Quality of Supply in Energy Regulation Measurement,Assessment and Experience from Norway

In order to overcome the incentive of excessive maintenance reductions and insufficient network investments in incentive regulation of electricity distribution companies, regulators throughout Europe have started regulating quality of service in the energy sector. In this paper, we discuss the issue of assessing and implementing quality-related incentives based on customers’ WTP for network reliability and analyse the impact of such regulatory measures by means of a concrete casestudy. Surveying the most prominent methodological approaches to quantify customers’ WTP for quality we find that survey techniques such as contingent valuation and conjoint analysis cover regulatory purposes well. As Norway has put the measurement and assessment of quality of supply into practice, we empirically examine how network operators have adapted to quality-incorporated regulation. We find that the external cost for quality has not played a major role in Norwegian electricity distribution.electricity, quality of service, willingness-to-pay, data envelopment analysis