Using regulatory benchmarking techniques to set company performance targets: the case of US electricity
AbstractConsolidation in many sectors has lead to the formation of “groups of companies”. Extracting all the potential cost savings from these independent or separate operating units is a challenge given asymmetric information. We develop a step-by-step approach that applies regulatory benchmarking techniques to set efficiency targets for operating units. Holding company management – like a regulator – will want to set targets to encourage efficient operation but in the absence of full information on effort, costs and environmental conditions. Our approach using the parallel with regulation incorporates issues such as measurement error and potential environmental factors that could influence the underlying efficiency score. We demonstrate the approach using data from the US electricity distribution sector and show that substantial savings can be extracted using this approach that was originally developed for regulatory purposes.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0834.
Date of creation: Aug 2008
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benchmarking; regulation; operating companies; electricity distribution;
Other versions of this item:
- P. Nillesen & M. Pollitt, 2010. "Using Regulatory Benchmarking Techniques to Set Company Performance Targets: The Case of Us Electricity," Competition and Regulation in Network Industries, Intersentia, vol. 11(1), pages 50-85, March.
- L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-05 (All new papers)
- NEP-EFF-2008-09-05 (Efficiency & Productivity)
- NEP-ENE-2008-09-05 (Energy Economics)
- NEP-ENV-2008-09-05 (Environmental Economics)
- NEP-REG-2008-09-05 (Regulation)
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- Yu, W. & Jamasb, T. & Pollitt, M.G., 2008. "Does Weather Explain the Cost and Quality? An Analysis of UK Electricity Distribution Companies," Cambridge Working Papers in Economics 0858, Faculty of Economics, University of Cambridge.
- Nillesen, P. & Pollitt, M.G., 2008.
"Ownership unbundling in electricity distribution: empircal evidence from New Zealand,"
Cambridge Working Papers in Economics
0836, Faculty of Economics, University of Cambridge.
- Paul Nillesen & Michael Pollitt, 2011. "Ownership Unbundling in Electricity Distribution: Empirical Evidence from New Zealand," Review of Industrial Organization, Springer, vol. 38(1), pages 61-93, January.
- Llorca, Manuel & Orea, Luis & Pollitt, Michael, 2013. "Efficiency and Environmental Factors in the US Electricity Transmission Industry," Cambridge Working Papers in Economics 1318, Faculty of Economics, University of Cambridge.
- Yu, William & Jamasb, Tooraj & Pollitt, Michael, 2009. "Does weather explain cost and quality performance? An analysis of UK electricity distribution companies," Energy Policy, Elsevier, vol. 37(11), pages 4177-4188, November.
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