Working Paper No. 09-06

Market Restructuring, Competition and the Efficiency of Electricity Generation:
Plant-level Evidence from the United States 1996 to 2006

J. Dean Craig and Scott J. Savage
November 2009


The paper examines the effects of market restructuring initiatives that introduced competition into the United States electricity industry on the thermal efficiency of electricity generation. A difference-in-differences model is estimated on annual data for over 950 plants from 1996 to 2006. Model estimates show that restructuring increased the efficiency of investor-owned plants by about thirteen percent and that these gains stem from organizational and technological changes within the plant. Instrumental variables approaches indicate that estimates may be lower bounds of efficiency gains. Although not directly targeted by restructuring initiatives, we also find similar efficiency effects for municipality-owned plants. This result suggests that the benefits from restructuring have spilled over to public electricity generation.

JEL classification: L51; L94
Keywords: competition; efficiency; electricity generation