Regulation of Electricity Distribution Companies in Iran Based on Quality and Productivity

The aim of this paper is to provide a comparison between different methods of natural monopoly regulation for electricity distribution companies in Iran and introduce the best suitable one based on productivity, quality and incentive considerations. Here we have concluded that the price cap regulation model is the most efficient method of regulation for the situation under consideration. Based on the literature, the target values of both productivity and quality has been calculated in different scenarios of this research. The sample consists of 39 electricity distribution companies in Iran during period 2006 to 2016. First, using the SFA and DEA methods to determine the efficiency score of each company, we have calculated the X-factor for every firm in a 5-year period. In addition, the X-factor was calculated based on Malmquist index and differential method. The results suggest that target X-factor is in the range of 1.7% to 3%. The results indicated that there is an opportunity to increase productivity of electricity distribution companies. To encourage the firms to improve their productivity, a higher target rate of productivity growth would be considered for low-efficiency firms and a lower target for high-efficiency ones. Service quality has been evaluated mainly by quantification and measurement of energy not supplied (ENS) and the waiting time for a new customer to be connected to the power grid and to be able to use electricity. And the target quality value was set for each company.