Decomposing economic inefficiency in base-load power plants

Abstract

Over the last decade, improving the performance of infrastructure industries has been the main focus of Australia's ongoing “microeconomic reform” program. The development and application of performance measures has been central to the reform process. In the electricity industry, a number of studies have quantified differences in economic efficiency using the multilateral total factor productivity and data envelopment analysis techniques. While both techniques aim to measure the same phenomena, rarely have the results obtained using the two techniques been compared using an identical database. A principal objective of this article is to compare the results from the two techniques using a database made up of observations from the Australian Loy Yang A base-load power plant and a range of similar plants in North America. The article also illustrates the use of international benchmarking as a tool for productivity enhancement. International benchmarking is playing a key role in the reform of Australia's infrastructure industries by promoting indirect or yardstick competition, by high-lighting the need for further reform, and by building a consensus for implementing necessary changes.