An efficiency analysis of New Zealand electricity distributors over time
in: New Zealand and Australia in Focus: Economics, the Environment and Issues in Health Care, NOVA Publications , pp.61-87, 2012
- Publication Type: Book Chapter / Chapter Research Book
- Publication Date: 2012
- Publisher: NOVA Publications
- Page Numbers: pp.61-87
- Keywords: Efficiency, New zealand, Panel data, Regulation, Stochastic frontier analysis
- Ankara Yıldırım Beyazıt University Affiliated: No
Abstract
New Zealand's approach to the regulation of natural monopoly electricity distribution industry has been unique. From 1987 to 2002, the electricity distribution companies operated under a regulatory regime called light-handed or threat-based system with no industry-specific regulator. The light-handed regulation, of which the main base consisted of threats from the introduction of a regulatory authority and threats from potential competitors, was supported by mandatory information disclosures to identify possible excess profits by distribution companies. Thus the aim of this type of regulation was to curb the monopolistic behavior via self-regulation. This paper provides an empirical economic analysis of operational cost efficiencies of the New Zealand electricity distribution companies over the period where the light-handed regulation was replaced by the heavy-handed regulation. A stochastic frontier analysis consisting of a time-varying decay model is applied to estimate the operational costs of efficient distribution companies as a benchmark for the industry. The results indicate that the New Zealand electricity distribution companies' operational cost efficiency increases over time: the compound annual growth rate (CAGR) of the operational efficiency of the whole industry during the period 1998-1010 has been 2.38 % on average. Finally, further calculations using the estimates of the stochastic frontier analysis show that the New Zealand electricity distribution industry bore extra operational costs of $NZ 218.7 million per year (in 2010 prices) on average in comparison to the efficient frontier during the period 1998-2010. These figures correspond to extra annual operating costs of 1.12 $NZ cents per kilowatt hour (kWh) and $NZ 153.43 per customer (in 2010 prices) on average throughout the relevant period. © 2012 by Nova Science Publishers, Inc. All rights reserved.