Pitfalls in estimating the X-factor: The case of energy transmission regulation in Brazil

Mohsen Afsharian, Heinz Ahn, Ana Lopes and Bruno Vilela

Socio-Economic Planning Sciences, 2019, vol. 65, issue C, 1-9

Abstract: In Brazil, which has one of the biggest energy systems in the world, the National Electricity Regulatory Agency (Agência Nacional de Energia Elétrica – ANEEL) regulates the generation, transmission, distribution and commercialization of electricity. As a key step in running the incentive regulation regime, the regulator applies a DEA-based Malmquist index for estimating the X-factor, which reflects productivity gains that can be expected across all companies involved in the industry. This paper investigates the way the X-factor was estimated in 2015 by ANEEL in the transmission sector concerning the review period 2009–2014. The regulator applies a modified version of the Malmquist index developed by Ray and Desli [1] and also adapts the bootstrapping method of Simar and Wilson [2] to generate confidence intervals for an estimate of the X-factor. Analyzing ANEEL's approach, we have discovered a number of serious analytical and computational shortcomings, which we demonstrate in the paper. On this basis, we address the effect of the estimated X-factor on social welfare, having the final customers to pay a higher price for electricity than they were supposed to.

Keywords: Data envelopment analysis; X-factor estimation; Energy transmission regulation (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceps:v:65:y:2019:i:c:p:1-9

DOI: 10.1016/j.seps.2018.04.004

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