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Econometric Benchmarking of Cost Performance: The Case of U.S. Power Distributors

Benchmarking of cost efficiency has growing use in energy utility regulation. The state of the art has been limited in many countries by the small size of available national data sets and poor data on capital cost. Data available in the United States place fewer constraints on benchmarking methods. This paper develops an econometric cost benchmarking model for power distribution that is based on U.S. data. The model can address total cost and its major components. Numerous cost drivers are identified. Statistical tests of efficiency hypotheses are performed. The cost performances of utilities are compared to the industry norm. The suitability of the alternative frontier standard in regulatory applications is discussed.

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Energy Specializations: Electricity – Local Distribution; Electricity – Markets and Prices ; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes: D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, C51: Model Construction and Estimation, Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, C43: Index Numbers and Aggregation; Leading indicators, Q54: Climate; Natural Disasters and Their Management; Global Warming, D22: Firm Behavior: Empirical Analysis

Keywords: Electric utilities, benchmarking, US, performance, panel data

DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No3-4

Published in Volume 26, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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