Governance structures of the electricity distribution network operation activities

Abstract

PurposeThe purpose of this paper is to shed light on the governance choices of firms operating in the electricity distribution network operation activities. The study aims to consider both costs and benefits of different governance choices and to examine which of the activities could be outsourced and which it is preferable to keep in‐house. The study makes a distinction between the electricity retail services and electricity distribution network activities and focuses solely on the network business.Design/methodology/approachThe study is based on a four‐staged process and utilizes the extended transaction cost economics as a theoretical framework. The research design includes in‐depth interviews with ten managers and CEOs of Finnish electrical utilities, analysis and interpretation of findings and verification of results by electricity network business experts.FindingsThe extended transactional cost economics theoretical framework and research design support analysis of governance structures and make‐or‐buy decisions. The findings demonstrate that the activities of the companies operating in the electricity distribution business differ in terms of potential long‐term efficiency effects when sourced from the market or made in‐house. The determinants of the governance choice depend partly on the nature and strategic importance of the activity in question. Operations management seems to be a function to be kept in‐house in the current market situation, whereas there are clear potential benefits that can be obtained by outsourcing field work activities. The results related to the governance of control room activities are more complicated.Originality/valueThis study brings not only the transaction costs but also the benefit‐side and the dynamic aspects of boundary choices under assessment.