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Divestiture Policy and Operating Efficiency in US Electric Power Distribution

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  • John Kwoka

    () (Northeastern University)

  • Sanem Ozturk

    (Northeastern University)

  • Michael Pollitt

    (University of Cambridge)

Abstract

This study examines the effects of divestiture policy on the operating efficiency of US distribution utilities. We focus on the decisive 1994-2003 period when state utility commissions required or pressured utilities to create standalone generation facilities, and thereby almost incidentally standalone distribution systems. The analytical foundation of this study is the measurement of the operating efficiency of 73 distribution units of major U.S. electric utilities in each of those ten years through the use of data envelopment analysis (DEA). Using this panel of data and controlling for other possible influences, we then evaluate the effects on measured efficiency from the divestitures that many of the utilities underwent during the study period. We find that while all divestitures as a group do not significantly affect distribution efficiency, those mandated by state public utility commissions have resulted in large and statistically significant adverse effects on efficiency.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • John Kwoka & Sanem Ozturk & Michael Pollitt, 2008. "Divestiture Policy and Operating Efficiency in US Electric Power Distribution," Working Papers EPRG 0819, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
  • Handle: RePEc:enp:wpaper:eprg0819
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    References listed on IDEAS

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    Cited by:

    1. Paul Nillesen and Michael Pollitt, 2021. "Ownership Unbundling of Electricity Distribution Networks," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    2. Triebs, T.P. & Pollitt, M.G. & Kwoka, J.E., 2010. "The Direct Costs and Benefits of US Electric Utility Divestitures," Cambridge Working Papers in Economics 1049, Faculty of Economics, University of Cambridge.
    3. Kury, Theodore J., 2015. "The impact of coordination on wholesale market participation: The case of the U.S. electricity industry," Utilities Policy, Elsevier, vol. 32(C), pages 38-44.
    4. Tin Cheuk Leung & Kwok Ping Ping & Kevin K. Tsui, 2019. "What can deregulators deregulate? The case of electricity," Journal of Regulatory Economics, Springer, vol. 56(1), pages 1-32, August.
    5. Buehler, Stefan & Boom, Anette, 2014. "Restructuring the Electricity Industry: Vertical Structure and the Risk of Rent Extraction," Economics Working Paper Series 1437, University of St. Gallen, School of Economics and Political Science.
    6. Pollitt, Michael G. & Steer, Steven J., 2012. "Economies of scale and scope in network industries: Lessons for the UK water and sewerage sectors," Utilities Policy, Elsevier, vol. 21(C), pages 17-31.
    7. Sueyoshi, Toshiyuki & Yuan, Yan & Goto, Mika, 2017. "A literature study for DEA applied to energy and environment," Energy Economics, Elsevier, vol. 62(C), pages 104-124.
    8. Heim, Sven & Krieger, Bastian & Liebensteiner, Mario, 2018. "Unbundling, regulation and pricing: Evidence from electricity distribution," ZEW Discussion Papers 18-050, ZEW - Leibniz Centre for European Economic Research.
    9. Paul Nillesen & Michael Pollitt, 2011. "Ownership Unbundling in Electricity Distribution: Empirical Evidence from New Zealand," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(1), pages 61-93, January.
    10. Summanen, Tuomo & Arminen, Heli, 2018. "Ownership unbundling in electricity distribution: The Russian experience," Energy, Elsevier, vol. 161(C), pages 1199-1210.
    11. Theodore Kury, 2013. "Price effects of independent transmission system operators in the United States electricity market," Journal of Regulatory Economics, Springer, vol. 43(2), pages 147-167, April.
    12. Nillesen, P. & Pollitt, M., 2019. "Ownership Unbundling of Electricity Distribution Networks," Cambridge Working Papers in Economics 1905, Faculty of Economics, University of Cambridge.
    13. Jacob Burgdorf, 2021. "The strategic impact of voluntary vs. mandated vertical restraints and termination restrictions on exclusion of rivals," Journal of Regulatory Economics, Springer, vol. 59(1), pages 94-107, February.
    14. Anette Boom & Stefan Buehler, 2020. "Vertical structure and the risk of rent extraction in the electricity industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 210-237, January.
    15. Gultom, Yohanna M.L., 2019. "Governance structures and efficiency in the U.S. electricity sector after the market restructuring and deregulation," Energy Policy, Elsevier, vol. 129(C), pages 1008-1019.

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    More about this item

    Keywords

    Divestiture; electricity distribution; efficiency analysis;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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