Deregulation, Consolidation, and Efficiency in the U.S. Nuclear Power Industry

Deregulation and consolidation are associated with a 10 percentage-point increase in operating efficiency [for nuclear power plants].

In Deregulation, Consolidation, and Efficiency: Evidence from U.S. Nuclear Power (NBER Working Paper No. 17341), authors Lucas Davis and Catherine Wolfram examine an unprecedented period of deregulation and consolidation in the U.S. nuclear power industry. In particular, they analyze operating efficiency before, during, and after market restructuring using a unique, high-quality dataset that describes reactor-level operations over a 40-year period.

The authors find that deregulation and consolidation are associated with a 10 percentage-point increase in operating efficiency, and that these increases are similar across reactors of different types, manufacturers, and vintages. They further show that the increase in operating efficiency was primarily due to a decline in the number of outage days per year.

These results provide evidence of efficiency gains from the deregulation of electricity markets. As predicted by economic theory, removing regulation has provided incentives for firms to increase efficiency, reduce costly outages, and make prudent investments in capacity. As plants have been sold to private companies, the financial cost of poor operating efficiency has been transferred from ratepayers to shareholders. Companies like Exelon and Entergy have responded by achieving the highest levels of nuclear reactor operating efficiency in history. Each additional operating hour for a typical nuclear power plant represents about $120,000 in profit.

The increased nuclear output replaced electricity from fossil fuel-fired power plants, which would have emitted substantial amounts of pollution, including greenhouse gases. Notably, the authors calculate that deregulation, a policy that had nothing to do with the environment, led to greater carbon reductions than all the wind and solar generation combined.

--Lester Picker

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