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

Per J. Agrell, Peter Bogetoft, Thor Erik Gammeltvedt

Research output: Chapter in Book/Report/Conference proceedingArticle in proceedingsResearchpeer-review

Abstract

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.
Original languageEnglish
Title of host publication12th International Conference on the European Energy Market. EEM 2015
Number of pages5
Place of PublicationLos Alamitos, CA
PublisherIEEE
Publication date2015
Article number7216685
ISBN (Print)9781467366915
ISBN (Electronic)9781467366915
DOIs
Publication statusPublished - 2015
EventThe 12th International Conference on the European Energy Market. EEM 2015 - Lisbon, Portugal
Duration: 20 May 201522 May 2015
Conference number: 12
http://www.eem15.com/

Conference

ConferenceThe 12th International Conference on the European Energy Market. EEM 2015
Number12
CountryPortugal
CityLisbon
Period20/05/201522/05/2015
Internet address

Bibliographical note

CBS Library does not have access to the material

Keywords

  • DEA
  • Regulation
  • Efficiency
  • Mergers
  • Networks

Cite this

Agrell, P. J., Bogetoft, P., & Gammeltvedt, T. E. (2015). The Efficiency of the Regulation for Horizontal Mergers Among Electricity Distribution Operators in Norway. In 12th International Conference on the European Energy Market. EEM 2015 [7216685] Los Alamitos, CA: IEEE. https://doi.org/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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abstract = "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.",
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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. in 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. https://doi.org/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.

Research output: Chapter in Book/Report/Conference proceedingArticle in proceedingsResearchpeer-review

TY - GEN

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

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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.

KW - DEA

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KW - Efficiency

KW - Mergers

KW - Networks

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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. In 12th International Conference on the European Energy Market. EEM 2015. Los Alamitos, CA: IEEE. 2015. 7216685 https://doi.org/10.1109/EEM.2015.7216685