Local Electrical Utilities-Is Bigger Better?

In recent years Ontario's local electrical utilities, encouraged by the provincial government, have merged such that the number of utilities has been reduced from over 300 in the 1990s to 74 in 2011. This article examines the determinants of utility costs with a focus on whether larger utilities are more cost-effective than smaller ones. Based on the latest data, we find that costs decrease, although this is not statistically significant, up to 165,000 customers. Beyond 400,000 customers, significant cost increases are encountered, and therefore mergers beyond this size should not be allowed.