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

Abstract:
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 Quarterly Journal of the IAEE's Energy Economics Education Foundation.