"Too big to fail": what if electricity companies were to follow suit?

Insights from research at HEC Lausanne-UNIL - What would happen today if the leading players in the electricity sector went into bankruptcy? In their latest research project, Prof. Ann van Ackere (HEC Lausanne) and her co-authors Sebastian Osorio (a former PhD student at HEC Lausanne) and Erik R. Larsen are ringing the alarm bell, by demonstrating that the electricity sector could well face the same challenge as the banks. Many electricity companies are growing significantly, either because of a reluctance to break up incumbent national champions, because regional firms are evolving into dominant national players, or because some national players are expanding operations internationally. If some of these large power companies failed, would we face a crisis like the one in California in 2000-2001? How can the systemic risk they represent be limited? It seems that it is not only financial institutions that are affected by the "too big to fail" phenomenon, which applies to numerous other economic sectors, including electricity. The research carried out by Prof. van Ackere and her co-authors sheds light on the issue and offers a number of questions to consider, which will interest not only regulators but also political authorities and electricity regulators. Prof. Ann van Ackere : professor in the Department of Operations at HEC Lausanne, Ann van Ackere is a Management Scientist. Her research areas focus on the modeling of management and (micro) economic issues using operational research tools, including System Dynamics, stochastic simulation, optimization and game theory.