Power Flows: Transmission Lines, Allocative Efficiency, and Corporate Profits

Abstract

Accelerated investment in electricity transmission could reduce total costs and enhance renewable integration. I document static allocative inefficiencies induced by incomplete market integration in two major U.S. markets; these have risen over time and totaled $2 billion in 2022. I also argue that estimating firm-level impacts is important, as incumbents may have the power to block new lines and other reforms. I show that four firms would have experienced a collective $1.3 billion drop in net revenues in 2022 had the market been integrated, and there are reports of some of these firms blocking transmission projects.