Abstract
In this paper, we give an overview of the Norwegian regulation of electricity networks after the Energy Act of 1990 and the deregulation of the electricity markets in 1991. We concentrate on the regulatory oversight of distribution network companies and regional transmission. Our main focus is on the benchmarking models, including the application of their results, in the three periods of incentive regulation that we have seen so far, after its introduction in 1997. We examine the various data envelopment analysis (DEA) models that have been used, and we describe specific issues driving their development and how the results have been used.
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Notes
- 1.
There could, however, also be ratchet effects, since total cost formed the basis for revenues in the next 5-year period.
- 2.
Operating and maintenance costs from the year t − 2 were adjusted for inflation, depreciation set equal to the accounting values in the year t − 2, while network losses (NL) were found by taking the losses in MWh in the year t − 2 and multiplying by an average area price (based on Nord Pool Spot) for the year t. The cost of capital was found by multiplying the book value (BV) of the company assets at 31.12 in the year t − 2 by the NVE rate of return, r NVE , for the year t. This regulated rate of return is determined annually, based on a risk free rate of return and a risk premium. Finally, total cost includes the value of lost load (VOLL) which is calculated as lost load times a unit price, with different unit prices for various customer groups.
- 3.
COLS estimates model parameters using OLS and shifts the intercept of the regression line such that it passes through the minimum observation (Lowry and Getachew 2009).
- 4.
The interest rate is 5%, and the operating costs have been set equal to the annuity-based capital costs.
- 5.
In the cost efficiency model used in the first two regulation periods, the factor price for capital in the book value model was set equal to the sum of the depreciation rate and the interest rate, where the depreciation rate was calculated as depreciation divided by book value. Since book values decrease with age, and depreciation is constant, factor prices will differ due to age.
- 6.
See Dyson et al. (2001).
- 7.
The formulas can be found in Kittelsen (1993).
- 8.
See NVE (2006b).
- 9.
For 2007, the initial DEA analyses were based on data from 2005, and the re-evaluation in the second step was against a dataset from 2004. For 2008 and 2009, the re-evaluation dataset was created by taking averages of the datasets for the periods 2004–2005 and 2004–2006, respectively.
- 10.
Time lags are not considered. Also, the regulator has gradually increased the number of years that the dataset in the second step is based on, cf. footnote 9.
- 11.
See NVE (2006a).
- 12.
See Bjørndal et al. (2008).
- 13.
In 2007, calibration method A was used in order to achieve this, and in 2008 method C was used.
- 14.
In total, the companies were not given compensation for time lags, although, as pointed out by Bjørndal et al. (2008b), they should be. As a consequence, reporting time lags have been removed from the regulation since 2009.
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Bjørndal, E., Bjørndal, M., Fange, KA. (2010). Benchmarking in Regulation of Electricity Networks in Norway: An Overview. In: Bjørndal, E., Bjørndal, M., Pardalos, P., Rönnqvist, M. (eds) Energy, Natural Resources and Environmental Economics. Energy Systems. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-12067-1_18
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