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Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities

By D. Giannakis, Tooraj Jamasb and Michael G. Pollitt


Quality of service has emerged as an important issue in post-reform regulation of electricity distribution networks. Regulators have employed partial incentive schemes to promote cost saving, investment efficiency, and service quality. This paper presents a quality-incorporated benchmarking study of the electricity distribution utilities in the UK between 1991/92 and 1998/99. We calculate technical efficiency of the utilities using Data Envelopment Analysis technique and productivity change over time using quality-incorporated Malmquist indices. We find that cost efficient firms do not necessarily exhibit high service quality and that efficiency scores of cost-only models do not show high correlation with those of quality-based models. The results also show that improvements in service quality have made a significant contribution to the sector�s total productivity change. In addition, we show that integrating quality of service in regulatory benchmarking is preferable to cost-only approaches

Topics: Classification-JEL: L15, L51, L94, quality of service, benchmarking, incentive regulation, data envelopment analysis, electricity
Publisher: Faculty of Economics
Year: 2004
OAI identifier:
Provided by: Apollo

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