Catie Hausman, University of Michigan

Economists, electrical grid analysts, policymakers, and renewable energy advocates have all called for substantial new investment in the U.S. electricity transmission network. Additional transmission lines could better integrate markets, reducing the total cost of electricity generation. They could also allow for the better integration of new renewable energy sources such as wind and solar, located in areas that traditionally did not have much generation capacity and that are far away from centers of demand. In this paper, I document the magnitude of allocative inefficiencies induced by transmission congestion and inadequate wind integration in two major U.S. electricity markets. I show that the allocative inefficiencies have been rising over time, totaling nearly $3 billion in 2022. Moreover, I document an important political economy dimension not yet explored in the literature: the magnitudes of wins and losses from this market integration for a small number of individual companies is surprisingly large, with expected losses at just three companies totaling nearly $1 billion. I then tie these to reports of transmission hold-up in these markets. I argue that understanding firm-level winners and losers is just as important as understanding overall inefficiencies, particularly in an environment where incumbents may have the power to block new lines.