Efficiency analysis for performance evaluation of electric distribution companies

Abstract

In power systems, the electricity distribution sector requires proper regulation to guarantee power supply security, electricity tariffs modicity and universal service to customers. Generally, electric utilities operate differently and are distinguished in terms of costs, quality of supply, market and network size, and other aspects, that affect their efficiency. In this context, the Data Envelopment Analysis has been used in electricity distribution regulation to define efficiency scores and compare practices. The Data Envelopment Analysis application sometimes comes with weight restrictions and negative variables that modify the original methodology which affects the efficiency scores. The main goal of this paper is to evaluate weights restrictions influence on efficiencies results and to perform a sensitivity analysis of efficiency scores using additional benchmarking techniques. We apply the Cross-Efficiency Analysis and the Ratio-based Efficiency Analysis benchmarking methods, in order to provide relevant quantitative information to compute relative efficiency scores and perform peer evaluations among utilities even if they are outside of the efficient frontier. The Brazilian electricity distribution system is selected as study case. Brazil has strong diversity in terms of economic development, climate and geography, and the current procedure adopted by the regulator determine efficiency metrics for all distribution companies based on their operation cost. Results from our analysis show that the diversity of concession areas significantly influence the stability of efficiency scores. Moreover, considering the approach proposed here it is possible to identify an efficiency relationship among all the distribution companies and not only using the ones that are in the efficiency frontier.