Review of Industrial Organization
13: 371–379, 1998.
Power Structure – Ownership, Integration, and Competition in the U.S. Electric
Utility Industry. John E. Kwoka, Jr. Dordrecht/Boston/London: Kluwer Academic
Publishers, 1996, 209 pages, $99.00.
The electric utility industry’s restructuring is beginning to absorb the resources of
both state and federal policy makers. Signiﬁcant restructuring has already occurred
in California, Pennsylvania and Rhode Island, with many other states soon to
follow. The main idea of restructuring is to introduce competition into key parts
of electric power supply. Almost all policy makers aim to open the generation
function to competition, allowing many suppliers to compete in power sales to the
local grid. Most policy makers are also starting to recognize the need to provide
competition at crucial distribution points such as metering, customer service, and
customer accounts. The fresh competition is meant to decrease prices and increase
the quality and variety of service, removing the burdens of a long history of rate of
Professor Kwoka’s book is an extensive empirical investigation into the eco-
nomic facts underpinning the U.S. electric utility industry. As such, it sheds light
on several important issues associated with restructuring. Many of the empirical
tests undertaken in the book relate to the effects of ﬁrm size and structure and mode
of ownership (i.e., public versus private) on efﬁciency. Professor Kwoka’s book
does not culminate in policy prescriptions. His ﬁnal chapter alludes to some policy
implications, but he concentrates on ascertaining economic relationships through
empirical tests. Still, his ﬁndings have important implications for the restructuring
The authorpresentsa numberof interestingconclusions, buttwomainones stand
out. The ﬁrst is the author’s conclusion that small, publicly-owned distribution
utilities tend to provide distribution service at lower cost than investor-owned
utilities. The second is that considerable economies of vertical integration exist.
The policy implications of these ﬁndings can be signiﬁcant.
The ﬁnding that publicly-owned utilities tend to provide more efﬁcient distri-
bution service supports a market structure that minimizes the private ownership
of distribution utilities. If competition at the generation level is effective (as most
analysts predict), and generation servicebecomes acommodity business withrazor-