Economies of density and size in the production and delivery of electric power.

Three measures, which recognize the different ways in which output changes can occur, are used to analyze firm differences in the average cost of supplying electric power. The empirical results indicate that the important source of declining ray average cost is an increase in the quantity of output consumed per customer and not an increase in customer density or service area size. The final empirical result is that, on average, there are no substantial average cost savings resulting from an increase in the geographic size of the firm's service area. There appear to be no efficiency gains from having single firms serve larger geographic areas. In the next two sections of the paper a cost function model of electric power production and delivery is developed and measures of economies of density and size are defined. The fourth section describes the empirical model and data and the final two sections report the empirical results and discuss their implications. -Author