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Weather Factors and Performance of Network Utilities: A Methodology and Application to Electricity Distribution

Author

Listed:
  • Tooraj Jamasb

    (Department of Economics, Heriot-Watt University)

  • Luis Orea

    (Faculty of Economics, University of Cambridge Department of Economics, University of Oviedo)

  • Michael G. Pollitt

    (EPRG, Electricity Policy Research Group Judge Business School, University of Cambridge)

Abstract

Incentive regulation and efficiency analysis of network utilities often need to take the effect of important external factors, such as the weather conditions, into account. This paper presents a method for estimating the effect of weather conditions on the costs of electricity distribution networks using parametric techniques. It examines whether the use of popular statistical variable reduction techniques is conceptually and econometrically sound for analyzing the effect of weather on the network costs. In this paper we estimate cost functions with the whole set of weather variables, identifying, when necessary, a subset of variables that can accurately reflect the effects of weather conditions. We show that weather conditions significantly affect distribution costs and the absence of weather variables has a downward biased impact on the effect of quality on costs. Also, the performance of statistical weather composites to capture this effect is poor. Finally, we show that there is a distinction between the effects of persistent and time varying weather conditions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Tooraj Jamasb & Luis Orea & Michael G. Pollitt, 2010. "Weather Factors and Performance of Network Utilities: A Methodology and Application to Electricity Distribution," Working Papers EPRG 1020, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1020
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    Citations

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    Cited by:

    1. Llorca, Manuel & Orea, Luis & Pollitt, Michael G., 2016. "Efficiency and environmental factors in the US electricity transmission industry," Energy Economics, Elsevier, vol. 55(C), pages 234-246.
    2. Andaluz-Alcazar, Alvaro, 2012. "Choix d'investissement sous incertitude des gestionnaires des réseaux de distribution (GRD) en Europe à l'horizon 2030," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/10862 edited by Keppler, Jan Horst.
    3. Karim L. Anaya & Michael G. Pollitt, 2014. "Does Weather Have an Impact on Electricity Distribution Efficiency? Evidence from South America," Working Papers EPRG 1404, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    4. Greene, William & Orea, Luis & Wall, Alan, 2011. "A one-stage random effect counterpart of the fixed-effect vector decomposition model with an application to UK electricity distribution utilities," Efficiency Series Papers 2011/01, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    5. Rahmatallah Poudineh & Tooraj Jamasb, 2013. "Investment and Efficiency under Incentive Regulation: The Case of the Norwegian Electricity Distribution Networks," Working Papers EPRG 1306, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.

    More about this item

    Keywords

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    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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