Date Added: Sep 2010
In efficiency analysis and incentive regulation of utilities it is desirable to control for the effect of differences in environmental factors, such as the weather and geography, on their performance. This is particularly important in the case of incentive regulation and benchmarking of electricity networks where the results of efficiency analysis have important financial implications for the firms. As Yu et al. (2009a) pointed out severe weather conditions tend to increase service interruptions (Coelho et al., 2003; Domijan et al. 2003) and hence the corrective costs associated with replacing the damaged equipment and restoring power.