International benchmarking of electricity transmission system operators

Electricity transmission system operators (TSO) in Europe are increasing subject to high-powered performance-based regulation, such as revenue-cap regimes. The determination of the parameters in such regimes is challenging for national regulatory authorities (NRA), since there is normally a single TSO operating in each jurisdiction. The solution for European regulators has been found in international regulatory benchmarking, organized in collaboration with the Council of European Energy Regulators (CEER) in 2008 and 2012 for 22 and 23 TSOs, respectively. The frontier study provides static cost efficiency estimates for each TSO, as well as dynamic results in terms of technological improvement rate and efficiency catch-up speed. In this paper, we provide the methodology for the benchmarking, using non-parametric DEA under weight restrictions, as well as an analysis of the static cost efficiency resutls for 2011. The overall cost efficiency is measured with a three-output model, explaining 91.2 % of variance, using a DEA model under non-decreasing returns to scale assumptions. The methodology is innovative in the sense that it combines endogenous outlier detection, technologically relevant output weight restrictions and a correction method for opening balances.