The regulatory regime governing the Spanish electricity sector over the period 1988-1997 established a type of price cap regulation which gave strong incentives to the electricity companies to improve their productive efficiency. This paper evaluates the effects of the application of such a regulatory scheme in the coal-fired generating plants. The Malmquist productivity index is used to compute the total factor productivity change, as well as to identify the main elements of productivity growth. The results show substantial improvements in the performance of the plants, explained by the increase in the rate of capacity utilization, the level of technical efficiency and the technical progress. In this respect, the regulatory system succeeded in promoting efficiency, in that it allowed firms to keep all the profits linked to the productivity gains.

Keywords: electricity industry, total factor productivity, regulation.