Definition of Regulatory Targets for Electricity Non-Technical Losses: Proposition of an Automatic Model-Selection Technique for Panel Data Regressions

Abstract

Non-technical losses (NTLs) are one of the main problems that electricity distribution utilities face in developing regions such as Latin America, the Caribbean, sub-Saharan Africa, and South Asia. Particularly in Brazil, based on the socioeconomic and market variables concerning all the distribution utilities, the National Electric Energy Agency (ANEEL) has formulated several specifications of econometric models for panel data with random effects, all aimed at determining an index that reflects the difficulty of combating NTLs according to the intrinsic characteristics of each distribution area. Nevertheless, given the exhaustive search for combinations of explanatory variables and the complexity inherent to defining regulatory NTL targets, this process still requires the evaluation of many models through hypothesis and goodness-of-fit tests. In this regard, this article proposes an automatic model-selection technique for panel data regressions to better assist the Agency in establishing NTL regulatory targets for the distribution of utilities in this country. The proposed technique was applied to panel data containing annual observations from 62 Brazilian electricity distribution utilities from 2007 to 2017, thus generating 1,097,789 models associated with the regression types in the panel data. The main results are three selected models that showed more adherence to the actual capacity of Brazilian distribution utilities to reduce their NTLs.