Abstract

A new law in 2001 granted flexibility for the Philippines Energy Regulatory Commission to implement alternative forms of regulation for distribution utilities as a complement to traditional cost-based regulation. We estimate a cost benchmark model from Philippines’ data of distribution utilities to explore “yardstick competition” as an alternative under which the regulated firms may be rewarded or punished based on their performance relative to their peers. Our model is based on technical and institutional considerations. System energy loss reduction is treated as an output and we find that such efforts by cooperatives have a lower impact on cost than privately-owned utilities. This result is probably due to the non-technical nature of network energy losses in areas served by cooperatives. Although geography appears to affect costs, we fail to find evidence of higher costs in the politically tense area known as the Autonomous Region of Muslim Mindanao.

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