Carlo Cambini (Politecnico di Torino) & Elena Fumagalli ( Politecnico di Milano)
Abstract: Incentive regulation is moving towards new schemes where standard efficiency mechanisms are combined with output-based incentives (related to quality of supply, sustainability and innovation). Assessing performance of distribution utilities requires models capable to account for these different (in part conflicting) regulatory objectives. Benchmarking analysis has been in use for a long time; however, whether these models should incorporate even quality as an additional output is still a matter of debate.
Using continuity of supply as an example, we study how benchmarking DEA models can be adjusted to correctly accommodate all regulated variables. To this end, we estimate different models to measure technical efficiency, using a comprehensive and balanced panel for 115 electricity distribution Zones, that belong to the largest Italian distribution utility. Together with other structural variables, quality significantly contributes to explain differences in efficiency scores. We thus claim that benchmarking models should include (monetary) measures of regulated outputs.
Keywords: DEA, electricity distribution, incentive regulation, quality of supply.