522. Incentive Regulation and Utility Benchmarking for Electricity Network Security

Tooraj Jamasb, Rabindra Nepal,  School of Economics Discussion Paper No. 522 June 2014, School of Economics, The University of Queensland, Durham University Business School.

Full text available as:
PDF - Requires Adobe Acrobat Reader or other PDF viewer.

Abstract

The incentive regulation of costs related to physical and cyber security in electricity networks is an important but relatively unexplored and ambiguous issue. These costs can be part of a cost efficiency benchmarking or alternatively dealt separately. This paper assesses the issues and options of incorporating network security costs within incentive regulation in a benchmarking framework. The relevant concerns and limitations associated with network security costs accounting and classification, choice of cost drivers, data adequacy and quality and the relevant benchmarking methodologies are discussed. The discussion suggests that the present regulatory treatment of network security costs using benchmarking is rather limited to being an informative regulatory tool than being deterministic. We discuss how alternative approaches outside of the benchmarking framework such as the use of stochastic cost-benefit analysis and cost-effectiveness analysis of network security investments can complement the results obtained from benchmarking.