Incentive Regulation of Investment Costs: The Case Study of Iranian Electricity Distribution Companies

Abstract

This study presents a model of regulation of investment costs of Iranian electricity distribution companies through penalty and rewards of these companies. Within this framework, overinvestment can result in partial disallowance of investment costs. The results of surveying 39 Iranian electricity distribution companies over the period of 2011-2017 indicate that using the proposed regulatory model, it is possible to achieve an optimal level of investment in the entire electricity distribution network by reallocation of investment among small, medium and large companies, without lowering the efficiency of the industry.

Keywords

• investment costs
• incentive regulation
• heteroscedastic stochastic frontier models
• electricity distribution companies
• iran