Power Structure Ownership, Integration, and Competition in the U.S.
Power Structure examines the effects on economic performance of several key features of the U.S. electric power industry. Paramount among these are public versus private ownership, vertical integration versus deintegration, and retail competition versus m
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POWER STRUCTURE Ownership, Integration, and Competition in the U.S. Electricity Industry
by John E. Kwoka, Jr. George Washington University
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KLUWER ACADEMIC PUBLISHERS Boston/Dordrecht/London
Distributors for North America: Kluwer Academic Publishers 101 Philip Drive Assinippi Park Norwell, Massachusetts 02061 USA Distributors for all other countries: Kluwer Academic Publishers Group Distribution Centre Post Office Box 322 3300 AH Dordrecht, THE NETHERLANDS
Library of Congress Cataloging-in-Publication Data Kwoka, John E. Power structure : ownership, integration, and competition in the U.S. electricity industry / by John E. Kwoka, Jr. p. cm. Includes bibliographical references and index. ISBN 0-7923-9843-2 1. Electric utilities--UnitedStates. 2. Electric utilities-Government ownership--United States. 3. Privatization--United States. I. Title. HD9685.U5K87 1996 333.793 '2'0973--dc21 96-47148 CIP
Copyright © 1996 by Kluwer Academic Publishers.
Third Printing 2000.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo-copying, recording, or otherwise, without the prior written permission of the publisher, Kluwer Academic Publishers, 101 Philip Drive, Assinippi Park, Norwell, Massachusetts 02061. Printed on acid-free paper.
Printed in Great Britain by IBT Global, London
Dedication
In honor of my father, John Kwoka, and in memory of my mother, Mary Kwoka.
Contents
ix
Preface 1
Introduction
1
1.1 Historical Perspective on the U.S. Electric Power Industry 1.2 Outline of the Current Industry 1.3 Plan of This Book
3 7 9
The Issues Public versus Private Ownership and Regulation of Electric Utilities
13
2.1 Economic Models of Public Ownership 2.2 Empirical Research into the Effects of Ownership 2.3 Investor-Owned and Publicly Owned Utilities in the U.S.
13 16 20
Economies of Scale, Vertical Integration, and the Role of Competition
37
3.1 Economies of Scale and Vertical Integration in Electric Utilities 3.2 Competition in Distribution 3.3 Utility Structure and Costs: Some Preliminary Insights 3.4 Summary
37 43 46 54
The Evidence Costs and Their Determinants
57
4.1 4.2 4.3 4.4 4.5
57 59 67 73
The Choice of a Cost Function Specifying and Estimating a Net Cost Function Economies of Vertical Integration and Scale Specifying and Estimating a Total Cost Function Cost Structure of a Large Public System: The Case of Los Angeles 4.6 Summary
79 81
viii
5
7
Price and Markup Behavior
85
5.1 5.2 5.3 5.4
86 89 93
Theory and Evidence on Utility Pricing A Model of Average Cost Pricing Markup Pricing by Utilities Evidence on Ownership, Competition and Markups 5.5 Summary
96 100
Extensions to Simultaneous Equations and Customer Classes
103
6.1 6.2 6.3 6.4
104 111 112 116
A Simultaneous Equations Model Background to Customer Class Effects Evidence by Customer Class and Mode of Ownership Summary
The Political Economy of Ownership and Regulation
119
7.1 7.2 7.3 7.4
120 122 127 136
Theori
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