Social cost-efficient service quality—Integrating customer valuation in incentive regulation: Evidence from the case of Norway

In order to overcome the perverse incentives of excessive maintenance reductions and insufficient network investments arising with incentive regulation of electricity distribution companies, regulators throughout Europe have started regulating service quality. In this paper, we explore the impact of...

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Bibliographic Details
Published in:Energy policy 2010-05, Vol.38 (5), p.2536-2544
Main Authors: Growitsch, Christian, Jamasb, Tooraj, Müller, Christine, Wissner, Matthias
Format: Article
Language:English
Subjects:
Applied sciences
Cost-effectiveness
Data envelopment analysis
Economic data
Electric energy
Electricity
Electricity distribution
Electricity distribution Service quality Willingness-to-pay Data envelopment analysis
Energy
Energy economics
Energy industry
Exact sciences and technology
General, economic and professional studies
Impact analysis
Norway
Quality of service
Regulation
Service quality
Social costs
Studies
Willingness to pay
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Summary:In order to overcome the perverse incentives of excessive maintenance reductions and insufficient network investments arising with incentive regulation of electricity distribution companies, regulators throughout Europe have started regulating service quality. In this paper, we explore the impact of incorporating customers’ willingness-to-pay for service quality in benchmarking models on cost efficiency of distribution networks. Therefore, we examine the case of Norway, which features this approach to service quality regulation. We use the data envelopment analysis technique to analyse the effectiveness of such regulatory instruments. Moreover, we discuss the extent to which this indirect regulatory instrument motivates a socially desired service quality level. The results indicate that internalising external or social cost of service quality does not seem to have played an important role in improving cost efficiency in Norwegian distribution utilities.
ISSN:0301-4215
1873-6777
DOI:10.1016/j.enpol.2009.12.049