A New Perspective: Investment and Efficiency under Incentive Regulation

Poudineh, R.; Jamasb, T.

doi:10.5547/01956574.36.4.rpou

A New Perspective: Investment and Efficiency under Incentive Regulation

Poudineh, R.; Jamasb, T.

Authors

R. Poudineh

T. Jamasb

Abstract

Following the liberalisation of the electricity industry since the early 1990s, many sector regulators have adopted incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in 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 their networks. This paper studies 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 129 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 that makes a firm "investment efficient" in cost benchmarking. Also, we estimate the observed efficiency effect of investments and compare these with the no impact efficiency. Finally, we discuss the implications of cost benchmarking for investment behaviour of network companies.

Citation

Poudineh, R., & Jamasb, T. (2015). A New Perspective: Investment and Efficiency under Incentive Regulation. The Energy Journal, 36(4), 241-263. https://doi.org/10.5547/01956574.36.4.rpou

Journal Article Type	Article
Publication Date	Oct 1, 2015
Deposit Date	Jun 9, 2014
Publicly Available Date	Jul 25, 2014
Journal	Energy Journal
Print ISSN	0195-6574
Electronic ISSN	1944-9089
Publisher	International Association for Energy Economics
Peer Reviewed	Peer Reviewed
Volume	36
Issue	4
Pages	241-263
DOI	https://doi.org/10.5547/01956574.36.4.rpou
Keywords	Investments, Cost efficiency, Incentive regulation, Distribution network, No impact efficiency.
Public URL	https://durham-repository.worktribe.com/output/1428760