Investment and Efficiency under Incentive Regulation: The Case of the Norwegian Electricity Distribution Networks
Following the liberalisation of the electricity industry since the early 1990s, many sector regulators have recognised the potential for cost efficiency improvement in the networks through incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in cost efficiency and quality of service improvement. However, there remains a growing concern as to whether the utilities invest sufficiently and efficiently in maintaining and modernising the networks to ensure long term reliability and also to meet future challenges of the grid. This paper analyses the relationship between investments and cost efficiency in the context of incentive regulation with ex-post regulatory treatment of investments using a panel dataset of 126 Norwegian distribution companies from 2004 to 2010. We introduce the concept of “no impact efficiency” as a revenue-neutral efficiency effect of investment under incentive regulation which makes a firm “investment efficient” in cost benchmarking practice. Also, we estimate the observed efficiency effect of investments in order to compare with no impact efficiency and discuss the implication of cost benchmarking for investment behaviour of network companies.
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.:
- Roques, Fabien A. & Savva, Nicos, 2009. "Investment under uncertainty with price ceilings in oligopolies," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 507-524, February.
- Hirschhausen, Christian von, 2008. "Infrastructure, regulation, investment and security of supply: A case study of the restructured US natural gas market," Utilities Policy, Elsevier, vol. 16(1), pages 1-10, March.
- Tovar, Beatriz & Javier Ramos-Real, Francisco & de Almeida, Edmar Fagundes, 2011. "Firm size and productivity. Evidence from the electricity distribution industry in Brazil," Energy Policy, Elsevier, vol. 39(2), pages 826-833, February.
- Gal-Or, Esther & Spiro, Michael H, 1992. "Regulatory Regimes in the Electric Power Industry: Implications for Capacity," Journal of Regulatory Economics, Springer, vol. 4(3), pages 263-78, September.
- Carlo Cambini & Laura Rondi, 2010. "Incentive regulation and investment: evidence from European energy utilities," Journal of Regulatory Economics, Springer, vol. 38(1), pages 1-26, August.
- Growitsch, Christian & Jamasb, Tooraj & Wetzel, Heike, 2012. "Efficiency effects of observed and unobserved heterogeneity: Evidence from Norwegian electricity distribution networks," Energy Economics, Elsevier, vol. 34(2), pages 542-548.
- 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.
- Joskow Paul L., 2008. "Incentive Regulation and Its Application to Electricity Networks," Review of Network Economics, De Gruyter, vol. 7(4), pages 1-14, December.
- 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.
- Christian Growitsch & Jamasb, T. & Pollitt, M., 2005.
"Quality of Service, Efficiency and Scale in Network Industries: An analysis of European electricity distribution,"
Cambridge Working Papers in Economics
0538, Faculty of Economics, University of Cambridge.
- Christian Growitsch & Tooraj Jamasb & Michael Pollitt, 2009. "Quality of service, efficiency and scale in network industries: an analysis of European electricity distribution," Applied Economics, Taylor & Francis Journals, vol. 41(20), pages 2555-2570.
- Christian Growitsch & T. Jamasb & M. Pollitt, 2005. "Quality of Service, Efficiency, and Scale in Network Industries: An Analysis of European Electricity Distribution," IWH Discussion Papers 3, Halle Institute for Economic Research.
- Coelli, Tim J. & Gautier, Axel & Perelman, Sergio & Saplacan-Pop, Roxana, 2013. "Estimating the cost of improving quality in electricity distribution: A parametric distance function approach," Energy Policy, Elsevier, vol. 53(C), pages 287-297.
- Vogelsang, Ingo, 2002. "Incentive Regulation and Competition in Public Utility Markets: A 20-Year Perspective," Journal of Regulatory Economics, Springer, vol. 22(1), pages 5-27, July.
- Jamasb, T. & Orea, L. & Pollitt, M.G., 2010. "Estimating Marginal Cost of Quality Improvements: The Case of the UK Electricity Distribution Companies," Cambridge Working Papers in Economics 1052, Faculty of Economics, University of Cambridge.
- Abhiman Das & Subal C. Kumbhakar, 2012. "Productivity and efficiency dynamics in Indian banking: An input distance function approach incorporating quality of inputs and outputs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(2), pages 205-234, 03.
- Thomas P. Lyon & John W. Mayo, 2005. "Regulatory Opportunism and Investment Behavior: Evidence from the U.S. Electric Utility Industry," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 628-644, Autumn.
- E. Markou & C. Waddams Price, 1999. "UK utilities: Past reform and current proposals," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 70(3), pages 371-416, 09.
- Artur Morgado & Julio Pindado, 2003. "The Underinvestment and Overinvestment Hypotheses: an Analysis Using Panel Data," European Financial Management, European Financial Management Association, vol. 9(2), pages 163-177.
- Hess, Borge & Cullmann, Astrid, 2007. "Efficiency analysis of East and West German electricity distribution companies - Do the "Ossis" really beat the "Wessis"?," Utilities Policy, Elsevier, vol. 15(3), pages 206-214, September.
- Abrate, Graziano & Erbetta, Fabrizio, 2010. "Efficiency and patterns of service mix in airport companies: An input distance function approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(5), pages 693-708, September.
When requesting a correction, please mention this item's handle: RePEc:cam:camdae:1310. 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: (Howard Cobb)
If references are entirely missing, you can add them using this form.