support for it work together to improve efficient performance. • The four component GTRE error model reveals that time invariant political support for deregulation determines persistent efficiency. • The marginal effect of deregulation on inefficiency is negative and monotonic. [ABSTRACT FROM AUTHOR]

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