Multi-output compensation system in electricity distribution : the case of Spain

Abstract

The Marco Legal Estable provides us with a rare opportunity to study a system of multi-output reimbursements applied to the distribution of electricity in Spain over an extensive period of time: 1988 - 1997. To do so, an analysis structure is proposed based on a Bennet-type indicator (1920), which allows us to identify the variations in the revenues associated with the activity of electricity distribution, for each of the companies and each one of the outputs. The Law recognized, regulated and compensated four products differently. This indicator is broken down into a quantity effect and a reimbursement effect. The quantity effect evaluates the impact on revenues of the variations in demand for each of the outputs, and the reimbursement effect the modifications in revenues due to the changes in the remuneration per product, which are based on standard costs. Modern production theory is used to explain the quantity indicator by means of a productivity and activity effect. Lastly, the productivity indicator is broken down into operating efficiency, allocative efficiency and technical change. To do so, a sequential-type technology is defined whose information begins in 1952. Mathematical programming techniques are used to resolve the proposed economic decomposition.