ESTIMATION OF THE X-FACTOR IN THE COLOMBIAN ELECTRIC POWER DISTRIBUTION SECTOR: A COMPETITION WITH JUST THREE WINNERS

Regulatory councils should estimate the X-factor, that is, the total factor productivity (TFP) change, in industries where the market structure is a monopoly, and consequently, firms do not have incentives to translate productivity gains to consumers, and yardstick competition must be used for setting prices under incentive regulation. Thus, we estimate the X-factor of the Colombian electric power distribution sector in the period 2010-2019 by means of stochastic frontier analysis (SFA). Our estimates suggest an overall average X-factor equal to -1.6%, where just 3 out of 23 network operators (NOs) have average positive X-factors. This worrisome performance is explained by efficiency and scale losses during this period, -2.6% and -1.1%, respectively. On the other hand, there is an overall average technical change equal to 2.1%. In addition, we found that the average efficiency in the period is equal to 32.8% in this sector. This suggests that there is gap for improvements in the sector because the average efficiency level is too low, and just three NOs had technical changes higher than the efficiency and scale negative changes. In particular, the prospects of new regulatory frameworks should put more pressure in the sector, not only in terms of technical efficiency, but also in term of quality, competition, and the remuneration mechanism.