Benchmarking of outlier electricity grid companies

In this report we investigate alternative methods for benchmarking of Norwegian electricity grid companies that due to their uniqueness or size are omitted from the yardstick competition in the current income cap regulation. The objective of the report is to propose a regulatory framework that to a greater extent than the current regulation, ensures the decoupling between cost norm and actual costs for the outlier electricity grid companies, and by that, provide incentives for efficient utilization and development of the electricity network grid. We investigate three alternative methodological directions: a) adjustments to the DEA-methodology, b) panel data analysis and c) local frontier estimators. Based on our analysis, we recommend local front estimators as the most likely candidate for further study and implementation in the regulation.