The Efficiency of the Regulation for Horizontal Mergers Among Electricity Distribution Operators in Norway

Per J. Agrell, Peter Bogetoft, Thor Erik Gammeltvedt

Publikation: Kapitel i bog/rapport/konferenceprocesKonferencebidrag i proceedingsForskningpeer review

Resumé

Merger analysis is usually drawing on concepts derived from competitive horizontal markets, such as market concentration, predatory foreclosure and economies of scale in marketing. In evaluating horizontal mergers among energy network operators, regulators must use different tools to evaluate the attractiveness of mergers. Norway is one country having implemented an ex ante regulation for mergers among electricity distribution operators (DSOs). We investigate whether the actual mergers of Norwegian DSOs in the period 1995-2004 can be rationalized as cost saving exercises or whether they should be interpreted in other ways. We use Data Envelopment Analysis (DEA) to estimate the potential cost savings from mergers ex ante, and we decompose the gains into gains from learning best practice and from improving economies of scale and scope. Moreover, we compare the sources of post merger performance to identify plausible pre-merger motivations. We also discuss the possibility to gain from strategic gaming in the regulation. We compare the regulated revenues and the regulated efficiency improvement requirements before and after the mergers. We find limited potential cost gains ex ante but some improvement in allocative efficiency ex post. Moreover, merged companies show more rapid technological progress and catch up. We also find that the new companies face somewhat more favourable regulatory conditions, i.e. higher allowed revenues and fewer required efficiency improvements. The latter is the consequence of a flawed specification of the regulatory cost function at the time.
Merger analysis is usually drawing on concepts derived from competitive horizontal markets, such as market concentration, predatory foreclosure and economies of scale in marketing. In evaluating horizontal mergers among energy network operators, regulators must use different tools to evaluate the attractiveness of mergers. Norway is one country having implemented an ex ante regulation for mergers among electricity distribution operators (DSOs). We investigate whether the actual mergers of Norwegian DSOs in the period 1995-2004 can be rationalized as cost saving exercises or whether they should be interpreted in other ways. We use Data Envelopment Analysis (DEA) to estimate the potential cost savings from mergers ex ante, and we decompose the gains into gains from learning best practice and from improving economies of scale and scope. Moreover, we compare the sources of post merger performance to identify plausible pre-merger motivations. We also discuss the possibility to gain from strategic gaming in the regulation. We compare the regulated revenues and the regulated efficiency improvement requirements before and after the mergers. We find limited potential cost gains ex ante but some improvement in allocative efficiency ex post. Moreover, merged companies show more rapid technological progress and catch up. We also find that the new companies face somewhat more favourable regulatory conditions, i.e. higher allowed revenues and fewer required efficiency improvements. The latter is the consequence of a flawed specification of the regulatory cost function at the time.
SprogEngelsk
Titel12th International Conference on the European Energy Market. EEM 2015
Antal sider5
Udgivelses stedLos Alamitos, CA
ForlagIEEE
Dato2015
Artikelnummer7216685
ISBN (Trykt)9781467366915
DOI
StatusUdgivet - 2015
BegivenhedThe 12th International Conference on the European Energy Market. EEM 2015 - Lisbon, Portugal
Varighed: 20 maj 201522 maj 2015
Konferencens nummer: 12
http://www.eem15.com/

Konference

KonferenceThe 12th International Conference on the European Energy Market. EEM 2015
Nummer12
LandPortugal
ByLisbon
Periode20/05/201522/05/2015
Internetadresse

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Citer dette

Agrell, P. J., Bogetoft, P., & Gammeltvedt, T. E. (2015). The Efficiency of the Regulation for Horizontal Mergers Among Electricity Distribution Operators in Norway. I 12th International Conference on the European Energy Market. EEM 2015 [7216685] Los Alamitos, CA: IEEE. DOI: 10.1109/EEM.2015.7216685
Agrell, Per J. ; Bogetoft, Peter ; Gammeltvedt, Thor Erik. / The Efficiency of the Regulation for Horizontal Mergers Among Electricity Distribution Operators in Norway. 12th International Conference on the European Energy Market. EEM 2015. Los Alamitos, CA : IEEE, 2015.
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Agrell, PJ, Bogetoft, P & Gammeltvedt, TE 2015, The Efficiency of the Regulation for Horizontal Mergers Among Electricity Distribution Operators in Norway. i 12th International Conference on the European Energy Market. EEM 2015., 7216685, IEEE, Los Alamitos, CA, The 12th International Conference on the European Energy Market. EEM 2015, Lisbon, Portugal, 20/05/2015. DOI: 10.1109/EEM.2015.7216685

The Efficiency of the Regulation for Horizontal Mergers Among Electricity Distribution Operators in Norway. / Agrell, Per J.; Bogetoft, Peter; Gammeltvedt, Thor Erik.

12th International Conference on the European Energy Market. EEM 2015. Los Alamitos, CA : IEEE, 2015. 7216685.

Publikation: Kapitel i bog/rapport/konferenceprocesKonferencebidrag i proceedingsForskningpeer review

TY - GEN

T1 - The Efficiency of the Regulation for Horizontal Mergers Among Electricity Distribution Operators in Norway

AU - Agrell,Per J.

AU - Bogetoft,Peter

AU - Gammeltvedt,Thor Erik

N1 - CBS Library does not have access to the material

PY - 2015

Y1 - 2015

N2 - Merger analysis is usually drawing on concepts derived from competitive horizontal markets, such as market concentration, predatory foreclosure and economies of scale in marketing. In evaluating horizontal mergers among energy network operators, regulators must use different tools to evaluate the attractiveness of mergers. Norway is one country having implemented an ex ante regulation for mergers among electricity distribution operators (DSOs). We investigate whether the actual mergers of Norwegian DSOs in the period 1995-2004 can be rationalized as cost saving exercises or whether they should be interpreted in other ways. We use Data Envelopment Analysis (DEA) to estimate the potential cost savings from mergers ex ante, and we decompose the gains into gains from learning best practice and from improving economies of scale and scope. Moreover, we compare the sources of post merger performance to identify plausible pre-merger motivations. We also discuss the possibility to gain from strategic gaming in the regulation. We compare the regulated revenues and the regulated efficiency improvement requirements before and after the mergers. We find limited potential cost gains ex ante but some improvement in allocative efficiency ex post. Moreover, merged companies show more rapid technological progress and catch up. We also find that the new companies face somewhat more favourable regulatory conditions, i.e. higher allowed revenues and fewer required efficiency improvements. The latter is the consequence of a flawed specification of the regulatory cost function at the time.

AB - Merger analysis is usually drawing on concepts derived from competitive horizontal markets, such as market concentration, predatory foreclosure and economies of scale in marketing. In evaluating horizontal mergers among energy network operators, regulators must use different tools to evaluate the attractiveness of mergers. Norway is one country having implemented an ex ante regulation for mergers among electricity distribution operators (DSOs). We investigate whether the actual mergers of Norwegian DSOs in the period 1995-2004 can be rationalized as cost saving exercises or whether they should be interpreted in other ways. We use Data Envelopment Analysis (DEA) to estimate the potential cost savings from mergers ex ante, and we decompose the gains into gains from learning best practice and from improving economies of scale and scope. Moreover, we compare the sources of post merger performance to identify plausible pre-merger motivations. We also discuss the possibility to gain from strategic gaming in the regulation. We compare the regulated revenues and the regulated efficiency improvement requirements before and after the mergers. We find limited potential cost gains ex ante but some improvement in allocative efficiency ex post. Moreover, merged companies show more rapid technological progress and catch up. We also find that the new companies face somewhat more favourable regulatory conditions, i.e. higher allowed revenues and fewer required efficiency improvements. The latter is the consequence of a flawed specification of the regulatory cost function at the time.

U2 - 10.1109/EEM.2015.7216685

DO - 10.1109/EEM.2015.7216685

M3 - Article in proceedings

SN - 9781467366915

BT - 12th International Conference on the European Energy Market. EEM 2015

PB - IEEE

CY - Los Alamitos, CA

ER -

Agrell PJ, Bogetoft P, Gammeltvedt TE. The Efficiency of the Regulation for Horizontal Mergers Among Electricity Distribution Operators in Norway. I 12th International Conference on the European Energy Market. EEM 2015. Los Alamitos, CA: IEEE. 2015. 7216685. Tilgængelig fra, DOI: 10.1109/EEM.2015.7216685