"Vertical economies in electric power: evidence on integration and its alternatives"
JEL codes: L11, L94
Abstract: The restructuring of the electric power industry raises questions about the possible sacrifice of economies from deintegrating generation from downstream transmission and distribution. This study utilizes a data set of U.S electric utilities that differ widely in their degree of integration in order to model, estimate, and measure the extent of vertical economies. Such economies are found to be quite substantial. The study goes on to investigate the sources of such economies and alternatives to vertical integration for their realization. Finally, some determinants of the degree of integration chosen by utilities are analysed. The results lend support to the prospects for careful restructuring of this industry.