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Is Productivity Growth in Electricity Distribution Negative? An Empirical Analysis Using Ontario Data

Electricity industries are experiencing upward cost pressures in many parts of the world. This paper focuses on productivity trends in electricity distribution. We apply two methodologies for estimating productivity growth - an index based approach, and an econometric cost based approach - to data on 73 Ontario distributors for the period 2002 to 2012. The resulting productivity growth estimates are approximately -1% per year, suggesting a reversal of the positive estimates that have generally been reported in previous periods. We implement flexible semi-parametric specifications to assess the robustness of these conclusions and discuss the use of such statistical analyses for calibrating productivity and relative efficiency within a price-cap framework.

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Energy Specializations: Energy and the Economy –Economic Growth and Energy Demand; Electricity – Markets and Prices ; Electricity – Generation Technologies; Electricity – Transmission and Network Management; Electricity – Local Distribution; Electricity – Distributed Generation

JEL Codes: D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, D22: Firm Behavior: Empirical Analysis, Q42: Alternative Energy Sources, Q41: Energy: Demand and Supply; Prices, C51: Model Construction and Estimation

Keywords: Productivity, TFP, Electricity distribution, Semiparametric, Cost function estimation, Scale economies

DOI: 10.5547/01956574.38.2.ddim

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Published in Volume 38, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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