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A New Perspective: Investment and Efficiency under Incentive Regulation

Rahmatallah Poudineh and Tooraj Jamasb

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.rpou
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Abstract:
Following the liberalisation of the electricity industry since the early 1990s, many sector regulators have adopted incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in efficiency and quality of service improvement. However, there remains a growing concern as to whether the utilities invest sufficiently and efficiently in maintaining and modernising their networks. This paper studies the relationship between investments and cost efficiency in the context of incentive regulation with ex-post regulatory treatment of investments using a panel dataset of 129 Norwegian distribution companies from 2004 to 2010. We introduce the concept of "no impact efficiency" as a revenue-neutral efficiency effect of investment under incentive regulation that makes a firm "investment efficient" in cost benchmarking. Also, we estimate the observed efficiency effect of investments and compare these with the no impact efficiency. Finally, we discuss the implications of cost benchmarking for investment behaviour of network companies.



Electricity Supply Interruptions: Sectoral Interdependencies and the Cost of Energy Not Served for the Scottish Economy

Rahmatallah Poudineh and Tooraj Jamasb

Year: 2017
Volume: Volume 38
Number: Number 1
DOI: 10.5547/01956574.38.1.rpou
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Abstract:
Modern economies and infrastructure sectors rely upon secure electricity supplies. Due to sectoral interdependencies, major interruptions cause cascading effects in the economy. This paper investigates the economic effects of major power supply disruptions taking such interdependencies into account. We apply a dynamic in-operability input-output model (DIIM) to 101 sectors, including households, of the Scottish economy in 2009 to explore the direct, indirect, and induced effects of supply interruptions. We estimate the societal cost of energy not supplied (SCENS) due to an interruption. The results show that the most economically affected industries, following an outage, are different from the most inoperable ones. The results also indicate that SCENS varies with the duration of a power cut, ranging from �4,300/MWh for a one-minute outage to �8,100/MWh for a three-hour (and higher) interruption. The results can be used to design policies for contingencies and preventive investments in the power sector.





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