This study analyses and compares the cost efficiency of Japanese steam power generation companies using the fixed and random Bayesian frontier models. We show that it is essential to account for heterogeneity in modelling the performance of energy companies. Results from the model estimation also indicate that restricting CO(2) emissions can lead to a decrease in total cost. The study finally discusses the efficiency variations between the energy companies under analysis, and elaborates on the managerial and policy implications of the results. (C) 2010 Elsevier Ltd. All rights reserved.