Does Ownership Matter? Utility Structure and the Pass-Through of Energy Cost Shocks

• In Event: Electricity Markets, Pricing, and Utility Structure

Abstract

Does public ownership change how energy cost shocks are divided between utilities and their customers? I digitize a panel of utility-level residential electricity bills for 1959 to 1988 and compare each municipal utility with a matched investor-owned utility in the same state and Power Supply Area, so that both face the same regional fuel market and the investor-owned utility answers to the same regulator. The price gap between matched utilities was stable before 1970. After the oil shocks of the 1970s a gap opened and widened with each shock, and over 1970 to 1988 municipal utilities charged $1.76 less per month for 750 kilowatt-hours, in 1970 dollars, or about $172 per household per year today. Plant-level fuel cost data show that municipal bills responded less to coal cost increases than investor-owned bills, a differential that survives region-specific trends at about half its size. Municipal operating margins fell by 7.7 percentage points in low-oil regions relative to those of their investor-owned counterparts, and pairs with larger relative compression had larger price gaps. Public ownership operated as implicit insurance for ratepayers, financed from the utility's own margins.

Author

• Ryan Elliott Anthony, Georgia Institute of Technology
  Presenting Author