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Efficiency and Service Quality Analyses of the Natural Gas Distribution Companies: A Case Study of Turkey

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Energy Technology and Valuation Issues

Abstract

The Energy Market Regulatory Authority (EMRA) sets the tariff that determines the revenue requirements of the Turkish natural gas distribution companies by using a popular type of an incentive regulation, the price cap method. Generally, incentive regulation improves efficiency and reduces costs; on the other hand the companies may not be willing to increase the service quality in this kind of regulation. This chapter analyzes the efficiency and service quality of the Turkish natural gas distribution companies. The findings should also be of interest to regulators in other developing countries that are at the early stage of their natural gas market regulation. The companies’ efficiency scores are evaluated both by non-parametric and parametric methods, Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) respectively. The same distribution companies are ranked by the service quality scores that are obtained from service quality data. The results are used to determine the relationship between efficiency and service quality of the companies, to decide on the effectiveness of the regulation and to suggest a reward/penalty scheme for the tariff design.

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Notes

  1. 1.

    Storage activity has to be regulated if there is no or limited competition especially due to insufficient storage capacity.

  2. 2.

    BOTAŞ is the state-owned wholesale company that imports around 75 % of the natural gas consumption and also the operator of the transmission system.

  3. 3.

    Operating less than 5–6 years.

  4. 4.

    In the rest of the chapter these seven companies will be referred as “old companies”.

  5. 5.

    In the rest of the chapter, these 57 companies will be referred as “new companies”.

  6. 6.

    The Natural Gas Market Law states that in case the distribution company, whose licence term has been expired, requests from the Authority to renew its city distribution licence 1 year before the expiry of the licence term, the Board may grant a second distribution licence by taking into consideration technical and economic power, service quality of the company, its subscribers’ satisfaction and other issues to be determined by the regulations to be issued by the Authority. By the Natural Gas Market Tariffs Regulation, provision of adequate amount of natural gas of good quality to consumers, at low cost, and in a safe and reliable manner, and principles of non-discrimination and transparency shall be taken as a basis in preparation of the tariffs. The Natural Gas Distribution and Customer Services Regulation states that a distribution company in the event of an emergency intervention should arrive at the scene within 15 min at the latest, should keep a high level of service quality and should contain at least two maintenance—repair vehicles up to 50,000 subscribers. The company should provide a vehicle for each additional 50,000 subscribers.

  7. 7.

    A consumer is counted as an “extraordinary consumer” if the yearly consumption exceeds 10,000,000 m3. In the rest of the chapter, a consumer who consumes below 10,000,000 m3 will be referred as an “ordinary consumer”.

Abbreviations

AE:

Allocative Efficiency

BOTAŞ:

Boru Hatları ve Petrol Taşıma A.Ş.

CAPEX:

Capital Expenditures

CE:

Cost Efficiency

CRS:

Constant Returns to Scale

crste:

Technical Efficiency from Constant Returns to Scale

DEA:

Data Envelopment Analysis

EMRA:

Energy Market Regulatory Authority

HDD:

Heating Degree Day

NGML:

Natural Gas Market Law

OPEX:

Operational Expenditures

ROR:

Rate of Return

SFA:

Stochastic Frontier Analysis

TE:

Technical Efficiency

VRS:

Variable Returns to Scale

vrste:

Technical Efficiency from Variable Returns to Scale

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Authors and Affiliations

  1. Energy Market Regulatory Authority, Ankara, Turkey

    Okan Yardımcı

  2. Hacettepe University, Ankara, Turkey

    Mehmet Baha Karan

Authors
  1. Okan Yardımcı
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  2. Mehmet Baha Karan
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Corresponding author

Correspondence to Okan Yardımcı .

Editor information

Editors and Affiliations

  1. Department of Finance, Faculty of Economics and Business Administration, VU University Amsterdam, Amsterdam, The Netherlands

    André Dorsman

  2. Department of Finance, University of Groningen Faculty of Economics and Business, Groningen, The Netherlands

    Wim Westerman

  3. School of Economics and Finance, Curtin University Curtin Business School, Perth, West Australia, Australia

    John L. Simpson

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Yardımcı, O., Karan, M.B. (2015). Efficiency and Service Quality Analyses of the Natural Gas Distribution Companies: A Case Study of Turkey. In: Dorsman, A., Westerman, W., Simpson, J. (eds) Energy Technology and Valuation Issues. Springer, Cham. https://doi.org/10.1007/978-3-319-13746-9_9

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