UC Santa Cruz

Competition in the generation and marketing of electricity entails the use of a strategy space with many dimensions. Often requiring outlays in the hundreds of millions and occasionally billions of dollars to build, power plants are infrastructure investments with huge potential for economic impact. A variety of generating technologies currently compete to be the lowest cost provider and each of these options includes a set of externalities associated with producing power. Therefore, some competitive efforts, often manifested as lobbying, are directed towards preventing internalization of third party costs. Under standard operating conditions and mild deviations, electricity producers and marketers work hard to ensure a reliable and unremarkable (from the consumer perspective) supply of power. Natural disasters can offer windows into the strategic choices that define the structure of competition in electricity generation and subsequent market outcomes. The recent drought in the United States and the Tohoku earthquake in Japan are the two disasters discussed in the pages that follow.

The development of hydroelectric facilities has cultivated a channel through which the state of water resources can affect the manner in which electricity is generated. In the first chapter, I evaluate the the short-term impacts of drought on the electrical power value chain for the contiguous United States. Using a novel data set constructed from six public sources, I show that drought reduces the energy content of inputs utilized for hydroelectric production and the output of these plants as well. Generation from natural gas plants substitutes for the lost hydropower. Precisely, a one standard deviation increase in drought severity decreases the share of hydroelectric generation by 8.9% and increases the share of natural gas generation by 5.0%. The pattern of substitution is most pronounced for the markets with the largest share of capacity coming from hydropower. The additional costs of production and environmental damages are estimated for each state. Between January of 2012, and September 2015 the California drought has induced additional electricity-related costs estimated at 1.16 billion. For markets with little hydropower, mark-ups rise with drought. However, for markets with a large share of hydropower, mark-ups fall due to higher costs for an important input. Finally, drought is shown to reduce price volatility in wholesale markets where hydroelectric dams are most prevalent.

In the second chapter, I evaluate the U.S. lobbying response to the Nuclear Regulatory Commission's post Fukushima review of regulatory policy. I extract lobbying data from public disclosure filings and build a data set containing the lobbying expenditures, and records of lobbyists hired, issues lobbied, and government agencies contacted for 15 quarters around the March 11, 2011 Tohoku earthquake that lead to the Fukushima Daiichi nuclear disaster. With this information, it is possible to evaluate the change in lobbying strategies of clients within and outside of the energy sector. The nuclear industry responds to the disaster by increasing its expenditure levels by between 14.8 and 19.2 percent relative to the rest of the economy. Relative to the non-energy sectors the number of issues lobbied by the nuclear industry falls to around 73 percent the pre-disaster level. For non-nuclear firms in the electricity industry, proximity to nuclear competition is associated with a relatively larger reduction in lobbying after Fukushima. The nuclear meltdown has probably done more damage to the image of nuclear power than a counter-lobbying effort could alone.