Vertical Integration and the Restructuring of the U.S. Electricity Industry

Abstract:

Excerpt from the Executive Summary:


Debates on restructuring the U.S. electricity industry are often about the degree to which market relationships should replace transactions that formerly took place within regulated, vertically integrated utilities. Markets for the purchase of energy by vertically unintegrated distribution utilities are clearly feasible, but vertical deintegration of existing systems may eliminate some operational and reliability benefits that are important in light of the unique characteristics of electricity. Politicians and policy analysts have almost totally disregarded a large body of academic literature regarding the efficiencies that are gained through vertical integration in the electricity sector. At the same time, those parties have enthusiastically embraced other studies that purport to estimate the benefits of switching to a so-called restructured regime consisting of independent generation and integrated transmission and distribution. The result has been the passage of electricity utility restructuring laws that may create production inefficiencies that shrink the net benefits of any move toward market provision of power supplies.

Last updated on 09/17/2021