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Benchmarking the performance of UK electricity distribution network operators: a study of quality, efficiency and productivity using data envelopment analysis

By Susila Munisamy-Doraisamy

Abstract

The aim of this thesis is twofold. The first is to develop a comprehensive methodology for assessing performance and then to apply it to the UK electricity distribution network operators (DNOs) to analyse the impact of the regulatory reforms and privatisation introduced in 1990-91 on their quality, efficiency and productivity developments. The models and methods developed will not only be useful in the electricity distribution context but also to other organisations that need to assess and monitor both their efficiency and quality. These objectives are realised through the use of the Data Envelopment Analysis (DEA) method, the main subject area of this thesis. This method has recently become very popular in the empirical literature due to the minimal assumptions underlying it, the case of handling multiple inputs and outputs, and its usefulness in the measurement of productivity.\ud \ud Performance measurement needs to keep pace with the changes in the industry. With the developments in energy and regulatory policy, and the enactment of the Utilities Act 2000, the focus of regulation has broadened from a narrow economic focus towards a wider one of protecting the interests of consumers. The latter includes not only price but also quality of service. Given this broadening focus, it is essential that performance measurement takes into account these aspects.\ud \ud This thesis incorporates new dimensions into efficiency and productivity measurement of electricity distribution network operators by taking into account the quality characteristics of electricity distribution operations. The dimensions of quality of service in electricity distribution were defined in this study, namely the quality of supply dimension and the quality of customer service dimension. Plausible measures of service quality were suggested. In order to provide a more balanced performance assessment, the new DEA model that incorporates the quantity as well as the quality of the services that distribution network operators provide their customers was used. In this study, only the quality of supply dimension was used in the analysis. (The quality of customer service dimension was omitted due to lack of data). Besides this, in order to achieve a more comprehensive assessment, both the operating and capital costs of distribution operations were included as inputs.\ud \ud The technological realities of the electricity distribution production process were captured in this study by taking into account the production trade-offs that exist between inputs and outputs. When trade-offs occur, the reduction in one factor can lead to increases in another, thereby reducing the overall reduction. The reflection of production trade-offs provides more reliable results than can be utilised in management and policy making. The production trade-offs were accounted by developing an enhanced DEA model using weight restrictions that are constructed on the basis of production trade-offs. The enhanced DEA model thus was referred to as the ‘weight-restricted’ model. This model developed was used to evaluate the DNOs efficiencies in 1999/00.\ud \ud A new productivity index called the ‘weight-restricted’ Malmquist productivity index was also developed in order to evaluate the quality and productivity changes of the DNOs since 1990/91. This new index is similar in spirit to the Malmquist productivity index but it reflects production trade-offs and service quality rather than just quantities per se. In this regard, the index is more appropriate to evaluate the DNOs. The index was decomposed in this study into its root components of efficiency change and technological change

Topics: TK, HD
OAI identifier: oai:wrap.warwick.ac.uk:2635

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