Structural Reform in he Supply of Electricity

In many democratic countries in the world the elected governments are reviewing the manner in which the supply of electricity is managed. In the United Kingdom, the Thatcher government is in the process of privatisation; in the united states of America the Reagan government sought to deregulate the electricity supply industry; and in New Zealand the government has chosen to corporatise its electricity supply. The objective of this report was to examine these processes to ascertain if a common foundation exists on which an improved industry structure could be built. If such a structure was determined, then its applicability to a small isolated electricity supply system would be considered. This report finds that the aim of these governments is improved economic efficiency, which is expected to be achieved by a reduction in the extent of government involvement and an increase in competition. Competition in the generation sector of the industry is achievable, and is likely to be characterised by a combination of long-term contracts and a spot market. The transmission sector is a natural monopoly with little scope for competition. However this sector has a vital coordination role to play. Franchising is determined to be the most appropriate mechanism for introducing competition in the distribution sector. When applied to a small isolated electricity supply system, these mechanisms imply the use of contractors for the design and construction of new generating plant; a single public sector firm in the transmission sector managing an electricity market; many distribution firms competing for an even greater number of franchises; and whose performance yardsticks are determined by the performance of each firm's competitors. In general, the report finds that scope often exists for increased competition in the supply of electricity and that competition is most likely to improve the efficiency of this vital industry.