Integrated cost and quality benchmarking for electricity distribution using DEA

Abstract

Purpose

Energy regulators applying price‐cap systems typically do not incorporate quality into the benchmarking process. The paper aims to develop a methodology for integrated cost‐quality benchmarking for electricity distribution networks.

Design/methodology/approach

Two basic models are developed namely a technical model which specifies quality as a minimising input factor, and a social cost model which measures the extent to which the provided quality level is optimal. The two models are applied to a sample of Dutch and UK firms.

Findings

The results suggest that integrated price‐quality benchmarking is an important regulatory asset but at the same time, its limitations should also be recognised.

Originality/value

Traditionally, benchmarking under price‐caps has been mostly restricted to the analysis in the area of costs. A truly integrated price‐quality benchmarking approach for electricity distribution networks is, however, lacking. This paper aims to fill this gap.

Citation

Ajodhia, V. (2010), "Integrated cost and quality benchmarking for electricity distribution using DEA", International Journal of Energy Sector Management, Vol. 4 No. 3, pp. 417-433. https://doi.org/10.1108/17506221011073888