Municipal infrastructure companies against the background of energy policy and demographic change (KOMIED) – Empirical analyses using micro level data of the energy, water and waste sector

Completed Project

Department

Firms and Markets

Project Management

Dr. Astrid Cullmann

Project Period

July 1, 2013 - June 30, 2016

Funded by

Leibniz Association, Funding line 5: Women in academic leadership positions of the Joint Initiative for Research and Innovation (Leibniz Competition 2013)

In Cooperation With

Departments Competition and Consumers, Energy, Transportation, Environment, and Public Economics

Municipal infrastructure firms are facing major challenges. On the one hand, they are operating under an increased pressure to reduce costs due to growing intensive competition and shifting regulatory processes. On the other hand, they have to fulfill new environmental requirements that result from new energy and climate policy objectives and demographic changes. Recent privatizations have not always realized the expected cost saving. Thus, new organizational market approaches and solutions are needed. However, there is a lack of theory-based empirical analyses assessing the effects of firms’ and markets’ organizational structures on efficiency, potentials for cost reduction, or consumer prices. The creation of a unique firm level panel data set of energy, water and waste management firms coupled with an innovative and multidimensional framework allows the project to present a comprehensive analysis of municipal infrastructures in Germany.

Funding: Leibniz Association, Funding line 5: Women in academic leadership positions of the Joint Initiative for Research and Innovation (Leibniz Competition 2013)

DIW Team

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Research program

The focus of the research project is to develop and apply a new analytical framework that investigates the efficiency and productivity of municipal infrastructure firms. The framework is based on different analytical layers aimed at analyzing the provision and renewal of local infrastructure, the adjustment of municipal utilities to changing energy and climate policies and demographic change in a broader municipal context:

Municipal infrastructure firms in Germany take on a variety of organizational forms and ownership structures as well as varying in the scale and scope of their operations. In addition to single-service structures, municipal infrastructure utilities are usually integrated, thus supplying more than one service (so-called Stadtwerke). The research project begins with the analysis of the individual services of such integrated firms (electricity, natural gas, district heating, drinking water, waste, sewerage services). We further focus on the analysis of services along the individual services’ value added chains (production, generation, transmission, distribution, retail). We also consider prices charged to end users and analyze to what extent cost savings on the firms’ side are passed through to their consumers. Furthermore, we are interested in analyzing the efficiency and productivity impact of different ownership types (public vs. private). Given recent developments of returning utilities into public ownership and thus, the tendency toward smaller-scale service provision, we investigate potential advantages of the multi-utilities with respect to their scale of operations based on their service areas, but also with respect to the size of, for example, electricity generation plants. In this context, we also consider cost saving potentials resulting from the joint provision of different services. The German Energy Industry Act and the EU directives 2003/45/EG and 2003/55/EG led to the vertical separation of energy suppliers with more than 100,000 customers since 2007. However, in this context it is necessary to analyze the existence and degree of vertical integration advantages between electricity generation and distribution and to what extent vertical separation leads to a loss of integration benefits as well as to increasing coordination and transaction cost.

Given the municipal multi-utilities’ monopolistic industry structure and the different targets of such firms under private and public ownership, the implementation regulatory measures and the analysis of their impact on efficiency, investments and on the quality of service provision is necessary. Given the background of increasing investment needs to integrate renewable energy resources, the development of appropriate regulatory measures and incentives for investments in electricity supply is especially important.

In addition to efficiency considerations on the firm level, the interaction between firm-specific targets and additional targets of the municipal administrations is taken into account in the empirical analysis. Unlike private firms, based on such municipal targets and the municipal governments’ influence on firms, public utilities might be characterized by preferences for certain types of inefficiency. Publicly owned municipal firms might therefore decide for non-efficient strategies in order to achieve political targets of the municipal administrations. We consider environmental and climate targets in electricity generation as an example for such preferences. As a result, inefficiencies could, to a certain extent, be explained by rational decisions and not as pure inefficiency. This leads to an alternative view on the current pre-dominant efficiency concept in the context of local infrastructure provision since additional municipal targets have not been considered in the efficiency measurement yet.

Considering climate policy targets, especially the use of combined heat and power generation (CHP) plants is of interest. While centralized supply systems might be characterized by scale advantages, the use of decentralized heat generation might be characterized by lower investment requirements. Therefore, decision makers need to take at least two aspects into account, which also need to be considered in the efficiency analysis: the fuel mix to reach possible climate targets and the loss of scale advantages in decentralized CHP plants.

Besides climate aspects, demographic change has a strong impact on the supply of local infrastructure services. Demographic change is of utmost importance especially for infrastructure firms in rural areas since a comprehensive, secure and affordable service provision needs to be ensured despite unfavorable changes in population and settlement structures. The security of supply thus needs to be considered as an additional target of local infrastructure firms in addition to climate targets and cost minimization.

Complementary to the firm-level analyses, the research project also focusses on the municipalities as decision making units. The aim is to analyze to what extent inefficiencies in the municipal infrastructure firms might also be explained by inefficiencies in municipal public service provision and not only by sectoral inefficiencies. For this purpose, we compare aggregate public spending to the overall local public service provision and both the results of the company level analysis and the interaction analyses are considered within a broader municipal context.

Municipal tasks and services are highly heterogeneous. Besides obligatory and voluntary services provided by the municipalities, they further include tasks assigned by the Federal States or the German Federal Government. It is therefore necessary to appropriately model this range of public services provided by the municipalities and to identify efficiency-enhancing strategies. Again, the consideration of demographic change is of utmost importance in this context. Hence, the research project further aims at analyzing potential scale disadvantages of smaller de-centralized municipalities and the impact of incorporating individual municipalities into larger municipalities.

The research project is based on a comprehensive data sample consisting of technical data as well as cost and investment data for the 2002-2010 period. The sample allows for the analysis of public infrastructure provision at the level of the individual services provided, at the level of integrated multi-utilities, and at the municipal level. Hence, it is possible to model regulatory, demographic, and climate policy changes over the sample period. Considering both the size and the coverage, the data sample can be characterized as unique both nationally and internationally.

The uniqueness results from the combination of existing information on technical characteristics of the infrastructure firms with official statistics from the German Research Data Centers (Forschungsdatenzentrum, FDZ), which contain information about cost structures and investments of public and private municipal firms. The technical data contains information on companies in electricity, natural gas and water supply and has been published by the Bundesverband der deutschen Energie- und Wasserwirtschaft (BDEW). The statistics are combined with investment and cost structure data as well as additional technical information on energy and water supply firms published by FDZ. Information about ownership structures of the infrastructure utilities are obtained from the official annual accounts statistics provided by FDZ.

The additional consideration of data on municipalities obtained from publicly available statistics allows for the analysis of entire municipalities as well as of the interaction between the local administrations and the infrastructure firms.

The analyses are based on a newly developed data set covering municipal infrastructure firms and municipal administrations over the 2002-2010 period. Both with respect to size and coverage, the data sample can be characterized as unique both nationally and internationally. The data sample allows for a comprehensive analysis of municipal infrastructure firms in the field of energy and water supply as well as waste disposal in Germany.

Events and Presentations

KOMIED Workshop
Berlin, October 2, 2015

Stadtwerke-Economics 2015 (PDF, 90.94 KB)
Berlin, April 13, 2015

Infratrain 2016 – Efficiency analysis of infrastructure companies
Berlin, 4. – 7. Oktober 2016
Trainer: Prof. Subal Kumbhakar, Dr. Maria Nieswand

Infratrain 2015 – Semi-Parametric Efficiency Analysis
Berlin, 1. – 9. Oktober 2015
Trainer: Prof. Subal Kumbhakar

Infratrain 2014 – Efficiency Analysis of Municipal Services & Infrastructure (PDF, 139.01 KB)
Berlin, October 6–10, 2014
Trainers: Prof. Peter Bogetoft, Dr. Astrid Cullmann, Dr. Maria Nieswand, Stefan Seifert, Caroline Stiel, Dr. Michael Zschille

Productivity Growth and the Public and Private Ownership of Regulated Firms
Julia Rechlitz, Astrid Cullmann, Maria Nieswand
Demographischer Wandel : Jahrestagung 2016 des Vereins für Socialpolitik, Augsburg, September 4-7, 2016

Productivity Growth and the Public and Private Ownership of Regulated Firms
Julia Rechlitz, Astrid Cullmann, Maria Nieswand
43rd Annual Conference of the European Association for Research in Industrial Economics : EARIE 2016, Lisboa, Portugal, August 26-28, 2016

Finding the Right Yardstick: Regulation under Heterogeneous Environments
Endre Björndal, Mette Björndal, Astrid Cullmann, Maria Nieswand
43rd Annual Conference of the European Association for Research in Industrial Economics : EARIE 2016, Lisboa, Portugal, August 26-28, 2016

Do Privately Owned Firms Outperform Publicly Owned Firms in Electricity Distribution?
Astrid Cullmann, Maria Nieswand, Julia Rechlitz
9th International Workshop on Empirical Methods in Energy Economics : EMEE 2016, Oviedo, Spain, July 7-8, 2016

Semi-parametric Measures of Scale Characteristics of German Natural Gas-Fired Electricity Generation
Stefan Seifert
9th International Workshop on Empirical Methods in Energy Economics : EMEE 2016, Oviedo, Spain, July 7-8, 2016

Productivity in Electricity Retail after Market Liberalisation
Maria Nieswand
XV Milan European Economy Workshop “Recent advances in the Economics and Management of Public Enterprise”, Milano, Italy, June 30, 2016

Finding the Right Yardstick in Different Environments
Endre Bjørndal, Mette Bjørndal, Astrid Cullmann, Maria Nieswand
Benchmarking of Public Utilities, University of Applied Sciences Bremen, November 13, 2015

Operational Conditions in Regulatory Benchmarking – A Monte-Carlo Simulation
Stefan Seifert, Maria Nieswand
Benchmarking of Public Utilities, University of Applied Sciences Bremen, November 13, 2015

Fiscal Illusion
Astrid Cullmann, Massimo Filippini
KOMIED Workshop 2015: Forschungsprojekt Kommunale Infrastrukturunternehmen zwischen Energiewende und demografischem Wandel (KOMIED), Berlin, October 2, 2015

German Electricity Distributors, Capital Structure, and Ownership
Subal Kumbhakar, Oleg Badunenko, Astrid Cullmann, Maria Nieswand
KOMIED Workshop 2015: Forschungsprojekt Kommunale Infrastrukturunternehmen zwischen Energiewende und demografischem Wandel (KOMIED), Berlin, October 2, 2015

Norwegian Municipalities and Electricity Distribution Companies
Stefan Seifert
KOMIED Workshop 2015: Forschungsprojekt Kommunale Infrastrukturunternehmen zwischen Energiewende und demografischem Wandel (KOMIED), Berlin, October 2, 2015

Operational Conditions in Regulatory Benchmarking: A Monte Carlo Analysis
Stefan Seifert
KOMIED Workshop 2015: Forschungsprojekt Kommunale Infrastrukturunternehmen zwischen Energiewende und demografischem Wandel (KOMIED), Berlin, October 2, 2015

Productivity in the Electricity Retail Market: Does Ownership Matter?
Caroline Stiel
KOMIED Workshop 2015: Forschungsprojekt Kommunale Infrastrukturunternehmen zwischen Energiewende und demografischem Wandel (KOMIED), Berlin, October 2, 2015

New Official Firm Data on German Utilities
Caroline Stiel
KOMIED Workshop 2015: Forschungsprojekt Kommunale Infrastrukturunternehmen zwischen Energiewende und demografischem Wandel (KOMIED), Berlin, October 2, 2015

Scale, governance and regional differences: An investigation of the cost structure of German water supply
Michael Zschille
KOMIED Workshop 2015: Forschungsprojekt Kommunale Infrastrukturunternehmen zwischen Energiewende und demografischem Wandel (KOMIED), Berlin, October 2, 2015

Regulation and Investment Incentives in Electricity Distribution: An Empirical Assessment
Astrid Cullmann
Invited Research Seminar, ETH Zürich, Center for Energy Policy and Economy, Zürich, September 25, 2015

Regulation and Investment Incentives in Electricity Distribution
Astrid Cullmann, Maria Nieswand
Ökonomische Entwicklung – Theorie und Politik: Jahrestagung des Vereins für Socialpolitik 2015, Münster, September 8, 2015

Productivity Growth and Its Sources: A StoNED Metafrontier Analyis of the German Electricity Generating Sector
Stefan Seifert
Ökonomische Entwicklung – Theorie und Politik: Jahrestagung des Vereins für Socialpolitik 2015, Münster, September 8, 2015

Productivity in the Electricity Retail Market: Does Ownership Matter? A Structural Production Function Approach for Germany
Caroline Stiel, Astrid Cullmann, Maria Nieswand
Ökonomische Entwicklung – Theorie und Politik: Jahrestagung des Vereins für Socialpolitik 2015, Münster, September 8, 2015

Voting for Inefficiency
Maria Nieswand, Pio Baake, Lilo Wagner
Ökonomische Entwicklung – Theorie und Politik: Jahrestagung des Vereins für Socialpolitik 2015, Münster, September 7, 2015

Productivity in the Electricity Retail Market: Does Ownership Matter? A Structural Production Function Approach for Germany
Caroline Stiel, Astrid Cullmann, Maria Nieswand
European Association for Research in Industrial Economics – 42. EARIE Conference, Munich, August 30, 2015

Regulation and Investment Incentives in Electricity Distribution: An Empirical Assessment
Astrid Cullmann, Maria Nieswand
European Association for Research in Industrial Economics – 42. EARIE Conference, Munich, August 28, 2015

Voting for Inefficiency
Maria Nieswand
European Association for Research in Industrial Economics – 42. EARIE Conference, Munich, August 28, 2015

Productivity Growth and its Sources - A StoNED Metafrontier Analyis of the German Electricity Generating Sector
Stefan Seifert
European Association for Research in Industrial Economics – 42. EARIE Conference, Munich,  August 28, 2015

Capital structure and ownership in regulated electricity distributio
Astrid Cullmann, Maria Nieswand, Julia Rechlitz, Stefan Seifert
European Workshop on Efficiency and Productivity Analysis – XIV EWEPA, Helsinki, Finland, June 18, 2015

Challenged, or just inefficient? Compensating for exogenous cost drivers in the regulation of electricity networks
Endre Bjørndal, Mette Bjørndal, Astrid Cullmann, Maria Nieswand
European Workshop on Efficiency and Productivity Analysis – XIV EWEPA, Helsinki, Finland, June 16, 2015

Operational conditions in regulatory benchmarking models - A Monte Carlo simulation study
Maria Nieswand, Stefan Seifert
European Workshop on Efficiency and Productivity Analysis – XIV EWEPA, Helsinki, Finland, June 16, 2015

Incentive Regulation and Investment Behavior: Evidence from the German Electricity Distribution Sector
Ferdinand Pavel, Astrid Cullmann, Maria Nieswand
Conference on Applied Infrastructure Research (Infraday 2014), Berlin, Oktober 9, 2014

Technical Change in German Electricity Generation
Stefan Seifert
German Statistical Week 2014, Hannover, September 18, 2014

Rational Inefficiency in the German Public Electricity Distribution Sector
Pio Baake, Maria Nieswand
North American Productivity Workshop VIII, Ottawa, Canada, Juni 6, 2014

Improving Benchmarking for Multi-Utilities in the Electricity Sector
Astrid Cullmann, David Saal
North American Productivity Workshop VIII, Ottawa, Canada, Juni 5, 2014

Markups in the German utility sector: a multisegment approach
Caroline Stiel, Astrid Cullmann, Maria Nieswand
North American Productivity Workshop VIII, Ottawa, Canada, Juni 4, 2014

Technical Change and Technology Convergence in German Electricity and Heat Generation – A StoNED Metafrontier Analysis
Stefan Seifert
North American Productivity Workshop VIII, Ottawa, Canada, Juni 4, 2014

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