6. Regulation in the Turkish Electricity Industry

This chapter focuses on the envisaged regulatory framework to be applied after the transition period in the Turkish Electricity Industry ceases by the end of 2012, and it evaluates the performance of the electricity distribution companies under the envisaged incentive regulation scheme in 2006 when the transition period commenced. The electricity transmission and distribution will be regulated by the revenue cap and the mixture of price/revenue cap, respectively. The retail supply to captive customers will also be regulated by the price cap. The Energy Market Regulatory Authority has already announced measures to incentivize the distribution companies that are cost conscious and quality conscious. An illustrative application of the Data Envelopment Analysis on the distribution companies shows that only 8 of 20 distribution companies were operating efficiently in 2006. Had the envisaged incentive regulation framework been implemented for the transition period, these inefficient companies would have been let to benefit from any additional improvement they could achieve after they met their set targets during the 6-year transitory period. Although the necessary institutional, legal, and market arrangements were made, until the end of 2008 the reform did not progress as fast as it was planned. Accordingly, the real test of the full-scale implementation of the cost-based tariff mechanism under the new electricity market structure will be in the new regulatory period commencing in 2013. Hence, whether the new framework will manage to bring more reliable, secure, high quality, and less costly electricity supply to customers is yet to be seen.