Scale efficiency gains in utilities? The case of electricity distribution in New Zealand*

Abstract

Merger, acquisition and restructuring activity has long been conducted by public and private entities to minimise cost through increased scale of business operations. Past literature is mixed on the realised gains from this activity. Utilising a dataset of New Zealand-based regulated electricity distribution businesses we find limited potential gain from unit cost reduction purely through increasing scale. Instead, we find that potential benefits come from increasing the population density of service. This is important and often overlooked in policy conversations, particularly in relation to infrastructure activities operating highly capital-intensive businesses.