Full Unbundling Research Articles

Structural Reforms and Technical Efficiency in the Indian Electricity Distribution Sector

This paper examines the impact of electricity reforms on the technical efficiency of the power distribution sector in India, using state-level panel data for the period 1995–2012. We use a two-stage data envelopment analysis (DEA), where DEA efficiency estimates obtained in the first stage are regressed on policy reform variables and some external environmental variables in the second-stage analysis. The bootstrap method is applied to analyze the statistical properties of the nonparametric estimates. First, we find that the partially unbundled structure of the electricity industry, where generation and distribution sectors are integrated but the transmission sector is separate, had significant positive impact on the technical efficiency of the distribution sector. Second, our result indicates that the legislation of electricity reforms had a significantly negative effect on technical efficiency. Third, we find that small-sized electricity distribution sectors/states experienced significant positive gain in technical efficiency when interacted with partial or full unbundling.

Regulatory and ownership determinants of unbundling regime choice for European electricity transmission utilities

One of the fundamental provisions of the European electricity directives is the so-called unbundling of structures and functions. Vertical disintegration with Full Unbundling (ownership unbundling or independent system operation) is considered an important step toward electricity market restructuring. While Full Unbundling (FU) models appear to be the most prevalent, several European countries adhered solely to less stringent forms of unbundling. Using a dataset of the 35 major electricity transmission utilities in Europe, this study provides an econometric analysis to understand the individual effect of regulation and ownership structure on the decision to adopt more stringent unbundling regimes. The overall results show that incentive-based or hybrid regulatory schemes and private ownership, are associated with a higher probability that a country will opt for FU.

The Optimal Institutional Design of Vertically Related Markets with Unknown Upstream Costs

This paper examines the design of vertically related industries with a regulated monopolistic upstream input and competitive downstream activities. Two institutional patterns are investigated. Ownership separation entails full unbundling between upstream and downstream activities. Legal separation allows a downstream firm to own the upstream monopolist but requires the two entities to be legally unbundled so that each service is stand-alone profitable and only upstream profits are regulated. Under regulatory limited information about upstream costs, the legally separated monopolist exhibits countervailing incentives to manipulate costs. This alleviates the regulator’s control problem and yields higher welfare than ownership separation.

Energy Market of the European Union: Common or Segmented?

The European energy market operates on the premise of open and competitive markets among its 27 member states. But the gas and electricity market dynamics and levels of competitiveness vary enormously across the EU 27. Among the issues are unequal implementation of electricity and gas directives, a lack of independent energy regulators, the absence of proper and full unbundling, and discriminatory third-party access to the infrastructure.

Global electricity transformation: The critical need for integrated market design and risk management research

The past three decades transformed the electricity industry. The essential goals of liberalization have been to lower costs, improve reliability, and stimulate investment and innovations through establishment of competitive electricity markets, while also relying on market mechanisms to provide creative solutions to environmental and security problems. In many instances, these goals have been achieved, but the occurrence of some spectacular market failures have brought into question the whole restructuring effort. This paper reviews recent experiences with market reform and concludes that a significant cause of failure has been the rush to unbundle vertically integrated utilities without sufficient consideration of alternative ways to manage the risk of electricity market restructuring. In particular, there is a critical need for integrated market design and risk management research to improve the process of market transformation by taking a more evolutionary approach to discover a ‘Third Way’ above vertical integration and full unbundling. Such research can offer a crucial feedback link to the restructuring process by identifying important lessons to be learned from past experience and developing new analytical tools to help introduce more successful market designs for the future.

Regulating European telecommunications markets: unbundled access to the local loop outside urban areas

This paper examines the topic of unbundled access to the local loop in areas which show characteristics of non-contestable natural monopolies outside the large cities. Under the heading ‘local loop unbundling’ three variants are discussed, full unbundling, line sharing, and bitstream access. An obligation to provide competitors access to local networks on an unbundled basis is a strong intervention into the property rights of the regulated firm. In this light, the following points particularly come into question: Who should be granted the right to access local loops on an unbundled basis? Which form(s) of local loop unbundling should be enforced?