Acid rain provisions of the 1990 clean air amendments: affects on residential electric customers

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Virginia Tech

This thesis attempts to explain to what degree residential electricity prices will increase due to compliance with the sulfur dioxide provisions of the 1990 Clean Air Amendments. The Amendments were passed with widely varying estimates of the costs to the final consumer. These estimates ranged from 3 percent to 30 percent.

Models were developed based on the regulatory rate structure of investor-owned utilities in the United States. The utilities were grouped by their historical selection of fuels and pollution control equipment and Chow tests were performed to identify if structural differences exist between these groups. A single equation was then derived that separated variables that created the structural difference. Regressions were then run to test the historical relationship between the electric utilities’ costs and residential bills. Next forecasts were run using the regression model above corrected for heteroskedasticity and serial correlation and compared with three estimates of increases in electric bills made before the Bill was passed.