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International Benchmarking of Electricity Transmission by Regulators: Theory and Practice

Author

Listed:
  • Aoife Brophy Haney

    (Electricity Policy Research Group and Judge Business School, University of Cambridge)

  • Michael G. Pollitt

    (Electricity Policy Research Group and Judge Business School, University of Cambridge)

Abstract

Benchmarking of electricity networks has a key role in sharing the benefits of efficiency improvements with consumers and ensuring regulated companies earn a fair return on their investments. This paper analyses the theory and practice of international benchmarking of electricity transmission by regulators. We examine the literature relevant to electricity transmission benchmarking and conduct a survey of 48 national electricity regulators. Consideration of the literature and our survey indicates that electricity transmission benchmarking is significantly more challenging than electricity distribution benchmarking. New panel data techniques aimed at dealing with unobserved heterogeneity and the validity of the comparator group look intellectually promising but are in their infancy for regulatory purposes. In electricity transmission choosing variables is particularly difficult, because of the large number of potential variables to choose from. Failure to apply benchmarking appropriately may negatively affect investors’ willingness to invest in the future. While few of our surveyed regulators acknowledge that regulatory risk is currently an issue in transmission benchmarking, many more concede it might be. New regulatory approaches – such as those based on tendering, negotiated settlements, a wider range of outputs or longer term grid planning - are emerging and will necessarily involve a reduced role for benchmarking.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Aoife Brophy Haney & Michael G. Pollitt, 2012. "International Benchmarking of Electricity Transmission by Regulators: Theory and Practice," Working Papers EPRG 1226, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1226
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    Cited by:

    1. P Codani & Marc Petit & Yannick Perez, 2018. "Innovation et règles inefficaces : le cas des véhicules électriques," Post-Print halshs-01980639, HAL.
    2. Pavala Malar Kannan & Govindan Marthandan & Rathimala Kannan, 2021. "Modelling Efficiency of Electric Utilities Using Three Stage Virtual Frontier Data Envelopment Analysis with Variable Selection by Loads Method," Energies, MDPI, vol. 14(12), pages 1-21, June.
    3. Nepal, Rabindra & Jamasb, Tooraj, 2015. "Incentive regulation and utility benchmarking for electricity network security," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 117-127.
    4. Orea, Luis & Álvarez, Inmaculada C. & Jamasb, Tooraj, 2016. "A spatial approach to control for unobserved environmental conditions when measuring firms’ technology: an application to Norwegian electricity distribution networks," Efficiency Series Papers 2016/06, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    5. Andor, Mark A. & Parmeter, Christopher & Sommer, Stephan, 2019. "Combining uncertainty with uncertainty to get certainty? Efficiency analysis for regulation purposes," European Journal of Operational Research, Elsevier, vol. 274(1), pages 240-252.
    6. Llorca, Manuel & Orea, Luis & Pollitt, Michael G., 2016. "Efficiency and environmental factors in the US electricity transmission industry," Energy Economics, Elsevier, vol. 55(C), pages 234-246.
    7. Luis Orea & Inmaculada C. Álvarez & Tooraj Jamasb, 2016. "Using a spatial econometric approach to mitigate omitted variables in stochastic frontier models: An application to Norwegian electricity distribution networks," Working Papers EPRG 1630, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    8. Llorca, Manuel & Orea, Luis & Pollitt, Michael G., 2014. "Using the latent class approach to cluster firms in benchmarking: An application to the US electricity transmission industry," Operations Research Perspectives, Elsevier, vol. 1(1), pages 6-17.
    9. Cherchye, Laurens & De Rock, Bram & Kerstens, Pieter Jan, 2018. "Production with storable and durable inputs: Nonparametric analysis of intertemporal efficiency," European Journal of Operational Research, Elsevier, vol. 270(2), pages 498-513.
    10. Luis Orea & Tooraj Jamasb, 2017. "Regulating Heterogeneous Utilities: A New Latent Class Approach with Application to the Norwegian Electricity Distribution Networks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    11. Thanassoulis, Emmanuel & Shiraz, Rashed Khanjani & Maniadakis, Nikolaos, 2015. "A cost Malmquist productivity index capturing group performance," European Journal of Operational Research, Elsevier, vol. 241(3), pages 796-805.
    12. Simshauser, Paul & Tian, Yuan & Whish-Wilson, Patrick, 2015. "Vertical integration in energy-only electricity markets," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 35-56.
    13. Orea, Luis & Jamasb, Tooraj, 2014. "Identifying efficient regulated firms with unobserved technological heterogeneity: A nested latent class approach to Norwegian electricity distribution networks," Efficiency Series Papers 2014/03, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    14. Gert Brunekreeft, 2012. "On the Role of International Benchmarking of Electricity Transmission System Operators facing significant investment requirements," Bremen Energy Working Papers 0012, Bremen Energy Research.
    15. Altoé, Andrey Vinícius & da Costa Jr., Newton & Lopes, Ana Lúcia Miranda & Veloso, Thiago Roberto Magalhães & Saurin, Valter, 2017. "Technical efficiency and financial performance in the Brazilian distribution service operators," Socio-Economic Planning Sciences, Elsevier, vol. 59(C), pages 79-92.
    16. TEUSCH, Jonas, 2016. "Merger Incentives Under Yardstick Competition : a Theoretical Model," LIDAM Discussion Papers CORE 2016037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. Llorca, Manuel & Orea, Luis & Pollit, Michael G., 2013. "Using in the latent class approach as a supervised method to cluster firms in DEA: An application to the US electricity transmission industry," Efficiency Series Papers 2013/03, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).

    More about this item

    Keywords

    electricity transmission; benchmarking; regulation;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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