IDEAS home Printed from https://ideas.repec.org/a/aen/journl/2009v30-04-a01.html
   My bibliography  Save this article

Willingness-to-Pay for Quality of Service: An Application to Efficiency Analysis of the UK Electricity Distribution Utilities

Author

Listed:
  • William Yu
  • Tooraj Jamasb
  • Michael Pollitt

Abstract

Efficiency analysis of electricity distribution networks is often limited to technical or cost efficiency measures. However, some important non-tradable aspects of their service such as quality of service and network energy losses are often not part of the analysis. Moreover, technical or cost efficiency should not be achieved at the expense of allocative and economic efficiency. Valuation of service quality for regulatory models is particularly difficult. This paper presents an empirical approach to measure and incorporate service quality and energy losses into the analysis of technical and allocative efficiency of the utilities. We apply our method to the case of the distribution networks in the UK between 1990/91 and 2003/04 using the data envelopment analysis technique. We find that the efficiency of the utilities improved during the first and second five-year distribution price control reviews but exhibited a slight decline during the third review period. We find relatively low allocative efficiency Ð i.e. a mismatch in allocating resources among expenditures, service quality, and network energy losses. The results suggest that currently the utilities may not be correctly incentivised to achieve socially optimal trade-offs between these.

Suggested Citation

  • William Yu & Tooraj Jamasb & Michael Pollitt, 2009. "Willingness-to-Pay for Quality of Service: An Application to Efficiency Analysis of the UK Electricity Distribution Utilities," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-48.
    • Handle: RePEc:aen:journl:2009v30-04-a01
    as

    Download full text from publisher

    File URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2336
    Download Restriction: Access to full text is restricted to IAEE members and subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. John List & Craig Gallet, 2001. "What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 20(3), pages 241-254, November.
    2. Caves, Douglas W & Herriges, Joseph A & Windle, Robert J, 1990. "Customer Demand for Service Reliability in the Electric Power Industry: A Synthesis of the Outage Cost Literature," Bulletin of Economic Research, Wiley Blackwell, vol. 42(2), pages 79-119, April.
    3. Fredrik Carlsson & Peter Martinsson, 2007. "Willingness to Pay among Swedish Households to Avoid Power Outages: A Random Parameter Tobit Model Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-90.
    4. Pollitt, Michael, 2005. "The role of efficiency estimates in regulatory price reviews: Ofgem's approach to benchmarking electricity networks," Utilities Policy, Elsevier, vol. 13(4), pages 279-288, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yauheniya Varabyova & Jonas Schreyögg, 2018. "Integrating quality into the nonparametric analysis of efficiency: a simulation comparison of popular methods," Annals of Operations Research, Springer, vol. 261(1), pages 365-392, February.
    2. Jamasb, T. & Orea, L. & Pollitt, M.G., 2010. "Weather Factors and Performance of Network Utilities: A Methodology and Application to Electricity Distribution," Cambridge Working Papers in Economics 1042, Faculty of Economics, University of Cambridge.
    3. Ajayi, Victor & Anaya, Karim & Pollitt, Michael, 2022. "Incentive regulation, productivity growth and environmental effects: the case of electricity networks in Great Britain," Energy Economics, Elsevier, vol. 115(C).
    4. Anaya, Karim L. & Pollitt, Michael G., 2017. "Using stochastic frontier analysis to measure the impact of weather on the efficiency of electricity distribution businesses in developing economies," European Journal of Operational Research, Elsevier, vol. 263(3), pages 1078-1094.
    5. Jorge E. Galán & Michael G. Pollitt, 2014. "Inefficiency persistence and heterogeneity in Colombian electricity distribution utilities," Working Papers EPRG 1403, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Orea, Luis & Growitsch, Christian & Jamasb, Tooraj, 2012. "Using Supervised Environmental Composites in Production and Efficiency Analyses: An Application to Norwegian Electricity Networks," EWI Working Papers 2012-18, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    7. Jamasb, Tooraj & Orea, Luis & Pollitt, Michael, 2012. "Estimating the marginal cost of quality improvements: The case of the UK electricity distribution companies," Energy Economics, Elsevier, vol. 34(5), pages 1498-1506.
    8. Luis Orea, Inmaculada C. Álvarez, and Tooraj Jamasb, 2018. "A Spatial Stochastic Frontier Model with Omitted Variables: Electricity Distribution in Norway," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    9. Smith, Andrew S.J. & Ojeda Cabral, Manuel, 2022. "Is higher quality always costly? Marginal costs of quality: Theory and application to railway punctuality," Transportation Research Part A: Policy and Practice, Elsevier, vol. 157(C), pages 258-273.
    10. Jimenez Mori, Raul Alberto, 2017. "Are Blackout Days Free of Charge?: Valuation of Individual Preferences for Improved Electricity Services," IDB Publications (Working Papers) 8424, Inter-American Development Bank.
    11. 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.
    12. Mirza, Faisal Mehmood & Mushtaq, Iqra, 2022. "Estimating the marginal cost of improving services quality in electricity distribution utilities of Pakistan," Energy Policy, Elsevier, vol. 167(C).
    13. Saastamoinen, Antti & Kuosmanen, Timo, 2016. "Quality frontier of electricity distribution: Supply security, best practices, and underground cabling in Finland," Energy Economics, Elsevier, vol. 53(C), pages 281-292.
    14. Ovaere, Marten, 2023. "Cost-efficiency and quality regulation of energy network utilities," Energy Economics, Elsevier, vol. 120(C).
    15. Galán, Jorge E. & Pollitt, Michael G., 2014. "Inefficiency persistence and heterogeneity in Colombian electricity utilities," Energy Economics, Elsevier, vol. 46(C), pages 31-44.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pepermans, Guido, 2011. "The value of continuous power supply for Flemish households," Energy Policy, Elsevier, vol. 39(12), pages 7853-7864.
    2. Mozumder, Pallab & Vásquez, William F. & Marathe, Achla, 2011. "Consumers' preference for renewable energy in the southwest USA," Energy Economics, Elsevier, vol. 33(6), pages 1119-1126.
    3. Yu, W. & Jamasb, T. & Pollitt, M., 2007. "Incorporating the Price of Quality in Efficiency Analysis: the Case of Electricity Distribution Regulation in the UK," Cambridge Working Papers in Economics 0736, Faculty of Economics, University of Cambridge.
    4. Woo, C.K. & Ho, T. & Shiu, A. & Cheng, Y.S. & Horowitz, I. & Wang, J., 2014. "Residential outage cost estimation: Hong Kong," Energy Policy, Elsevier, vol. 72(C), pages 204-210.
    5. Alastaire S na ALINSATO, 2015. "Economic Valuation of Electrical Service Reliability for Households in Developing Country: A Censored Random Coefficient Model Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 352-359.
    6. Merz, Carina, 2008. "Monetaere Bewertung der Netzzuverlaessigkeit fuer eine effiziente Qualitaetsanreizregulierung," EWI Working Papers 2008-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    7. Musiliu O. Oseni, 2017. "Self-Generation and Households' Willingness to Pay for Reliable Electricity Service in Nigeria," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    8. Oseni, Musiliu O., 2015. "Assessing the consumers’ willingness to adopt a prepayment metering system in Nigeria," Energy Policy, Elsevier, vol. 86(C), pages 154-165.
    9. Ozbafli, Aygul & Jenkins, Glenn P., 2016. "Estimating the willingness to pay for reliable electricity supply: A choice experiment study," Energy Economics, Elsevier, vol. 56(C), pages 443-452.
    10. Kunaifi & Angèle Reinders, 2018. "Perceived and Reported Reliability of the Electricity Supply at Three Urban Locations in Indonesia," Energies, MDPI, vol. 11(1), pages 1-27, January.
    11. Carlsson, Fredrik & Martinsson, Peter & Akay, Alpaslan, 2011. "The effect of power outages and cheap talk on willingness to pay to reduce outages," Energy Economics, Elsevier, vol. 33(5), pages 790-798, September.
    12. Ozbafli, Aygul & Jenkins, Glenn P., 2015. "The willingness to pay by households for improved reliability of electricity service in North Cyprus," Energy Policy, Elsevier, vol. 87(C), pages 359-369.
    13. Kim, Mo Se & Lee, Byung Sung & Lee, Hye Seon & Lee, Seung Ho & Lee, Junseok & Kim, Wonse, 2020. "Robust estimation of outage costs in South Korea using a machine learning technique: Bayesian Tobit quantile regression," Applied Energy, Elsevier, vol. 278(C).
    14. Marcos Perroni & Luciano Luiz Dalazen & Wesley Vieira da Silva & Sergio Eduardo Gouv a da Costa & Claudimar Pereira da Veiga, 2015. "Evolution of Risks for Energy Companies from the Energy Efficiency Perspective: The Brazilian Case," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 612-623.
    15. Carlsson, Fredrik & Martinsson, Peter, 2006. "Do Experience and Cheap Talk influence Willingness to Pay in an Open-Ended Contingent Valuation Survey?," Working Papers in Economics 190, University of Gothenburg, Department of Economics.
    16. Aygul Ozbafli & Glenn P. Jenkins, 2015. "The Willingness To Pay By Households For Improved Reliability Of Electricity Service," Development Discussion Papers 2015-02, JDI Executive Programs.
    17. Bespalova, Olga, 2007. "Методы Дифференциации Тарифов На Электроэнергию По Надежности [Methods for Differentiating Electricity Tariffs by Reliability]," MPRA Paper 117334, University Library of Munich, Germany.
    18. Afsharian, Mohsen & Ahn, Heinz & Lopes, Ana & Vilela, Bruno, 2019. "Pitfalls in estimating the X-factor: The case of energy transmission regulation in Brazil," Socio-Economic Planning Sciences, Elsevier, vol. 65(C), pages 1-9.
    19. Chavez, Daniel E. & Palma, Marco A. & Nayga, Rodolfo M. & Mjelde, James W., 2020. "Product availability in discrete choice experiments with private goods," Journal of choice modelling, Elsevier, vol. 36(C).
    20. Volinskiy, Dmitriy & Adamowicz, Wiktor L. & Veeman, Michele, 2011. "Predicting versus testing: a conditional cross-forecasting accuracy measure for hypothetical bias," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(3), pages 1-22, September.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aen:journl:2009v30-04-a01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David Williams (email available below). General contact details of provider: https://edirc.repec.org/data/iaeeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.