Market Power,Service Of Quality And Efficiency In Electricity Distribution Sector

In recent years,China has speeded up fundamental construction in electricity sector and the network of power transmission and distribution has been improved greatly,while the service of quality still remains low compared to developed countries.Due to its monopolizing characteristic,power distribution would be regulated by the government strictly in order to improve service of quality and efficiency.Agiven level of quality of service improvement comes at a cost.The monopolistic enterprises tend to reduce the quality of service when the increment of prices is not allowed.How to improve the efficiency and quality of service in power sector would be a key point and main difficulty for Chinese government in the future.Based on the panel data of 27 provinces from 2004 to 2014,we study the influence of grid market power on quality of service and distribution efficiency based on FMOLS model.The results shows that market power does have a negative impact on the quality of service,which means the greater market power is,the poorer the quality of service is.Moreover,based on a conditional slack-based measure model,this paper calculates the unconditional and conditional efficiency in power distribution sector.We find that there exists great difference in the efficiency of eastern provinces and midwest provinces and the efficiency of former is much larger than the latter.With the introduction of market power into the model,the conditional efficiency is much larger than unconditional one in line with expectations.As the market power increases,the ratio of unconditional efficiency to conditional efficiency becomes smaller and that means market power has negative impacts on the efficiency of power distribution.In sum,the grid market power would have significantly negative effects on quality of service and efficiency.We believe that it is essential to take measures to reduce market power,such as deepening electricity market reformation.In addition,the quality of service should be introduced in the benchmarking and incentive regulation to guarantee the quality of service and efficiency of electricity distribution.