Implications of mergers and acquisitions in gas and electric markets: The role of yardstick competition in merger analysis
There has been no shortage of proposed and consummated mergers of regulated utilities in the electric, natural gas, and telecommunication industries over the last decade. For example, the National Rural Electric Cooperative Association states that there have been thirty electric utility mergers since 1992 and dozens of so-called convergence mergers between electric and gas utilities during that period. Yardstick competition or the competition that occurs when the regulator can compare the relative performances of utilities it regulates with other utilities it regulates or with neighboring utilities in other jurisdictions, places pressure on the regulated utilities to perform better for fear of coming up short in the comparison process. There are three important questions regulators may ask about the importance of yardstick competition as regulatory tool and the weight regulators should give to diminution of yardstick competition in the merger context. First, does it make that much difference? In the electric industry, for example, distribution costs typically comprise less than ten percent of the delivered price of electricity. Second, to preserve theoretical yardstick competition, are regulators then going to block mergers that bring other efficiencies? And finally, are there sound tools at the regulators' disposal should they be inclined to take yardstick competition seriously as a factor in regulation of utilities?
- Research Organization:
- McCarthy, Sweeney and Harkaway, Washington, DC (US)
- OSTI ID:
- 20006018
- Journal Information:
- NRRI Quarterly Bulletin, Vol. 20, Issue 2; Other Information: PBD: Sum 1999; ISSN 8756-632X
- Country of Publication:
- United States
- Language:
- English
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