Prof. S. S. Xavier
S. S. Xavier is a Professor at Federal Institute of Paraná, Brazil. She has her expertise in electricity distribution companies benchmarking, especially with Data Envelopment Analysis models. Besides, she has her experience in economic regulation. Xavier received Diploma and Doctorate in Electrical Engineering, at University of Itajubá (Brazil). She has different affiliations at Federal University of Ouro Preto and Goiano Federal Institute. Xavier received recognition and award by conferences and scientific organizations, internationally.
Measuring efficiency in the Brazilian electricity distribution segment
In Brazil, rate of return regulation is partially employed in the definition of capital costs, whereas incentive regulation is fully applied in the calculation of operating costs. However, economic regulation best practices follow a different trend: the adoption of incentive regulation for capital and operating costs. This practice is based on the existence of a potential trade-off between them. Several studies analysing the efficiency of Brazilian Distribution System Operators (DSOs) have been published, but, to the best of our knowledge, no study has evaluated the economic effect of the adoption of total costs in the efficiency model. In this context, the present study proposes the use of total costs for the efficiency analysis of Brazilian DSOs from an incentive regulation perspective. For this purpose, we developed four models with non-decreasing returns to scale and input-orientation: the first two models, one with operating costs and other with total costs, were selected to evaluate the impact of total costs on efficiency analysis. The last two models were included in the analysis to validate the Data Envelopment Analysis (DEA) results using Stochastic Frontier Analysis (SFA). We tested the models with a dataset of 60 Brazilian distribution companies for the period 2008–2012. The results indicate that DSOs have average efficiency scores of 0.70, 0.84, 0.80, and 0.81 in Models 1, 2, 3, and 4, respectively. Model 1 considers ten utilities as efficient, including three small and seven large companies. In Model 2, which considers total costs as inputs, new companies are considered efficient. Model 1 can distort the incentives given to companies. For example, Coelce obtains an efficiency of 0.80 in Model 1 and of 1.00 in Model 2. These results corroborate the existence of a possible trade-off between operating and capital costs. Comparing the results of Model 3 and Model 4, the efficiencies of 39 companies increased with SFA, with a correlation between DEA and SFA results of 0.76. When evaluating the impact of the use of incentive regulations in total costs, we find a necessary average reduction of R$ 37 million, which is approximately 7% of real total costs in Model 2. Of the sixty companies evaluated, thirty-three exhibit total costs that are higher than those defined by DEA. Model 3 suggests an average reduction of R$ 49 million, or approximately 9% of real total costs. About half of companies need to reduce their costs. Some utilities prove to be efficient, such as, for example, RGE, which spent R$ 100 million less than expected. Model 4 presents the lowest required cost reduction, with a value of approximately R$ 34 million, or 6% of costs. This result is to be expected since SFA considers data error. This efficiency study concludes that, in theory, there is potential for cost savings in the energy distribution segment in Brazil. However, it is necessary to find a balance between the incentive to save total costs and, at the same time, ensure that desirable long-term investments are undertaken.
Economic Regulation, Incentive Regulation, Benchmarking.