Review of Industrial Organization 18: 337–350, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Price Effects of Across-State Regulation of U.S.
DAVID W. SAVITSKI
Department of Economics and Finance, Northern State University, 1200 South Jay Street,
Aberdeen, SD 57401, U.S.A.
Abstract. Investor-owned utilities (IOUs) serving multiple states are subject to multiple public
service (utility) commission (PSC) regulation. Focusing on relative rates of an IOU across PSCs
isolates regulatory effects. This analysis examines 38 such multistate IOUs from 1995. For the
residential-commercial customer comparison, elected PSC commissioners, Republican-appointed
commissioners, PSC jurisdiction over municipally-owned utilities (an indirect IOU competitor), and
IOU home-state status are associated with a higher relative rate, whereas more PSC employees per
capita and population density are associated with a lower relative rate. The commercial-industrial
comparison results are largely reversed, but are similarly robust.
Key words: Electric utilities, price, regulation.
This paper examines investor-owned utilities (IOUs) serving multiple states, and
thus subject to multiple, nonoverlapping public service (utility) commission (PSC)
regulation. Such a design approximates an idealized experiment whereby PSC be-
havior is observed across PSCs sequentially regulating a given ﬁrm. Regulatory
effects are thus isolated, offering insights into behavior less affected by cost factors
than for across-ﬁrm analysis. Hence, the focus is on the effect of variation in PSC
structure and interest group strength on relative rates.
Stigler and Friedland (1962) ﬁnd that the introduction of PSC regulation during
1912–37 did not signiﬁcantly effect IOU rates. Jarrell (1978) argues that this may
not be, as states in which municipal governments fostered franchise competition
were the ﬁrst to introduce regulation. Average revenue and proﬁt rose, and output
fell, with the establishment of regulation compared with states which later estab-
lished regulation, making regulated and unregulated IOUs more, not less, similar.
This is consistent with IOUs acquiring PSC regulation to avoid the competition
fostered by municipal governments issuing overlapping franchises or by creating
municipally-owned utilities (MOUs). If IOUs seek regulation as a shield against
This paper has beneﬁtted from the comments of two anonymous referees. All errors are, of
course, my own.