Benchmarking Economies of Vertical Integration in U.S. Electricity Supply: An Application of DEA

This study applies a frontier benchmarking approach to measure economies of scope between the vertical stages of electricity supply in the U.S. electricity industry. By comparing different frontiers for integrated and separated supply of electricity based on a bootstrapping DEA, two types of vertical unbundling are analyzed. Separating the generation stage from networks and retail appears to be the more costly alternative with an average cost increase of 19 percent. Our second scenario, covering one of the options of transmission unbundling to be implemented in the European Union, shows an average cost increase below 2 percent.