Keywords:
Published in:
Publication year: 2007
Co-author 1: Aurelio Fetz
Co-author 2: Massimo Filippini

This paper explores the economies of scale and scope in the electricity, gas and water utilities. These issues have a crucial importance in the actual policy debates about unbundling the inte-grated utilities into separate entities, a policy which has often been supported by the ongoing reforms in the deregulation of network industries. This paper argues that the potential im-provements in efficiency through unbundling should be assessed against the loss of scope economies. Several econometric specifications including a random-coefficient model have been used to estimate a cost function for a sample of utilities distributing electricity, gas and/or water to the Swiss population. The estimates of scale and scope economies have been compared across different models and the effect of heterogeneity among companies have been explored. While indicating considerable scope and scale economies overall, the results sug-gest a significant variation in scope economies across companies due to unobserved heterogeneity.

Keywords:
Published in:
Publication year: 2007
Co-author 1: Aurelio Fetz
Co-author 2: Massimo Filippini

In the last two decades electricity distribution sector have witnessed a wave of regulatory reforms aimed at improving efficiency through incentive regulation. Most of these regulation schemes use benchmarking namely measuring a company’s efficiency and rewarding them accordingly. The reliability of efficiency estimates is crucial for an effective implementation of those incentive mechanisms. A main problem faced by the regulators is the choice among several legitimate benchmarking models that usually produce different results. After a brief overview of the benchmarking methodologies, this paper summarizes the methods used in the regulation practice in several OECD countries, in which the benchmarking practice is relatively widespread. Repeated observation of similar companies over time namely panel data, allows a better understanding of unobserved firm-specific factors and disentangling them from efficiency estimates. Focusing on parametric cost frontier models, this paper presents two alternative approaches that could be used to improve the reliability of benchmarking methods, and based on recent empirical evidence, draws some recommendations for regulatory practice in power distribution networks.

Keywords: choice experiment, willingness to pay, risk aversion, energy efficiency, housing
Published in:
Publication year: 2007

This paper extends the linear utility model commonly used for estimating the willingness to pay for non-market goods to a non-linear model with decreasing marginal utility. The proposed approach relaxes the assumption of constant rate of substitution between income and non-market commodities, an assumption which can be especially restrictive in cases when the non-market good is a luxury commodity or a new good whose benefits are not completely known. The adopted non-linear formulation can therefore accommodate risk-averse behavior with respect to nonmarket goods particularly when the non-market attributes are measured by discrete variables. The proposed models have been applied to data from a choice experiment for energy efficiency measures in apartment buildings. The econometric specification is based on a fixed-effect logit model. The results suggest that ignoring consumers’ risk-aversion toward new non-market goods could lead to an underestimation of the marginal willingness to pay. However, consistent with previous studies the non-linear effect of income does not have a considerable effect on the estimation results.