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Powering Progress: Restructuring, Competition, and R&D in the U.S. Electric Utility Industry

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  • Paroma Sanyal
  • Linda R. Cohen

Abstract

This paper investigates the R&D behavior of regulated firms when they transition to a competitive environment. Using data from the US electricity market from 1990-2000, we analyze how competition, institutional changes, and political constraints have contributed to the precipitous decline in R&D expenditure by regulated utilities. We find that firms reduce their R&D significantly at the very early stages of restructuring or even when they expect restructuring to occur. Once the emerging institutional structure becomes clear, R&D spending recovers but is later offset by another decline when restructuring legislation is enacted. In addition, greater competition and the nearing of such competition adversely affects research spending. In aggregate, R&D declines by 78.6 percent after electricity markets are restructured. Firm and state characteristics matter, and a majority of the research is conducted by large generation companies located in pro-research states, especially if they are part of a larger holding company. Such characteristics have a different impact on research spending in the pre- and post-restructured periods.

Suggested Citation

  • Paroma Sanyal & Linda R. Cohen, 2009. "Powering Progress: Restructuring, Competition, and R&D in the U.S. Electric Utility Industry," The Energy Journal, , vol. 30(2), pages 41-80, April.
    • Handle: RePEc:sae:enejou:v:30:y:2009:i:2:p:41-80
    DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No2-3
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