An Empirical Analysis of Electricity Regulation on Technical Change in Texas

To evaluate the impact of regulation on the innovativeness of firms, this study considers the unusual case of electric utilities in the state of Texas. In the current era of deregulation, the electric utility industry in Texas is unique because its regulation was relatively limited until 1975, after which time Texas legislators imposed rate-of-return regulation. Utilizing a trans log cost framework on annual data covering the years 1965 to 1985, this study is thus able to compare the rate of technological change both before and after the imposition of rate-of-return regulation. The findings indicate that before the implementation of rate-of-return regulation, costs decreased significantly because of technological progress. After the implementation, however, the findings indicate that costs increased significantly due to technological regress brought on by regulation