An increasing number of countries are adopting incentive regulation to promote efficiency improvement in electricity transmission and distribution utilities. Incentive regulation almost invariably involves some form of benchmarking or comparison of actual versus some reference performance. This paper discusses the main benchmarking methods and presents the findings of a survey of the methods used in the OECD and a few other countries. We find and discuss a variety of methods used by the regulators with a notable preference for the non-parametric methods. The paper also outlines the main outstanding issues and lessons for best practice implementation of benchmarking for regulation.
- Incentive regulation