Electricity Reform in Chile: Lessons for Developing Countries

Chile was the first country in the world to implement a comprehensive reform of its electricity sector in the recent period. Among developing countries only Argentina has had a comparably comprehensive and successful reform. This paper traces the history of the Chilean reform, which began in 1982, and assesses its progress and its lessons. We conclude that the reform has been very successful. We suggest lessons for the generation, transmission and distribution sectors, as well as the economic regulation of electricity and the general institutional environment favourable to reform. We note that while the initial market structure and regulatory arrangements did give rise to certain problems, the overall experience argues strongly for the private ownership and operation of the electricity industry.Chile, electricity, restructuring, regulation, privatisation.

The Consequences for Consumer Welfare of the 2001-2003 Electricity Distribution Price Review in The Netherlands

The Dutch regulatory process for setting the first X-Factors in the electricity distribution sector has gone badly wrong. During two-and-a-half years four different X-Factors were published by the regulator. These X-Factors fluctuated wildly. We demonstrate that Dutch electricity consumers will pay at least €300mln. more over three years for the distribution of electricity than might otherwise have been the case. We estimate that benefits for companies in terms of extra revenue from lowered X-Factors amounts to 3~5 percent of total asset value. We provide a history of the regulatory process and analyse the impact of the different X-Factors on the final bills of consumers. The negative political reaction to the perceived problems of regulation has hampered the course of deregulation and the privatisation of the municipally-owned electricity companies. The Minister of Economic Affairs and the majority of Parliament want the complete ownership unbundling of the sector by 1 January 2007.electricity, price review, RPI-X, Netherlands, distribution networks

Who Influences Debates in Business Ethics? An Investigation into the Development of Corporate Governance in the UK since 1990.

We investigate the influences behind five major investigations into corporate governance in the UK since 1990: the Cadbury, Greenbury, Hampel and Turnbull Committees, and the Company Law Review. In each case we examine the roles of business, the authorities, public opinion and events in shaping the course of the investigation, its conclusions and its impact. We do this on the basis of interviews with members of the committees and analysis of newspaper coverage of the debates. The picture that emerges is one where the process of forming the investigating committee, its membership and its mode of operation strongly influence its recommendations and effectiveness. We draw conclusions that contrast the strong influence of the accountancy and legal professions in shaping the debate and the varied influence of the authorities, the media and events. Copyright Permission: Based on a chapter in Palgrave's forthcoming book: Jones, I & Pollitt, M (2002) Understanding How Issues in Business Ethics Develop. Reprinted with kind permission of the publisher.corporate governance, business ethics, influences, Cadbury Report, Greenbury Report, Hampel Report, Turnbull Report,Company Law Review

Relative Performance of UK and Japanese Electricity Distribution Systems 1985-1998: Lessons for Incentive Regulation

International comparisons can be used to study relative efficiency of decision-making units in an industry in a wider context. In particular, cross-country comparisons can, help regulators of natural monopoly firms to assess the relative performance of their regulation regime and national firms with those of other countries. The relative performance of frontier firms is important as these may be subject to lax regulation and could constitute benchmarks for regulation of other firms. The results of empirical studies can be sensitive to the choice of techniques and models. The UK and Japanese electricity distribution utilities have been subject to yardstick regulation since 1990 and 1996 respectively. In this paper we present an analysis of the development and relative performance of electricity distribution utilities in the UK and Japan between 1985 and 1998. The results allow the examination of the impact of privatisation and regulation on the UK firms and their scope for further efficiency gains. The paper presents the findings from applying input distance functions with data envelopment analysis (DEA), stochastic frontier analysis (SFA), and corrected ordinary least square (COLS) techniques using cost based model specifications in a dynamic setting.Technical Efficiency, Efficiency Analysis, Electricity Distribution Systems, Incentive Regulation, International Comparison

Modelling the Costs of Electricity Regulation: Evidence of Human Resource Constraints in Developing Countries

Successful electricity industry reform depends on the presence of an appropriately staffed regulatory agency for the liberalised sector. However developing countries can have resource constraints that make the establishment of an effective regulatory agency difficult. This paper attempts an econometric modelling of staff numbers in electricity regulatory institutions. We specify a model of the determinants of staff numbers that reflects electricity system complexity as well as national economic and regulatory environments. We empirically estimate a translog cost function specification of the model using data on 60 electricity regulators collected from an international questionnaire survey in 2000-01. We conclude that there are significant differences between the regulatory cost functions of developed and developing countries and that, in establishing independent regulatory agencies, developing countries face high fixed costs relative to market size.Electricity Regulation; International Comparisons; Human Resources

How do Multinationals Build Social Capital? Evidence from South Africa.

This paper looks at the self-reporting of social engagement by multinational firms in South Africa, developing previous measures of social capital to fit the unique context of the multinational firm in particular mapping the configurations of declared engagement and the firms' provision. It finds large intersectoral variation which cannot be predicted by one factor alone, and sometimes wide intrasectoral variation. In particular (and for different reasons) 'extractive' and 'industrial' sector firms traditionally criticised for their impact on communities - and 'medical' sector firms are engaged in practices conducive to the generation of social capital.Social Capital, Corporate Social Responsibility, Business Ethics, South Africa, Multinational Companies

‘Electricity Reform in Argentina: Lessons for Developing Countries’

Argentina was one of the first countries in the world to implement a comprehensive reform of its electricity sector in the recent period. Among developing countries only Chile has had a comparably comprehensive and successful reform. This paper traces the history of the Argentine reform, which began in 1992, and assesses its progress and its lessons. We conclude that the reform was very successful prior to the collapse of the Argentine peso in early 2002. We suggest lessons for the generation, transmission and distribution sectors, as well as the economic regulation of electricity and the general institutional environment favourable to reform. We note that the achievements of the sector are now threatened by the delays in tackling the financial consequences of the peso devaluation.Argentina, electricity, restructuring, regulation, privatisation.

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

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.quality of service, benchmarking, incentive regulation, data envelopment analysis, electricity

International benchmarking of Electricity Transmission by Regulators: Theory and Practice

Benchmarking of electricity networks has a key role in sharing the benefits of efficiency improvements with consumers and ensuring regulated companies earn a fair return on their investments. This paper analyses the theory and practice of international benchmarking of electricity transmission by regulators. We examine the literature relevant to electricity transmission benchmarking and conduct a survey of 48 national electricity regulators. Consideration of the literature and our survey indicates that electricity transmission benchmarking is significantly more challenging than electricity distribution benchmarking. New panel data techniques aimed at dealing with unobserved heterogeneity and the validity of the comparator group look intellectually promising but are in their infancy for regulatory purposes. In electricity transmission choosing variables is particularly difficult, because of the large number of potential variables to choose from. Failure to apply benchmarking appropriately may negatively affect investors’ willingness to invest in the future. While few of our surveyed regulators acknowledge that regulatory risk is currently an issue in transmission benchmarking, many more concede it might be. New regulatory approaches – such as those based on tendering, negotiated settlements, a wider range of outputs or longer term grid planning - are emerging and will necessarily involve a reduced role for benchmarking

Energy-efficiency and environmental policies & income supplements in the UK: Their evolution and distributional impact in relation to domestic energy bills

The paper examines the financial costs of energy-efficiency and environmental policies that directly affect domestic electricity and gas bills in the UK over time. It also attempts for the first time to work out the current distributional impacts of these policies and others that act as income supplements thereby presenting a consistent picture across time and income deciles. Figures suggest that during 2000-11, the percentage share of policy costs in typical domestic electricity and gas bills rose by 14% and 4%, respectively. This reflects a growing share of policy costs in bills which is relatively small for gas customers but significant for electricity customers. Moreover, distributional impacts of the energy-policy mix highlight the issue of imperfect targeting of low-income households during 2009-10. The study also indicates that during 2010-11, 76% of the funds for energy-efficiency schemes were handled by the private sector. Given that a long-term solution to fuel poverty lies in improving thermal efficiency of houses; this research draws attention towards the need for definitive evidence on the ways in which energy suppliers charge policy costs from their domestic customers. This would facilitate in making the future policies more empirically grounded. In time, a clearer understanding of official statistics on energy bills will go a long way in restoring consumers’ trust in the pricing mechanism of the energy market