The regulation of electricity: results from an event study

In this paper, event-study methods are used to compare the stock-market returns for the RECs with general stock-market returns to test the hypothesis that the regulatory package shows symptoms of capture by special interest groups over the 1991-95 period. The results show that some capture by the RECs may have occurred as they have earned abnormal market returns. However, regulatory events are heterogeneous in nature and actions taken over prices by the Director General of Electricity Supply (DGES) in 1995 appear to have reduced abnormal returns. As part of the study, we examine the impact on shareholders' returns of the DGES's controversial announcement in March 1995 of plans to tighten price controls on the RECs. The regulatory package appears to work reasonably well on balance.