The working paper Benchmarking Opex and Capex in Energy Networks reviews five alternative benchmarking methods – namely partial performance indicators, indexnumber-based total factor productivity, econometric method, stochastic frontier analysis, and data envelopment analysis – with a particular focus on their use in the benchmarking and regulation of energy networks.
The search for better ways of regulating energy utilities has increasingly included ‘cost benchmarking’, where the reasonableness of costs proposed is assessed against those of other utilities or even against costs estimated in economic-engineering models. Benchmarking has been applied in a large and increasing number of countries across the Organisation for Economic Cooperation and Development (OECD) in relation to both operating expenditure (opex) and capital expenditure (capex); particularly for distribution service operators in both the electricity and gas sub-sectors.
In Australia, there has long been interest in this approach, stretching back at the state level to the late 1990s. Currently the Australian Energy Regulator (AER) must have reference to the costs of an ‘efficient operator’ in a revenue or price determination. Further, interest in benchmarking has been heightened recently by two major inquiries; one by the Productivity Commission (PC) on benchmarking; and the other, by the Australian Energy Market Commission (AEMC), in relation to proposed rule changes.