Accounting multiple environmental variables in DEA energy transmission benchmarking modelling: The 2019 Brazilian case

Aline Veronese da Silva, Marcelo Azevedo Costa and Ana Lúcia Lopes-Ahn

Socio-Economic Planning Sciences, 2022, vol. 80, issue C

Abstract: The non-parametric Data Envelopment Analysis (DEA) benchmarking method is frequently used by regulators to compare companies under natural monopolies. The Brazilian Energy regulator uses such an approach to define the efficient operational costs of the transmission companies. In 2019, a second-stage procedure was applied to include the effects of environmental variables on operational cost efficiency. However, only a few environmental variables were used to estimate efficient costs. This study proposes a new methodology for adjusting cost efficiencies using multiple contextual variables. Our proposal aims to adjust the input variable, using different environmental variables, before estimating the cost efficiencies. Therefore, multiple cost efficiencies are estimated, one for each environmental variable. Our proposal is based on the linear regression Analysis-of-Variance property. Results indicate that due to environmental heterogeneity of Brazilian transmission companies, cost efficiencies adjusted using multiple environmental variables are of utmost importance. Thus, our proposal manages to successfully include multiple environmental variables in the model, generating fair adjustments in the efficiency scores, and avoiding the effects of DEA modeling biases that are common in second-stage analyses.

Keywords: Energy transmission regulation; Data envelopment analysis; Environmental variables; Input variable correction (search for similar items in EconPapers)
Date: 2022
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:80:y:2022:i:c:s0038012121001543

DOI: 10.1016/j.seps.2021.101162

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