Exploring the determinants of “best practice” benchmarking in electricity network regulation

In this paper we use a best practice index constructed from the survey responses of regulators in 40 countries to explore the determinants of the methods used in electricity network regulation. Drawing from the incentive regulation and institutional economics literature, we construct an empirical model to investigate the impact of industry size, political and economic institutions on the degree of best practice regulation. Our results suggest that the existence and experience of an independent regulator is the most important institutional determinant of best practice regulation. In addition, small numbers of network companies act as a constraint on the use of advanced benchmarking methods. Finally, regional effects are also important. These findings lead us to question whether one “best practice” model is in fact applicable to countries with very different political and economic contexts.

► Political institutions are strong determinants of best practice electricity regulation. ► Behavior of neighboring regulators may shape regulatory outcomes. ► One “best practice” model may not be appropriate.