Delmas, Magali, Michael V. Russo, and Maria J. Montes-Sancho. "Deregulation and Evironmental Differentiation in the Electric Utility Industry." Working Paper, University of California at Santa Barbara, 2006.

Examines the impact of deregulation on the electric utility industry, and the emergence of 'green power' utilities, arguing that deregulation "has stimulated environmental differentiation."

This is accomplished using a regression analysis in which the dependent variable is the change in percentage of generation from renewables. Independent variables include measures of deregulation, regional environmental sensitivity (using League of Conservation Voters scores), percentage of generation from coal, and efficiency (based on a linear programming analysis). The regressions also include many control variables for factors such as prior investments in renewables, new entrants, and state environmental conditions (based on EPA Toxic Release Inventory data).

The data sample is composed of data from 114 investor-owned U.S. electric utilities, representing 61% of U.S. electricity production. The time period covered is 1998-2000 time period, although, since some variables are lagged, the analysis focuses on 1999 and 2000. The authors combine data from numerous sources, including the Federal Energy Regulatory Commission, EPA, and company filings with regulators.

Finds that "utilities were more likely to take strategic actions to support an environmental differentiation strategy following deregulation in states where citizens display higher degrees of environmental sensitivity." Firms that were heavily reliant on coal power or were notably efficient were less likely to pursue such strategies.

The authors argue that deregulation was a key catalyst in the development of green power offerings. "It was not that utilities were prevented from developing green power resources (and of course, several of them did so). Rather, it was their monopoly status and the nature of utility regulation that blocked incentives for offering green power as a new retail product, in turn biasing downward opportunities for utilities to promote renewable generation."