Benchmarking Heterogeneous Distribution System Operators: Evidence from Norway
Regulatory authorities in the European electricity sector use benchmarking techniques to determine the cost-e_cient production level for an incentive regulation of distribution system operators (DSOs). With nearly 900 DSOs operating in the German electricity sector, of which 200 subject to incentive regulation, the issue of heterogeneity of DSOs has to be addressed. Using publicly available data of 133 Norwegian DSOs and replicating the model employed by the German regulator (who refuses access to the data), I show its assumption of homogeneous technology cannot be maintained. Quantile regressions (QR) across the cost distribution reveal heterogeneity in the coe_cients of the explanatory variables, resulting in biased e_ciency scores derived from stochastic frontier analysis. To correct for this heterogeneity in coe_cients, I propose a Bayesian estimation of a more flexible SFA with latent classes for selected parameters that reflect variation in technologies. This estimation has better goodness of fit, reduced variance of all coe_cients, and higher e_ciency scores for nearly all DSOs, compared to the conventional alternative.
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- Mehdi Farsi & Massimo Filippini, 2004.
"Regulation and Measuring Cost-Efficiency with Panel Data Models: Application to Electricity Distribution Utilities,"
Review of Industrial Organization,
Springer;The Industrial Organization Society, vol. 25(1), pages 1-19, August.
- Mehdi Farsi & Massimo Filippini, 2003. "Regulation and Measuring Cost Efficiency with Panel Data Models: Application to Electricity Distribution Utilities," CEPE Working paper series 03-19, CEPE Center for Energy Policy and Economics, ETH Zurich.
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- Astrid Cullmann & Mehdi Farsi & Massimo Filippini, 2009. "Unobserved Heterogeneity and International Benchmarking in Public Transport," Discussion Papers of DIW Berlin 960, DIW Berlin, German Institute for Economic Research.
- Cullmann, Astrid & Farsi, Mehdi & Filippini Massimo, 2009. "Unobserved Heterogeneity and International Benchmarking in Public Trasport," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0904, USI Università della Svizzera italiana.
- Massimo Filippini & Mehdi Farsi & Marie-Anne Plagnet & Roxana Saplacan, 2010. "Unobserved Heterogeneity and International Benchmarking in Public Transport," CEPE Working paper series 10-73, CEPE Center for Energy Policy and Economics, ETH Zurich.
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- William Rogers, 1993. "Quantile regression standard errors," Stata Technical Bulletin, StataCorp LP, vol. 2(9). Full references (including those not matched with items on IDEAS)
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