Economies of Scale in U.S. Electric Power Generation

Abstract

We estimate economies of scale for U.S. firms producing electric power. Cross-section data for 1955 and 1970 are analyzed using the translog cost function. We find that in 1955 there were significant scale economies available to nearly all firms. By 1970, however, the bulk of U.S. electricity generation was by firms operating in the essentially flat area of the average cost curve. We conclude that a small number of extremely large firms are not required for efficient production and that policies designed to promote competition in electric power generation cannot be faulted in terms of sacrificing economies of scale.