Electricity Deregulation and Vertical Integration

Book excerpt: This work examines the progression of generators and retailers, following electricity deregulation, to vertically integrate (VI) to determine whether all participants might benefit, or because generators are provided with increased market power, electricity consumers in particular could be worse off. The drivers of generators and retailers to vertically integrate are examined, with the lessons learnt applied to the Queensland electricity market. A literature review was first undertaken, with particular reference to the writings of Oliver Williamson. The Queensland analysis concluded that the maximum benefits that consumers could expect from VI was $138 million p.a. with current meter technology and strong retail competition, increasing to $156 million p.a. if meter technology improved. Total possible VI benefits were estimated at $321 million p.a., so consumers could expect to receive no more than 50% of total VI benefits. That is in a strongly competitive retail market, consumers could expect to receive, at the most, 50% of VI benefits, whereas in a weakly competitive retail market, consumers could be worse off.