Markets v Command-and-Control Regulation

01/27/2017

Are markets reducing the cost of electricity generation relative to command-and-control regulated dispatch? This study from the University of Chicago answers this question. The study finds that markets reduce the cost of generating electricity by about $3 billion per year through increased efficiencies and coordination both within and across areas. By using the lowest-cost plants 10% more often, markets reduce the costs from using uneconomical units by 20% per year. Additionally, the cost reductions from trading electricity across regions increases by 20% per year. The report concludes:  “As policymakers are faced with the question of whether the de-regulation of electricity markets should be expanded or scaled back, these findings suggest the benefits realized by more efficient allocation of output though market-based dispatch have far outweighed any imperfections in the market system.”  1/26/2017

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