Projects / Programmes
Benchmarking of public utilities in Slovenia as a device to assess their cost efficiency and regulation
| Code |
Science |
Field |
Subfield |
| 5.02.00 |
Social sciences |
Economics |
|
| Code |
Science |
Field |
| S180 |
Social sciences |
Economics, econometrics, economic theory, economic systems, economic policy |
| S185 |
Social sciences |
Commercial and industrial economics |
benchmarking, yardstick competition, competition, regulation, econometric regression analysis, technical efficiency, cost function, public utilities, local monopolies, gas distribution, electricity distribution, production and distribution of drinking water, sewerage and waste water treatment
Researchers (9)
Organisations (1)
Abstract
Slovenia is currently facing the dilemma of how to regulate the prices of public utilities operating as local monopolists. As regards the price regulation methodology of electricity distribution companies, the Energy Law proposes "price-cap" regulation. Further, prices within the gas distribution network ought to be determined under contract, while the prices of drinking and sewerage waters are set by the local community involved, where the upper limit on a permissible price increase is fixed by a special decree. The purpose of the research is to recommend the most appropriate price regulation model for public utilities in Slovenia (electricity, gas and water distribution companies) and to establish the optimal company size by performing a benchmarking analysis of the costs of utilities.
In the first part of the research we present fundamental models to estimate companies' cost and production functions. We also synthesise the most important empirical findings for foreign countries.
The second part of the research attempts to estimate the technical efficiency of distribution utilities in Slovenia. The study will be based on a panel data set for distribution companies over the 1994 - 2000 period (for some firms the period could also be shorter since we intend to obtain comparable data). An econometric analysis will take into account all relevant factors affecting utilities' technical efficiency (for example, in the case of gas distribution utilities: size of the distribution area, length of gas distribution network, number of customers served, total volume of gas sold, share of sales to households, maximum demand on the system). Since all the necessary data are not collected systematically they will have to be gathered via a questionnaire. For diversified companies providing many different services, collecting data separately for the electricity, gas and water distribution aspects is very important.
In the third and core part of the research, we will estimate the average cost function for distribution utilities (separately for electricity, gas and water distribution) by employing a multivariate econometric analysis. We will include all relevant factors that could affect companies' costs (for example, for gas distribution utilities: the price of capital, the price of labour, number of customers served, type of consumer, dispersion of consumers, total volume of gas sold, share of sales to different groups of consumers, load factor and geographical characteristics of the distribution area).
Based on the quality of the estimated cost functions (according to statistical significance tests) it will be concluded whether benchmarking analysis and yardstick competition can be employed by the Slovenian authorities in order to regulate the prices of distribution utilities. The results of the econometric cost estimation will allow us to establish the presence of any increasing returns to scale for Slovenian distribution utilities and decide whether the merging of small utilities is economically justified. The econometric cost estimation results will also provide a benchmark against which the relative performance of individual firms will be measured. We will thereby be able to measure potential areas of inefficiency of particular distribution utilities.
