Deregulation, Consolidation, and Efficiency: Evidence from US Nuclear Power

Beginning in the late 1990s, electricity markets in many US states were deregulated, and almost half of the nation’s 103 nuclear power reactors were sold to independent power producers. Deregulation has been accompanied by substantial market consolidation, and today the three largest companies control one-third of US nuclear capacity. We find that deregulation and consolidation are associated with a 10 percent increase in operating performance, achieved primarily by reducing the duration of reactor outages. At average wholesale prices, this increased operating performance is worth $2.5 billion annually and implies an annual decrease of 35 million tons of car bon dioxide emissions. (JEL L11, L51, L94, L98, Q42, Q48) T his paper examines an unprecedented period of deregulation and consolidation in the US nuclear power industry. For four decades, all nuclear power reactors in the United States were owned by regulated utilities. Few utilities owned more than one or two reactors, and utilities received a rate of return on their capital investments that was largely disconnected from operating performance. Beginning in the late 1990s, electricity markets in many states were deregulated, and 48 of the nation’s 103 nuclear power reactors were sold to independent power producers selling power in competitive wholesale markets. These divestitures have led to substantial market consolidation, and today the three largest companies control one-third of US nuclear capacity. Using a unique 40-year monthly panel of all nuclear reactors in the United States, we find that deregulation and consolidation are associated with a 10 percent increase in operating performance, achieved primarily by reducing the frequency and, more impor tantly, duration of reactor outages. Gains in operating performance were experienced broadly across reactors of different types, manufacturers, and vintages, with the largest increases in the spring and fall during the peak months for refueling. We also examine explicitly the role of consolidation, comparing gains across companies that operate different numbers of reactors. While we find suggestive evidence that consolidation led to improved operating performance, it explains relatively little of the overall increase.