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Does Weather Explain the Cost and Quality? An Analysis of UK Electricity Distribution Companies

Author

Listed:
  • William Yu

    (Judge Business School, University of Cambridge)

  • Tooraj Jamasb

    (Faculty of Economics, University of Cambridge)

  • Michael Pollitt

    (Judge Business School, University of Cambridge)

Abstract

In recent years, a number of empirical studies and energy regulators have applied benchmarking techniques to measure the efficiency and performance of network utilities. An important issue has been the extent to which such results are influenced by contextual factors. Among these, weather factors are frequently discussed as being important. We use Factor Analysis and two-stage Data Envelopment Analysis techniques to examine the effect of a set of important weather factors (gale, hail, temperatures, rainfall and thunder) on the performance of electricity distribution networks in the UK. The results indicate that such factors often do not have a significant economic and statistical effect on the overall performance of the utilities. The weather parameters in some models are significant in terms of economic efficiency. After excluding network length from the outputs, the weather effect becomes less significant in the model. Hence, the network length is counteracting the weather effect. The results echo our previous findings of the importance of extending the basic model to include other inputs such as Totex, CML and network energy losses in regulatory benchmarking.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • William Yu & Tooraj Jamasb & Michael Pollitt, 2008. "Does Weather Explain the Cost and Quality? An Analysis of UK Electricity Distribution Companies," Working Papers EPRG 0827, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg0827
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    References listed on IDEAS

    as
    1. Yang, Hongliang & Pollitt, Michael, 2009. "Incorporating both undesirable outputs and uncontrollable variables into DEA: The performance of Chinese coal-fired power plants," European Journal of Operational Research, Elsevier, vol. 197(3), pages 1095-1105, September.
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    3. P. Nillesen & M. Pollitt, 2010. "Using Regulatory Benchmarking Techniques to Set Company Performance Targets: The Case of Us Electricity," Competition and Regulation in Network Industries, Intersentia, vol. 11(1), pages 50-85, March.
    4. Jamasb, Tooraj & Pollitt, Michael, 2007. "Incentive regulation of electricity distribution networks: Lessons of experience from Britain," Energy Policy, Elsevier, vol. 35(12), pages 6163-6187, December.
    5. Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, vol. 9(3), pages 107-130, September.
    6. Sailor, David J. & Muñoz, J.Ricardo, 1997. "Sensitivity of electricity and natural gas consumption to climate in the U.S.A.—Methodology and results for eight states," Energy, Elsevier, vol. 22(10), pages 987-998.
    7. 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.
    8. William Yu & Tooraj Jamasb & Michael Pollitt, 2007. "Incorporating the Price of Quality in Efficiency Analysis: the Case of Electricity Distribution Regulation in the UK," Working Papers EPRG 0713, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    9. Pekka Korhonen & Mikko Syrjänen, 2003. "Evaluation of Cost Efficiency in Finnish Electricity Distribution," Annals of Operations Research, Springer, vol. 121(1), pages 105-122, July.
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    Cited by:

    1. Haney, Aoife Brophy & Pollitt, Michael G., 2009. "Efficiency analysis of energy networks: An international survey of regulators," Energy Policy, Elsevier, vol. 37(12), pages 5814-5830, December.
    2. Humberto Brea-Solis & Sergio Perelman & David Saal, 2017. "Regulatory incentives to water losses reduction: the case of England and Wales," Journal of Productivity Analysis, Springer, vol. 47(3), pages 259-276, June.

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    More about this item

    Keywords

    Data Envelopment Analysis; electricity; weather; quality of service;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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