After the liberalization of energy markets in Germany in the 1990s, many municipalities have sold their shares in local or regional electricity providers to private owners in order to reduce budget deficits. Recently, it has been observed that sold assets are repurchased. Proponents of repurchasing justify this step with a safe and cheap provision of energy for consumers. In this paper, we investigate whether public ownership has an impact on providers’ price setting. For this reason, we consider the ownership structure of electricity providers in Germany, particularly, that of the largest electricity provider in a distribution market and the regional distribution grid operator, as the grid operator might seek to affect retail competition due to vertical integration with the retail incumbent. Our descriptive results show that the majority of public and private owners try to reach full ownership of the provider and the grid operator. While, on average, about 10 ultimate owners are involved when there is a mean ownership distribution between public and private owners, only a small number of ultimate owners (on average one or two owners) are involved if the public (private) share prevails. Considering the ownership concentration across all regional German submarkets shows a lower public involvement among Eastern German utility providers and common carriers, which is to the most part due to the structural change in ownership during German Democratic Republic times. In a next step, we employ a multivariate approach to analyze the impact of ownership on the price choice of the standard contract. With the standard contract households are served which have not switched their provider yet. While no significant difference of the impact of public or private owners on the price setting is found, a higher ownership concentration on the level of the retail incumbent causes significantly lower prices. Following the Corporate Governance literature, owners with a high share in a company seek long-term performance goals. Owners with a low share are, on the other hand, interested in short-term profit objectives. Providers with a higher ownership concentration therefore choose lower prices for utility contracts in order to retain customers. On the contrary, higher prices enable a higher short-term price mark-up and, therewith, higher profits for owners. However, higher prices for standard contracts enhance the customers' willingness to switch. While we find no direct effect of public ownership on the standard contract price, indirect implications from the identified strategies of public investors for the welfare of consumers can be found: from our descriptive observations we know that the majority of public investors seek a full involvement in energy providers. As owners with higher investments seek rather long-term profit objectives, customers which are less willing to switch their provider benefit from public ownership in their energy provider because of lower standard contract prices. However, this is also the case with fully privately owned providers.
Nikogosian, Vigen and Tobias Veith (2010), Der Einfluss öffentlichen Eigentums auf die Preissetzung in deutschen Haushaltsstrommärkten, ZEW Discussion Paper No. 10-090, Mannheim. Download