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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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Listed author(s):
  • 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.

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Paper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI) in its series EWI Working Papers with number 2013-6.

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Length: 16 pages
Date of creation: 10 Feb 2013
Handle: RePEc:ris:ewikln:2013_006
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Keywords: Electricity distribution; Ownership separation; Cost efficiency; Total cost function; Variable cost function; Stochastic frontier analysis;

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Find related papers by 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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Cited by:

  1. 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," EWI Working Papers 2014-17, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  2. 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.
  3. Ljerka Cerovic & Dario Maradin & Saša 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.

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