Efficiency analysis of energy networks: An international survey of regulators

Incentive regulation for networks has been an important part of the reform agenda in a number of countries. As part of this regulatory process, incentives are put in place to improve the cost efficiency of network companies by rewarding good performance relative to a pre-defined benchmark. The techniques used to establish benchmarks are central to the efficiency improvements that are ultimately achieved. Much experience has been gained internationally in the application of benchmarking techniques and we now have a solid understanding of the main indicators of best practice. What we are lacking is a more complete understanding of the factors that influence choice of methods by regulators. In this paper, we present the results of an international survey of energy regulators in 40 countries conducted electronically between June and October 2008. Regulators from European, Australasian and Latin American countries are represented in the survey. Our results show that benchmarking techniques are now widespread in the regulation of gas and electricity networks. Best practice, however, is limited to a small number of regulators. We conclude by summarising existing trends and offering some recommendations on overcoming barriers to best practice efficiency analysis.