State-owned Electric Utility Research Articles

The impact of political directors on corporate strategy for government-owned utilities: Evidence from Ontario's electricity distribution sector

We contribute to research on governance of state-owned electric utilities by examining the implications of oversight by independent versus ‘political’ directors for corporate strategy. While policy think-tanks often recommend that governments appoint independent professional directors to boards of state-owned corporations, governments sometimes select politicians who bring a politically-oriented perspective to their oversight duties. To examine the potential strategic consequences, we draw on a novel survey of 384 directors of municipally-owned local electricity distribution companies in Canada, of which about a third were elected municipal councillors and the remaining were independent business professionals. The survey solicited individual director views about strategic priorities, including mergers and acquisitions, business diversification, and corporate financing options. Our statistical analysis of the survey response data finds that political directors, after controlling for prior executive experience and organizational context, were more risk-tolerant on average than independent directors, as evidenced by a greater willingness to diversify into unregulated business activities and to acquire equity stakes in other utilities; but at the same time, they prioritized enhanced dividend payments to the municipal government over re-investment in the corporation, a potential constraint on future business growth.

Eskom and the rise of renewables: Regime-resistance, crisis and the strategy of incumbency in South Africa's electricity system

The sustainability transitions literature considers regimes as sources of inertia, in which change is difficult to achieve due to resistance and lock-in. However, regime-resistance is an understudied issue, and so it is unclear which parts of the regime create resistance and how. In this paper, we contribute such an analysis by developing the concept of a multi-dimensional selection environment to explore regime-resistance and the maintenance of regime-stability in the face of challenges from a niche. We present a case study tracing the efforts of South Africa's state-owned electricity utility Eskom, conceptualised as a dominant regime-incumbent, to resist the addition of renewable energy-based electricity generation, conceptualised as part of a niche. We examine battles over rule-changes to the regime selection environment, wherein Eskom tried to maintain the status quo and niche actors tried to transform it. We find that Eskom had an evolving strategy of regime-resistance in response to several gains achieved by the renewables niche over time. Our analysis suggests ways to theorise regime-resistance by developing a more specific and dimensioned view of the selection environment and operationalising the strategies that regime and niche actors might implement in their respective attempts to maintain or change that selection environment. By understanding how these strategies work, we argue that those seeking to transform an unsustainable regime could develop more effective strategies for undermining regime-resistance and promoting niches.

The democratization of electricity in Nigeria

Nigeria’s aspiration towards universal access to electricity has been hindered by a centralized and closed grid system. The country took steps in the right direction by recently unbundling and privatizing the state-owned electric power utility and introducing a renewable energy feed-in tariff and mini-grid regulations. The author advocates a full-scale democratization of the electricity sector to empower local communities and small, stand-alone producers to participate in solving the electricity crisis.

Who drives China's renewable energy policies? Understanding the role of industrial corporations

This paper investigates the rise of a policy community in China's renewable energy sectors. After a decade of spectacular expansion of wind and solar energy industries, a PC that comprises both government and industrial actors is taking shape in China. The main finding of this research is that influential corporations, such as leading wind turbine and solar panel manufacturers or state-owned electricity utility companies, have played an important role in the renewable energy policy process by framing the strategic preferences and policy priority, and by negotiating and coordinating with state actors at both central and local level. Therefore, in China's climate governance domain, instead of a traditional perception of a state-led governance mode in which state officers are often believed to be the only crucial actors to steer climate-related policies, this study reveals that the government's autonomy in the policy process is increasingly constrained by the rising industrial interest groups who possess considerable resources and institutional power in China's renewable energy policy subsystem.

Measurement of relative operational efficiency of SOEUs in India using data envelopment analysis

A nonparametric approach to frontier analysis, data envelopment analysis (DEA) is applied in this work to evaluate the relative operational efficiency of state owned electric utilities (SOEU) in India. Two different models viz CCR model and BCC model are applied to evaluate the overall efficiency and technical efficiency. Twenty nine SOEUs in India are considered for the analysis and the relative operational efficiency scores are calculated. The results indicate that the performance of several SOEUs are sub-optimal, suggesting a potential for significant improvements in the operation so as to improve the overall efficiency. Also sensitivity analysis is carried out to investigate the effect of changes in the solutions of the model.

Measurement of Relative Efficiency of State Owned Electric Utilities in INDIA Using Data Envelopment Analysis

In this paper two different DEA models were applied to evaluate the relative efficiency of State Owned Electric Utilities (SOEUs) in India. The DEA method was applied to find the overall efficiency, Technical Efficiency and Scale Efficiency. The Most Productive Scale Size (MPSS) is calculated for the scale inefficient utility. The results and discussions of this paper can be used to assist the authorities to pave the way for the improvement in technical and scale efficiency.

Interest Groups, Veto Points, and Electricity Infrastructure Deployment

In this article we examine the effects of interest group pressure and the structure of political institutions on infrastructure deployment by state-owned electric utilities in a panel of seventy-eight countries during the period 1970–94. We consider two factors that jointly influence the rate of infrastructure deployment: (1) the extent to which the consumer base consists of industrial consumers, which are capable of exerting discipline on political actors whose competing incentives are to construct economically inefficient “white elephants” to satisfy the demands of concentrated geographic interests, labor unions, and national engineering and construction lobbies; and (2) veto points in formal policymaking structures that constrain political actors, thereby reducing these actors' sensitivity to interest group demands. A higher fraction of industrial customers provides political actors with stronger incentives for discipline, reducing the deployment of white elephants and thus the infrastructure growth rate, ceteris paribus. Veto points reduce political actors' sensitivity to interest group demands in general and thus moderate the relationship between industrial interest group pressure and the rate of infrastructure deployment.Both authors contributed equally and list their names alphabetically on this joint work. Both authors acknowledge funding for this research from the University of California Energy Institute. Zelner acknowledges additional funding from the Lynde and Harry Bradley Foundation and the Edgar F. Kaiser Chair at the Haas School of Business, University of California, Berkeley. Henisz acknowledges additional funding from the Reginald H. Jones Center for Management Policy, Strategy, and Organization at the Wharton School, University of Pennsylvania. Thanks to Severin Borenstein, Rachel Croson, Jose de la Torre, Alexander Dyck, Tom Gilligan, Florencio Lopez-de-Silanes, Edward Mansfield, Mathew McCubbins, Will Mitchell, David Mowery, Jeffrey Nugent, Dennis Quinn, George Tsebelis, Joel Waldfogel, Oliver Williamson, and Jan Zabojnik for their comments on previous drafts. Any errors are the responsibility of the authors.

Efficiency evaluation of the state owned electric utilities in India

This paper presents a framework for accessing comparative efficiencies of Indian State Owned Electric Utilities (SOEU), which have been mainly responsible for the generation, distribution and transmission of electricity in India. Performance of 26 utilities was evaluated using the non-parametric technique of Data Envelopment Analysis (DEA), and the impact of scale on the efficiency scores was also evaluated. The results indicate that the performance of several SOEUs is sub-optimal, suggesting the potential for significant cost reductions. Separate benchmarks were derived for possible reductions in employees’ number, and the results indicate that several utilities deploy a much larger number of employees than that required by a best practice utility, and significant savings are possible on this account. It was also found that the bigger utilities display greater inefficiencies and have distinct scale inefficiencies. Exploiting scale efficiencies by suitable restructuring and unbundling of SOEUs are therefore crucial measures that may foster efficiencies in the SOEUs. The paper discusses these results in the context of related policy issues.

Managing third-order change: the case of the Public Power Corporation in Greece

To understand the management of strategic change, organizations must be situated in their broader institutional contexts. This article focuses on ‘state-political firms’, companies owned or heavily influenced by the state and operating in state-dominated business systems, and explores the management of third-order change in the Greek state-owned electricity utility, the Public Power Corporation (PPC). Managing change in such firms is highly recursive, in that organizational change involves simultaneous change to the broader institutional environment, and the firm becomes both the focus of change and a medium for broader cultural change. The article argues that a successful change process must first disrupt the self-referentiality typical of state-political firms, and that such disruption happens mainly through externally-generated behaviour-shaping information. In the case of PPC, market liberalization (externally mandated by the EU) prompted a stock market floatation to seek fresh capital. Properly handled, such external and apparently technical mechanisms can have considerable discursive potential, helping to create momentum for change and to extend it throughout the organization. Insights from the effective management of strategic change in PPC are of relevance to other state-political firms worldwide.

Implications of private sector participation in power generation—a case study from India

India suffers from widespread shortages of electricity supply. These shortages, among others, are detrimental to the economic growth. The prospects for the next decade do not seem to be much brighter. Efforts in expanding generation capacity by the state-owned electric utilities are hampered by severe resource constraints. Against this backdrop, to mobilize additional resources to help bridge the gap in demand and supply, the Government of India formulated a policy in 1991 with the objective to encourage greater investment by private enterprises in the electricity sector. To study the implications of such an initiative on various stakeholders, viz., public utilities, consumers and private sector, the present paper tries to analyse issues like planned rationing, guarantees to private sector, backing down of existing capacity. Using the state of Karnataka (in Southern India) as a case study, the paper develops multiple scenarios using an integrated mixed integer-programming model. The results show the advantage of marginal non-supply (rationing) of electricity in terms of achieving overall effective supply demand matching as well as providing economic benefits to the state that could be generated through cost savings. The results also show the negative impacts of high guarantees offered to the private sector in terms of the opportunity costs of reduced utilization of both the existing and the new public capacity. The estimated generation losses and the associated economic impacts of backing down of existing and new public capacity on account of guarantees are found to be significantly high. For 2011–12, depending on the type of scenarios, the estimated generation and economic losses are likely to be in the range of 3200–10,000 GWh and Rs. 4200–13,600 million respectively. The impact of these losses on the consumers could be in terms of significant increase in energy bills (in the range of 19–40% for different scenarios) due to rise in tariffs.

Interest Groups, Veto Points and Electricity Infrastructure Deployment

In this paper, we examine the effects of interest group pressure and the structure of political institutions on infrastructure deployment by state-owned electric utilities in a panel of 78 countries during the period 1970-1994. We consider two factors that jointly influence the rate of infrastructure deployment: (1) the extent to which the consumer base consists of industrial consumers, which are capable of exerting discipline on political actors whose competing incentives are to construct economically inefficient white elephants to satisfy the demands of concentrated geographic interests, labor unions and construction firms; and (2) veto points in formal policymaking structures that constrain political actors, thereby reducing these actors' sensitivity to interest group demands. A higher fraction of industrial customers provides political actors with stronger incentives for discipline, reducing the deployment of white elephants and, thus, the infrastructure growth rate, ceteris paribus. Veto points reduce political actors' sensitivity to interest group demands in general and, thus, moderate the relationship between industrial interest group pressure and the rate of infrastructure deployment.

Eskom's Chairman Reuel Khoza on the transformation of South African business

Executive Overview Eskom, South Africa's state-owned electricity utility, has 24 power stations with a nominal capacity of 40,585 megawatts. It is among the top seven utilities in the world in terms of size and sales, and is presently one of the lowest-cost producers of electricity in the world. Eskom supplies approximately 95 percent of the country's electricity requirements, which equals more than half of the electricity generated on the African continent. Its 26,461 kilometers of transmission lines span the entire country, and also carry power to neighboring countries. Eskom is among the Big Four state-owned enterprises that will be restructured as part of the government's economic vision. State-owned enterprises in South Africa represent massive financial, investment, labor, technology, and infrastructure resources. The restructuring strategy aims at maximizing the contribution that state assets can make to the development of South Africa. Reuel Khoza has been chairman of Eskom since 1997. Previously,...

European electricity deregulation will not level the playing field

The European Commission (EC) announced on 12 March 2001 a new directive for the electricity markets of its member states: all should be fully open to competition by January 2003. That is, all consumers, whether industrial or residential, in any nation in the European Union (EU), should be free to choose an electricity supplier. Here, the author argues that, while this seems an affirmation of free and open competition, many state-owned electric utilities will be insulated from competition by the decision. He believes that it will prevent a level playing field from ever taking shape.

Real-time pricing of electricity for residential customers: Econometric analysis of an experiment

Under real-time pricing, a network operator sets the price level for a period according to a predefined scheme which depends on the state of demand and costs, and announces this price shortly before the period begins. The French state-owned electric utility experimented with a six-rate real-time tariff, which divides the year into three types of days and each day into two periods. The number of days of each type is known in advance to the consumer, but the type of any particular day is announced only at the end of the preceding day. In order to evaluate the responsiveness of customers to this pricing option, we estimate the Frisch demand functions for daily electricity consumption, derived from a simple dynamic model based on an additively separable intertemporal utility function. As the marginal utility of expenditure which enters the Frisch demands follows a known stochastic process, the econometric model has a state-space representation. We can then apply the Kalman filter to compute the log-likelihood function associated with each consumer's time series of electricity consumption. The main result of the analysis is that the real-time tariff improves the welfare of a majority of consumers participating in the experiment.

Deregulating public utilities: An analysis of the electricity industry in Nigeria

The failure of the state-owned electricity utility company (NEPA) to provide adequate and reliable service to consumers in Nigeria, despite billions of naira of investment expenditure committed over the past quarter century, has created a crisis of confidence and the need for urgent reforms in the industry. This paper seeks to identify and analyse the main policy issues in the deregulation of the electricity industry in Nigeria. It is the contention of the paper that the traditional approach of private-public dichotomy in the provision of electricity may be simplistic in the Nigerian environment given that the superiority of private-sector efficiency in production has not been conclusively validated. It may be presumptious to conclude, as some have done during the debate, that privatization embodied in private production will guarantee the eradication of economic inefficiency in the industry. This paper views the deregulation problems as one of choice between a non-market-responsive and a market-responsive industry that involves a mix of public-private participation. A notable obstacle to the attainment of more efficient industry performance is the political economy of electricity supply, which perceives this service as a strategic commodity in the development process, as well as a policy instrument for achieving a more balanced regional and interpersonal income equity.