Reference models and incentive regulation of electricity distribution networks: An evaluation of Sweden's Network Performance Assessment Model (NPAM)
Electricity sector reforms across the world have led to a search for innovative approaches to regulation that promote efficiency in the natural monopoly distribution networks and reduce their service charges. To this aim, a number of countries have adopted incentive regulation models based on efficiency benchmarking. While most regulators have used parametric and non-parametric frontier-based methods of benchmarking some have adopted engineering-designed "reference firm" or "norm" models. This paper examines the incentive properties and related aspects of the reference firm model--NPAM--as used in Sweden and compares this with frontier-based benchmarking methods. We identify a number of important differences between the two approaches that are not readily apparent and discuss their ramifications for the regulatory objectives and process. We conclude that, on balance, the reference models are less appropriate as benchmarks than real firms. Also, the implementation framework based on annual ex-post reviews exacerbates the regulatory problems mainly by increasing uncertainty and reducing the incentive for innovation.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jamasb, Tooraj & Nillesen, Paul & Pollitt, Michael, 2003. "Gaming the Regulator: A Survey," The Electricity Journal, Elsevier, vol. 16(10), pages 68-80, December.
- 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.
- Jamasb, T. & Pollitt, M., 2001. "Benchmarking and Regulation of Electricity Transmission and Distribution Utilities: Lessons from International Experience," Cambridge Working Papers in Economics 0101, Faculty of Economics, University of Cambridge.
- David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
- Giannakis, D. & T. Jamasb & Pollitt, M.G., 2004. "Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities," Cambridge Working Papers in Economics 0408, Faculty of Economics, University of Cambridge.
- Jamasb, T. & Pollitt, M., 2004. "Electricity Market Reform in the European Union: Review of progress towards liberalisation and integration," Cambridge Working Papers in Economics 0471, Faculty of Economics, University of Cambridge.
- Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, vol. 9(3), pages 107-130, September.
- Dag Morten Dalen, 1998. "Yardstick Competition and Investment Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 105-126, 03.
- Turvey, Ralph, 2006. "On network efficiency comparisons: Electricity distribution," Utilities Policy, Elsevier, vol. 14(2), pages 103-113, June.
- Massimo Filippini & Jörg Wild, 2000.
"Regional Differences in Electricity Distribution Costs and their Consequences for Yardstick Regulation of Access Prices,"
CEPE Working paper series
00-05, CEPE Center for Energy Policy and Economics, ETH Zurich.
- Filippini, Massimo & Wild, Jorg, 2001. "Regional differences in electricity distribution costs and their consequences for yardstick regulation of access prices," Energy Economics, Elsevier, vol. 23(4), pages 477-488, July.
- Jamasb, T. & Neuhoff, K. & Newbery, D. & Pollitt, M., 2005. "Long-term Framework for Electricity Distribution Access Charges," Cambridge Working Papers in Economics 0551, Faculty of Economics, University of Cambridge.
- repec:cup:cbooks:9780521860499 is not listed on IDEAS
- Jamasb, Tooraj & Nillesen, Paul & Pollitt, Michael, 2004. "Strategic behaviour under regulatory benchmarking," Energy Economics, Elsevier, vol. 26(5), pages 825-843, September.
- Giannakis, Dimitrios & Jamasb, Tooraj & Pollitt, Michael, 2005. "Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution networks," Energy Policy, Elsevier, vol. 33(17), pages 2256-2271, November.
- Bauer, Paul W. & Berger, Allen N. & Ferrier, Gary D. & Humphrey, David B., 1998.
"Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods,"
Journal of Economics and Business,
Elsevier, vol. 50(2), pages 85-114, March.
- Paul W. Bauer & Allen N. Berger & Gary D. Ferrier & David B. Humphrey, 1997. "Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods," Finance and Economics Discussion Series 1997-50, Board of Governors of the Federal Reserve System (U.S.).
- Paul W. Bauer & Allen N. Berger & Gary D. Ferrier & David B. Humphrey, 1997. "Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods," Financial Services working paper 97-02, Federal Reserve Bank of Cleveland.
- Weisman, Dennis L. & Pfeifenberger, Johannes P., 2003. "Efficiency as a Discovery Process: Why Enhanced Incentives Outperform Regulatory Mandates," The Electricity Journal, Elsevier, vol. 16(1), pages 55-62.
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:36:y:2008:i:5:p:1788-1801. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.