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Ex-post Effectiveness Evaluation of Incentive Regulation in the Electricity Distribution: A Semi-parametric Panel Data StoNED Approach

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  • Kjartan E. Rasmussen

Abstract

In numerous countries, electricity Distribution System Operators (DSOs) function as local monopolies. To counter potential abuse of monopoly power, regulators, especially in Europe, often employ mechanisms like DSO-specific revenue caps to encourage cost reductions among regulated DSOs. Despite its widespread use, literature concerning ex-post evaluation of the effectiveness of revenue cap regulation, particularly divided into its individual components, is lacking. This paper offers two contributions: First, it shows the advantages of utilizing a semi-parametric panel data StoNED framework methodology as a tool for assessing the impact of revenue caps by evaluating the cost efficiency of regulated DSOs in its individual components. Second, the effectiveness of revenue cap regulation is assessed using the Danish DSOs as a case study. The empirical analysis finds evidence that part of the revenue cap incentive scheme appears to promote cost reductions among regulated Danish DSOs. JEL Classification: C14, C23, C51, L43, L51, L94, L98

Suggested Citation

  • Kjartan E. Rasmussen, 2025. "Ex-post Effectiveness Evaluation of Incentive Regulation in the Electricity Distribution: A Semi-parametric Panel Data StoNED Approach," The Energy Journal, , vol. 46(4), pages 31-56, July.
    • Handle: RePEc:sae:enejou:v:46:y:2025:i:4:p:31-56
    DOI: 10.1177/01956574241306328
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    Keywords

    electricity distribution; cost efficiency; stochastic non-parametric envelopment of data; panel data; economic regulation; policy assessment;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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