Dr. Sanem Sergici, an associate in Brattle’s Cambridge office, co-authored an article on the effects of divestiture on operating efficiency for distribution utilities for the June 25, 2010 issue of the Journal of Regulatory Economics (JRE).
The paper, which was co-authored with Dr. Michael Pollitt of the University of Cambridge (UK) and Brattle Senior Advisor Dr. John Kwoka of Northeastern University, addresses the effects that the divestiture of generation assets by vertically integrated utilities has had on the resulting standalone distribution sector. The authors use data envelopment analysis to analyze the distribution operating efficiency of 73 utilities over the course of a 10-year period, from 1994 to 2003, when many state utility commissions required or persuaded utilities to divest their generation assets. They found that those utilities undergoing state-mandated divestiture experienced large adverse effects on operating efficiency. However, utilities that divested at their own initiative had at worst neutral outcomes. The authors conclude that these results raise questions about the merits of divestiture policy and that any benefits at the generation stage should be weighed against the costs to the distribution utilities in order to arrive at a comprehensive judgment about divestiture policy as a whole. For more information, please visit the JRE website.