EP 19

Tooraj Jamasb, Paul Nillesen, Michael Pollitt

Strategic Behaviour under Regulation Benchmarking

EP 19  | Non-Technical Summary | PDF

Abstract: Liberalisation of generation and supply activities in the electricity sectors is often followed by regulatory reform of distribution networks. In order to improve the efficiency of
distribution utilities, some regulators have adopted incentive regulation schemes that rely on performance benchmarking. Although regulation benchmarking can influence the “regulation game”, the subject
has received limited attention. This paper discusses how strategic behaviour can result in inefficient behaviour by firms. We also present a survey of issues encountered by electricity regulators. We then use the
Data Envelopment Analysis (DEA) method with US utility data to examine implications of selected cases of strategic behaviour. The results show that gaming can have significant effects on the measured performance and profitability of firms.

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