Electric utilities, fuel use, and responsiveness to fuel prices

Title: Electric utilities, fuel use, and responsiveness to fuel prices
Format: Journal Article
Publication Date: November 2014
Published In: Energy Economics
Description: © 2014 Elsevier B.V.This research tests the impact of changes in fuel price to explain fuel use by electric utilities. We employ a three-stage least squares model that explains changes in fuel use as a function of changes in three fuel prices. This model is repeated across sub-samples of data aggregated at the plant level and operating holding company level. We expect that plants and holding companies reduce fuel use when fuel prices rise. Several fuel substitution effects within and across plants and holding companies are demonstrated, as well as several frictions. At the plant level, higher prices of natural gas lead to less natural gas consumption, less coal consumption, and more fuel oil consumption. At the operating holding company level, results demonstrate the inelasticity of coal use and the increases of natural gas in response to higher coal prices. Subsamples demonstrate heterogeneity of results across different plants. Results emphasize that technological, market, and regulatory frictions may hinder the performance of energy policies.
Ivan Allen College Contributors:
Citation: Energy Economics. 46. 445 - 452. ISSN 0140-9883. DOI 10.1016/j.eneco.2014.05.009.
Related Departments:
  • School of Public Policy