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The Impact of Ownership Unbundling on Cost Efficiency: Empirical Evidence from the New Zealand Electricity Distribution Sector

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  • Filippini, Massimo

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

  • Wetzel, Heike

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

Several countries around the world have introduced reforms to the electric power sector. One important element of these reforms is the introduction of an unbundling process, i.e., the separation of the competitive activities of supply and production from the monopole activity of transmission and distribution of electricity. There are several forms of unbundling: functional, legal and ownership. New Zealand, for instance, adopted an ownership unbundling in 1998. As discussed in the literature, ownership unbundling produces benefits and costs. One of the benefits may be an improvement in the level of the productive efficiency of the companies due to the use of the inputs in just one activity and a greater level of transparency for the regulator. This paper analyzes the cost efficiency of 28 electricity distribution companies in New Zealand for the period between 1996 and 2011. Using a stochastic frontier panel data model, a total cost function and a variable cost function are estimated in order to evaluate the impact of ownership unbundling on the level of cost efficiency. The results indicate that ownership separation of electricity generation and retail operations from the distribution network has a positive effect on the cost efficiency of distribution companies in New Zealand. The estimated effect of ownership separation suggests a positive average one-off shift of 23 percent in the level of cost efficiency in the shortrun and 15 percent in the long-run.

Suggested Citation

  • Filippini, Massimo & Wetzel, Heike, 2013. "The Impact of Ownership Unbundling on Cost Efficiency: Empirical Evidence from the New Zealand Electricity Distribution Sector," EWI Working Papers 2013-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    • Handle: RePEc:ris:ewikln:2013_006
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    Cited by:

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    3. Just, Lisa, 2021. "Unobserved technological heterogeneity among German electricity distribution network operators - a latent class analysis," EWI Working Papers 2021-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    4. 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).
    5. Xie, Bai-Chen & Zhang, Zhen-Jiang & Anaya, Karim L., 2021. "Has the unbundling reform improved the service efficiency of China's power grid firms?," Energy Economics, Elsevier, vol. 95(C).
    6. Soroush, Golnoush & Cambini, Carlo & Jamasb, Tooraj & Llorca, Manuel, 2021. "Network utilities performance and institutional quality: Evidence from the Italian electricity sector," Energy Economics, Elsevier, vol. 96(C).
    7. Rabindra Nepal & John Foster & Antonio Carvalho, 2014. "Revisiting Electricity Liberalization and Security of Supply: Empirical Evidence," Energy Economics and Management Group Working Papers 7-2014, School of Economics, University of Queensland, Australia.
    8. Mountain, Bruce R., 2019. "Ownership, regulation, and financial disparity: The case of electricity distribution in Australia," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    9. Saha, Debalina & Bhattacharya, Rabindra N., 2019. "Analysis of the welfare implications of power-sector restructuring in West Bengal, India," Utilities Policy, Elsevier, vol. 56(C), pages 62-71.
    10. Mohsin, Muhammad & Hanif, Imran & Taghizadeh-Hesary, Farhad & Abbas, Qaiser & Iqbal, Wasim, 2021. "Nexus between energy efficiency and electricity reforms: A DEA-Based way forward for clean power development," Energy Policy, Elsevier, vol. 149(C).
    11. Just, Lisa & Wetzel, Heike, 2020. "Distributed Generation and Cost Efficiency of German Electricity Distribution Network Operators," EWI Working Papers 2020-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    12. Germeshausen, Robert & Panke, Timo & Wetzel, Heike, 2014. "Investigating the influence of firm characteristics on the ability to exercise market power: A stochastic frontier analysis approach with an application to the iron ore market," ZEW Discussion Papers 14-105, ZEW - Leibniz Centre for European Economic Research.
    13. Summanen, Tuomo & Arminen, Heli, 2018. "Ownership unbundling in electricity distribution: The Russian experience," Energy, Elsevier, vol. 161(C), pages 1199-1210.
    14. Philipp Steinbrunner, 2023. "I want a quiet life! On productivity and competition in the Central European energy sector," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(2), pages 403-428, April.
    15. Alejandro Arvelo-Martín & Juan José Díaz-Hernández & Ignacio Abásolo-Alessón, 2019. "Hospital productivity bias when not adjusting for cost heterogeneity: The case of Spain," PLOS ONE, Public Library of Science, vol. 14(6), pages 1-17, June.
    16. Liu, Xiao-Yan & Pollitt, Michael G. & Xie, Bai-Chen & Liu, Li-Qiu, 2019. "Does environmental heterogeneity affect the productive efficiency of grid utilities in China?," Energy Economics, Elsevier, vol. 83(C), pages 333-344.
    17. Deng, Na-Qian & Liu, Li-Qiu & Deng, Ying-Zhi, 2018. "Estimating the effects of restructuring on the technical and service-quality efficiency of electricity companies in China," Utilities Policy, Elsevier, vol. 50(C), pages 91-100.
    18. Simões, Paulo Fernando Mahaz & Souza, Reinaldo Castro & Calili, Rodrigo Flora & Pessanha, José Francisco Moreira, 2020. "Analysis and short-term predictions of non-technical loss of electric power based on mixed effects models," Socio-Economic Planning Sciences, Elsevier, vol. 71(C).
    19. Robert Germeshausen & Timo Panke & Heike Wetzel, 2020. "Firm characteristics and the ability to exercise market power: empirical evidence from the iron ore market," Empirical Economics, Springer, vol. 58(5), pages 2223-2247, May.
    20. Ni Lei & Lanyun Chen & Chuanwang Sun & Yuan Tao, 2018. "Electricity Market Creation in China: Policy Options from Political Economics Perspective," Sustainability, MDPI, vol. 10(5), pages 1-15, May.
    21. Ljerka Cerovic & Dario Maradin & Sa a Cegar, 2014. "From the Restructuring of the Power Sector to Diversification of Renewable Energy Sources: Preconditions for Efficient and Sustainable Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 4(4), pages 599-609.
    22. Valadkhani, Abbas & Nguyen, Jeremy & Smyth, Russell, 2018. "Consumer electricity and gas prices across Australian capital cities: Structural breaks, effects of policy reforms and interstate differences," Energy Economics, Elsevier, vol. 72(C), pages 365-375.
    23. Petridis, Konstantinos & Ünsal, Mehmet Güray & Dey, Prasanta Kumar & Örkcü, H. Hasan, 2019. "A novel network data envelopment analysis model for performance measurement of Turkish electric distribution companies," Energy, Elsevier, vol. 174(C), pages 985-998.
    24. Wenche Tobiasson & Manuel Llorca & Tooraj Jamasb, 2021. "Performance Effects of Network Structure and Ownership: The Norwegian Electricity Distribution Sector," Energies, MDPI, vol. 14(21), pages 1-15, November.
    25. Zhang, Tao & Li, Hong-Zhou & Xie, Bai-Chen, 2022. "Have renewables and market-oriented reforms constrained the technical efficiency improvement of China's electric grid utilities?," Energy Economics, Elsevier, vol. 114(C).

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    More about this item

    Keywords

    Electricity distribution; Ownership separation; Cost efficiency; Total cost function; Variable cost function; Stochastic frontier analysis;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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