Benchmarking of Electricity Networks: Practical Problems with its Use for Regulation
1 December 2005
By Graham Shuttleworth
Benchmarking, a technique derived for management purposes, is intended to identify outliers in any population as possible problems for resolution. Several regulatory agencies have tried to use benchmarking to define the degree of inefficiency of regulated companies, by reference to some target or frontier. In this article from Utilities Policy, NERA Director Graham Shuttleworth identifies the main problem inherent in trying to adapt a management technique to a regulatory purpose: it requires the exercise of subjective judgments. Because the resulting lack of predictability and objectivity is not conducive to the provision of efficient regulatory incentives, Mr. Shuttleworth concludes that though benchmarking can help to focus regulatory enquiries, it shows no prospect of becoming a substitute for detailed evaluation of each regulation utility's own costs.
