Modelling Efficiency of Electric Utilities Using Three Stage Virtual Frontier Data Envelopment Analysis with Variable Selection by Loads Method

Pavala Malar Kannan, Govindan Marthandan and Rathimala Kannan
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Pavala Malar Kannan: Faculty of Management, Multimedia University, Cyberjaya 63100, Selangor, Malaysia
Govindan Marthandan: Faculty of Management, Multimedia University, Cyberjaya 63100, Selangor, Malaysia
Rathimala Kannan: Faculty of Management, Multimedia University, Cyberjaya 63100, Selangor, Malaysia

Energies, 2021, vol. 14, issue 12, 1-21

Abstract: Electric utility regulators and policy makers implement incentive-based regulation to improve electric utilities efficiency or to manage the cost of electricity. However, poorly implemented regulation may produce undesired results such as low reliability or poor quality of service. Moreover, the competition within the electricity sector is likely to be low because of the high barriers to entry, vertically integrated electric utilities, and high capital requirements. Therefore, benchmarking exercises allow policy makers and regulators to gauge the relative efficiency of electric utilities and help them to reward or penalize the electric utilities accordingly. In this study, we examined the variables that significantly influence the efficiency of electric utilities and developed an optimum method to measure the efficiency of the electric utilities. The results of the efficiency measurement were then used to rank the electric utilities. The result of this study indicates that there are 13 variables that significantly affect the efficiency score of electric utilities and three stage virtual frontier data envelopment analysis (3S-VF-DEA) is the optimum method to measure the efficiency of the electric utilities.

Keywords: data envelopment analysis (DEA); virtual frontier DEA; three stage DEA; three stage virtual frontier DEA; variable reduction; efficiency; benchmarking (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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