Consumer capture of regulatory institutions: The creation of public utility consumer advocates in the United States

We examine the conditions under which state legislatures in the United States organized public utility consumers during the 1970s and 1980s by creating independent consumer advocates with resources and authority to intervene in public utility rate-making procedures. While economic factors, notably utility fuel cost increases, were important predictors, state political conditions were estimated to have a larger impact on the probability of implementation. We find that the pattern of adoption is consistent with the hypothesis that legislatures deploy institutions as a mechanism for insulating regulatory policies against future reform: in general, Democrat-controlled governments were significantly more likely to implement consumer advocates when they were less certain about being re-elected to office during this period. We find also that the effect of political re-election expectations was particularly acute for the creation of advocates representing solely residential consumers, a relatively disorganized interest group. Our results suggest that legislatures organize and publicly fund interest groups to protect supportive but vulnerable groups against adverse future political environments.