How Efficient are the Brazilian Electricity Distribution Companies

During the last years, the electricity sector has experienced great changes, especially within the economic regulation. After receiving several criticisms, the rate of return regulation has been replaced by incentive regulation. The main objective of this regulation is to stimulate business efficiency. This paper proposes an alternative application of data envelopment analysis to the Brazilian case, characterized by a large territory: the use of Unit Networks in the distribution segment to regionalize the concession area and then to analyse the efficiencies separately. Many regulators use the entire distribution company as a decision-making unit for price regulation when benchmarking is applied. However, in Brazil, quality performance is measured in detail using sets of consuming units, i.e. quality is measured using small parts of the company. Given that efficiency cannot be assessed without considering various aspects of quality performance and characteristics of the underlying environment in the utility’s concession area, this paper tries to find the trade-off between management, quality, environment and costs. Therefore, the main contribution of this paper is twofold: the solution for Brazilian distribution companies’ heterogeneity and the choice of variables that are better measures for an efficiency analysis. Some examples with Brazilian utilities are provided to show the advantages of the proposed approach.