Paid for Size, Not Hardship: Diagnosing and correcting implicit structural compensation in Swedish electricity distribution benchmarking

Sammanfattning

Sweden’s energy regulator uses DEA to benchmark 144 electricity distribution operators againstfive outputs. One of these, network stations (NS), is intended to compensate firms for spatiallydispersed networks. We show this compensation is systematically misallocated. At the aggregatelevel, NS compensation tracks density; at the firm level, a subset of predominantly urban operators,including the three largest DSOs, receive NS credit that their density does not predict. Routingdensity through StoNEZD’s parametric z-channel corrects efficiency ratings for over-compensatedfirms and produces a statistically significant shift. Moreover, the current specification’s exposureto the curse of dimensionality is far narrower than its five-output count implies. The effectiverank of the output cloud is approximately 1.12, a single scale-axis with NS as the lone orthogonaldirection. The curse of dimensionality therefore reduces to the curse of NS.