Theory, Techniques, and Applications of Regulatory Benchmarking and Productivity Analysis

Abstract

State-of-the-art benchmarking methods, and in particular data envelopment analysis (DEA) and stochastic frontier analysis (SFA), are well-established and informative tools in economic regulation to set reasonable revenue caps for energy network operators. However, regulatory benchmarking is not just another application of productivity analysis. This chapter reviews the economic theory upon which these applications are based and the additional stages in activity analysis, data analysis, and model development that are necessary. The chapter also provides detailed analyses of the applications in international electricity transmission and for the Norwegian electricity distribution networks.