Aligning Quality Incentives and Tariff Adjustments: The Case of the Brazilian Electricity Distribution Sector

Maria Corton, Michelle Phillips and Zimmermann Aneliese
Additional contact information
Zimmermann Aneliese: University of St. Gallen, St. Gallen, Switzerland

Review of Network Economics, 2019, vol. 18, issue 1, 35-62

Abstract: This study investigates the role of aligning tariff adjustments and quality incentives in a Price cap regulatory regime. According to theory costs and quality are positively related. If additional resources are needed to improve service quality, a high cost high quality utility could be at a disadvantage when tariffs are adjusted by an X-factor that does not include quality. The regulator of the electricity distribution sector of Brazil has set up a public ranking of utilities according to quality compliance at the same time that a quality component is added to the X-factor, in 2013. We develop a stochastic cost frontier integrating all components of the X-factor to rank the utilities based on this integrated efficiency. Comparing this rank with the regulator’s public rank we argue that the resulting differences highlight the importance of using the same factors to rank and adjust tariffs in the sector. Otherwise, incentives would be misplaced with respect to factors used in cost adjustments. In addition, our findings reveal that the utilities’ cost behavior with respect to quality depends on the volume of energy delivered. We believe these results could be considered by the regulator when setting incentives and considering factors to adjust tariffs.

Keywords: benchmark; C33; efficiency ranking; L51; L98; panel data; SFA (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.degruyter.com/view/j/rne.2019.18.issue ... -0044.xml?format=INT (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Journal Article: Aligning Quality Incentives and Tariff Adjustments: The Case of the Brazilian Electricity Distribution Sector (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:rneart:v:18:y:2019:i:1:p:35-62:n:2

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/rne/html

DOI: 10.1515/rne-2019-0044

Access Statistics for this article

Review of Network Economics is currently edited by Lukasz Grzybowski

More articles in Review of Network Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().