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Reference Models and Incentive Regulation of Electricity Distribution Networks: An Evaluation of Sweden’s Network Performance Assessment Model (NPAM)

The world-wide electricity sector reforms have led to a search for alternative and innovative approaches to regulation to promote efficiency improvement in the natural monopoly electricity networks. A number of countries have used incentive regulation models based on efficiency benchmarking of the electricity network utilities. While most regulators have opted adopted parametric and non-parametric frontier-based methods of benchmarking some have used engineering designed ‘reference firm’ or ‘norm’ models for the purpose. This paper examines the incentive properties and other related aspects of the norm model NPAM used in regulation of distribution networks in Sweden and compares these with those of frontier-based benchmarking methods. We identify a number of important differences between the two approaches to regulation benchmarking that are not readily apparent and discuss their ramifications for the regulatory objectives and process.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0747.

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Length: 24
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:cam:camdae:0747
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. 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.
  2. 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.
  3. Turvey, Ralph, 2006. "On network efficiency comparisons: Electricity distribution," Utilities Policy, Elsevier, vol. 14(2), pages 103-113, June.
  4. repec:cup:cbooks:9780521860499 is not listed on IDEAS
  5. 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.
  6. 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.
  7. 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.).
  8. 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.
  9. Jamasb, Tooraj & Nillesen, Paul & Pollitt, Michael, 2003. "Gaming the Regulator: A Survey," The Electricity Journal, Elsevier, vol. 16(10), pages 68-80, December.
  10. Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, vol. 9(3), pages 107-130, September.
  11. Dag Morten Dalen, 1998. "Yardstick Competition and Investment Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 105-126, 03.
  12. 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.
  13. 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.
  14. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
  15. 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.
  16. Jamasb, Tooraj & Nillesen, Paul & Pollitt, Michael, 2004. "Strategic behaviour under regulatory benchmarking," Energy Economics, Elsevier, vol. 26(5), pages 825-843, September.
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