TABLE OF CONTENTS The electricity industry is over 100 years old. During this time it has grown dramatically and has developed organisational structures and methods of doing business. The industry has particular characteristics that have had a large impact on these structures. These characteristics include the real-time nature of electricity, that is, it is typically generated and consumed at the same instant in time. Storage of electricity is possible, and is performed on a limited scale, but to date large-scale storage has proved to be uneconomic (Kondoh et al., 2000). Another important characteristic of the industry is that some elements are natural monopolies, for example, the transmission and distribution infrastructure the wires. Until recently, economies of scale dictated that the generation assets in the electricity industry would typically be large-scale, capital-intensive, single-site developments. The industry evolved by adopting structures that could be best described as vertically integrated monopolies. The businesses owned and operated entire power systems from generation, transmission and distribution down to domestic customer supply. They were regulated on a cost basis to ensure that they would not abuse their dominant position. In many cases national or local governments owned these business entities, and in others they were investor-owned utilities. Such structures dominated the industry until very recently (Baldick et al., 2005).
There has been concern among many politicians, policy makers, engineers and economists that these types of monopolistic structures were inefficient. As a consequence of cost-based regulation there is a tendency for monopolies to over-staff...
