Efficiency of electricity distribution companies

Diego Rodrigues Boente,Paulo Roberto B Lustosa

doi:10.1108/rausp-11-2018-0123

Diego Rodrigues Boente, Paulo Roberto B Lustosa

Open Access

https://doi.org/10.1108/rausp-11-2018-0123

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Abstract

Purpose After assessing papers on efficiency, most of the studies available are focused on the analysis of efficiency measures, without providing a deep discussion of the factors that determine efficiency. This study aims to evaluate the efficiency of Brazilian electricity distribution companies based on a structural model that enables the identification of a network of relationships among representative variables that contribute to efficiency. Design/methodology/approach Structural equation modeling was applied in a sample of 62 electricity distribution companies operating in Brazil, forming a balanced panel from 2010 to 2014. Then, the authors verified the model compliance according to the empirical evidence of the entities analyzed. This verification included a survey of the variables, which was supported by theoretical references related to the phenomenon studied. The data collected were statistically treated, and benchmarking models and multivariate techniques were used. Once the adjustments were made, the re-specified model was estimated using the maximum likelihood method. Findings The empirical model reached good adjustment rates. The analysis concluded that the constructs information system, structural system, management system and sociocultural system affect efficiency. Originality/value This study adds to several other papers, and this is one of its main contributions. Relationships among the constructs have been systematized according to literature in the form of a structural model, which will enable future researchers to have a reference frame of relevant studies and a research foundation in this area of knowledge. A third contribution is the model tested in a sample of Brazilian electricity distribution companies, whose results can be compared to other utility sectors (e.g. telecommunications) or to other countries' electrical sectors, thus providing an empirical basis for the proposed hypotheses. Finally, this study also offers a contribution to the Brazilian Electrical Energy Agency (Aneel, in Portuguese), a regulatory agency, providing mechanisms to guide tariff adjustments, seeking a balance between costs and the need for investments allied to tariff affordability.

Highlights

The concept of efficiency is associated with an entity’s ability to minimize its inputs or maximize its products, given certain market and technology conditions
A concentration around the intervals 0.5-0.7 is noted in data envelopment analysis (DEA) scores, with tendency of growth in the period
The linear transformation of this variable did not affect the calculation of factorial loads calculated by structural equation model (SEM)

Summary

Introduction

The concept of efficiency is associated with an entity’s ability to minimize its inputs or maximize its products, given certain market and technology conditions. Inefficiency occurs when the entity cannot reach the same level of efficiency as compared to a benchmark, as defined by a boundary of the entities that adopt “best practices” (benchmarking). This is the concept used in this study. Laffont and Tirole (1986) emphasize the use of accounting data in regulation. According to the authors, when a regulated entity announces an expected cost for the service, it receives an incentive from the regulatory agency to reduce excess costs. The optimal contract includes a fixed price for the service, as the announced cost decreases

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