Abstract
Price-cap regulation is widely applied to network industries. However, regulators often encounter the problem of asymmetric information on efficient costs. Benchmarking can help reduce this problem. We present a benchmarking analysis, conducted for an Australian regulator, that derives measures of efficiency for Australian gas distributors relative to U.S. counterparts. Several techniques, such as data envelopment analysis and stochastic frontier analysis, are used to ensure that our measures are robust to methodology choice. We conclude with a discussion of how the regulator used the benchmarking results, along with other information, to help it determine appropriate price caps.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
ABARE (Australian Bureau of Agricultural and Resource Economics). 1999. Australian Energy: Market Developments and Projections to 2014–2015. Canberra: ABARE.
ABS (Australian Bureau of Statistics). 1999. Electricity, Gas, Water and Sewerage, Cat. no. 8208.0, Canberra: ABS.
AGA (Australian Gas Association). 1999. Gas Statistics Australia. Canberra: AGA.
AGLGN (AGL Gas Networks Ltd). 1999. Benchmarking Gas Distribution. http://www.ipart.nsw.gov.au.
American Gas Association. 1996. Gas Facts 1995. Arlington: American Gas Association.
BIE (Bureau of Industry Economics). 1994. International Performance Indicators: Gas Supply. Canberra: AGPS.
Coelli, T. J., and S. Perelman. 2000. “Technical Efficiency of European Railways: A Distance Function Approach.” Applied Economics 32: 1967-1976.
Coelli, T. J., and S. Perelman. 1999. “A Comparison of Parametric and Non-parametric Distance Functions: With Application to European Railways.” European Journal of Operations Research 117: 326-339.
Coelli, T. J., and S. Perelman. 1996. “Efficiency Measurement, Multiple-Output Technologies and Distance Functions: With Application to European Railways.” CREPP Discussion Paper No. 96/05. Liege: University of Liege.
Coelli, T. J., D. S. P. Rao, and G. E. Battese. 1998. An Introduction to Efficiency and Productivity Analysis. Boston: Kluwer Academic Publishers.
Crew, M. A., and P. R. Kleindorfer. 1996. “Incentive Regulation in the United Kingdom and the United States: Some Lessons.” Journal of Regulatory Economics 9: 211-225.
EIA (Energy Information Agency). 1997. “Restructuring Energy Industries: Lessons from Natural Gas.” Natural Gas Monthly, May. http://www.eia.doe.gov.
Envestra. 1998. Annual Report 1997–1998.
Envestra. 1997. Prospectus.
Ewbank Preece. 1999. Report to IPART on Technical Review of AGLGN's DORC and Capex for NSW. http://www.ipart.nsw.gov.au.
Färe, R., S. Grosskopf, and C. A. K. Lovell. 1994. Production Frontiers. Cambridge: Cambridge University Press.
IC (Industry Commission). 1997. Assessing Australia's Productivity Performance. Canberra: AGPS.
IPART (Independent Pricing and Regulatory Tribunal of NSW). 2000. Access Arrangement for AGL Gas Networks Limited Natural Gas System in NSW (Final Decision). http://www.ipart.nsw.gov.au.
IPART (Independent Pricing and Regulatory Tribunal of NSW). 1999a. Benchmarking the Efficiency of Australian Gas Distributors. http://www.ipart.nsw.gov.au.
IPART (Independent Pricing and Regulatory Tribunal of NSW). 1999b. Regulation of Electricity Network Service Providers, Incentives and Principles for Regulation. http://www.ipart.nsw.gov.au.
IPART (Independent Pricing and Regulatory Tribunal of NSW). 1999c. Access Arrangement for AGL Gas Networks Limited Natural Gas System in NSW (Draft Decision). http://www.ipart.nsw.gov.au.
Judge, G. G., R. C. Hill, W. E. Griffiths, H. Lüthepohl, and T. Lee. 1988. Introduction to the Theory and Practice of Econometrics. New York: John Wiley & Sons.
Kim, T. Y., J. D. Lee, Y. H. Park, and B. Kim. 1999. “International Comparisons of Productivity and its Determinants in the Natural Gas Industry.” Energy Economics. 21: 273-293.
Morrison Paul, C. J., W. E. Johnston, and G. A. G. Frengley. 2000. “Efficiency in New Zealand Sheep and Beef Farming: The Impacts of Regulatory Reform.” The Review of Economics and Statistics 82: 325-337.
OECD (Organization for Economic Cooperation and Development). 1988. Main Economic Indicators, April. Paris: OECD.
Ofwat (Office of Water Services). 1998. Assessing the Scope for Future Improvements in Water Company Efficiency. Birmingham: Ofwat.
PC (Productivity Commission). 1999. Microeconomic Reforms and Australian Productivity: Exploring the Links. Canberra: AusInfo.
Pestieau, P., and H. Tulkens. 1993. “Assessing and Explaining the Performance of Public Enterprises: Some Recent Evidence From the Productive Efficiency Viewpoint.” Finanz Archiv 50: 293-323.
Rushdie, A. 1994. “Productivity Changes in the Gas and Fuel Corporation of Victoria.” Energy Economics 16: 36-45.
Waddams Price, C. W., and T. Weyman-Jones. 1996. “Malmquist Indices of Productivity Change in the U.K. Gas Industry Before and After privatization.” Applied Economics 28: 29-39.
Zhang, Y., and R. Bartels. 1998. “The Effect of Sample Size on the Mean Efficiency in DEA with an Application to Electricity Distribution in Australia, Sweden and New Zealand.” Journal of Productivity Analysis 9: 187-204.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Carrington, R., Coelli, T. & Groom, E. International Benchmarking for Monopoly Price Regulation: The Case of Australian Gas Distribution. Journal of Regulatory Economics 21, 191–216 (2002). https://doi.org/10.1023/A:1014391824113
Issue Date:
DOI: https://doi.org/10.1023/A:1014391824113