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Electric power distribution: economies of scale, mergers, and restructuring

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  • John Kwoka

Abstract

Electricity distribution is generally viewed as a natural monopoly and therefore as having the least potential for the kinds of reforms that have swept the electric power sector in many countries. Mergers among distribution companies and efforts at retail competition have nonetheless altered the operation of the distribution stage. This research into US electric utilities uses a much larger and less selective data base than previously available to examine the scale properties of distribution with respect to output, distance, and customer numbers, and for different functions within distribution. It finds significant economies at low output levels, holding system size and customer density constant, but the cost gradient is otherwise modest. It also finds that geographic size and customer numbers are quite important and that economies are significantly stronger for the infrastructure or 'wires' business than for the marketing function performed by distribution utilities. These results lend credence to efforts at retail competition that separates these functions, but cast doubt on the benefits of mergers between distribution systems.

Suggested Citation

  • John Kwoka, 2005. "Electric power distribution: economies of scale, mergers, and restructuring," Applied Economics, Taylor & Francis Journals, vol. 37(20), pages 2373-2386.
  • Handle: RePEc:taf:applec:v:37:y:2005:i:20:p:2373-2386
    DOI: 10.1080/00036840500309247
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    References listed on IDEAS

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    Cited by:

    1. Filippo Belloc & Antonio Nicita, 2010. "Partisan Liberalizations. A New Puzzle from OECD Network Industries?," Department of Economics University of Siena 588, Department of Economics, University of Siena.
    2. Dimitri Dimitropoulos and Adonis Yatchew, 2017. "Is Productivity Growth in Electricity Distribution Negative? An Empirical Analysis Using Ontario Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    3. Tovar, Beatriz & Javier Ramos-Real, Francisco & de Almeida, Edmar Fagundes, 2011. "Firm size and productivity. Evidence from the electricity distribution industry in Brazil," Energy Policy, Elsevier, vol. 39(2), pages 826-833, February.
    4. Beecher, Janice A. & Kalmbach, Jason A., 2013. "Structure, regulation, and pricing of water in the United States: A study of the Great Lakes region," Utilities Policy, Elsevier, vol. 24(C), pages 32-47.
    5. Saastamoinen, Antti & Bjørndal, Endre & Bjørndal, Mette, 2017. "Specification of merger gains in the Norwegian electricity distribution industry," Energy Policy, Elsevier, vol. 102(C), pages 96-107.
    6. repec:eee:eneeco:v:65:y:2017:i:c:p:283-291 is not listed on IDEAS
    7. de Oliveira e Silva, Guilherme & Hendrick, Patrick, 2016. "Lead–acid batteries coupled with photovoltaics for increased electricity self-sufficiency in households," Applied Energy, Elsevier, vol. 178(C), pages 856-867.
    8. Saastamoinen, Antti & Bjørndal, Endre & Bjørndal, Mette, 2016. "Specification of merger gains in the Norwegian electricity distribution industry," Discussion Papers 2016/7, Norwegian School of Economics, Department of Business and Management Science.
    9. Subal Kumbhakar & Roar Amundsveen & Hilde Kvile & Gudbrand Lien, 2015. "Scale economies, technical change and efficiency in Norwegian electricity distribution, 1998–2010," Journal of Productivity Analysis, Springer, vol. 43(3), pages 295-305, June.
    10. Nikogosian, Vigen & Veith, Tobias, 2011. "Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers," ZEW Discussion Papers 11-069, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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