The Electricity Industry Reform Paradigm in the European Union: Testing the Impact on Consumers

The standard electricity industry reform paradigm in several EU countries since the 1990s includes privatization, unbundling, liberalization. While the implementation and design of reforms widely differs across the EU, the European Commission insists on a rather unified approach, aiming at the full opening of the internal market. Privatization neither is a necessary pre-requisite of liberalization, nor it is mentioned in the EU electricity market directives. Many economists, however, believe that public ownership can be an impediment to other reforms, and that it leads to production inefficiency. To test the latter question and the reform paradigm in general, as captured by the regulatory indicators, we consider electricity prices and survey data on consumer satisfaction in the EU-15. Our empirical findings reject the prediction that privatization leads to lower prices, or to increased consumer satisfaction. Moreover, country specific features tend to have a high explanatory power, and the progress toward the reform paradigm is not systematically associated with lower prices and higher consumers satisfaction. We discuss possible interpretations of our findings, suggest possible explanations, and some policy implications.