Measuring Value Creation and Appropriation in the Brazilian Power Distribution Industry

Abstract

Value creation and appropriation is a common study topic in the context of creating superior value in relation to competitors but is seldom applied in the context of regulated markets. Regulators must create a truly sustainable market environment by promoting a balanced value appropriation among all stakeholders. The objective of this research is to introduce the application of the VCA (Value Creation and Appropriation) method for measuring value creation and appropriation by stakeholders in regulated markets, with the illustrative case of the Brazilian power distribution market. By applying this methodology, we could test 3 specific hypotheses and found that (1) in most scenarios there is no significant difference in the creation and appropriation of value between state-owned and privately-owned companies, (2) despite complains presented by Distribution Companies, there are no indication that the value created and appropriated by stakeholders decreased over time, and (3) the regulatory intervention introduced by the Brazilian government in 2012, to try to force energy price reductions, unequivocally affected the dynamics of total value creation and value appropriation. This paper contributes to both scholars and practitioners and the proposed methodology can serve as a powerful benchmarking tool, especially as a means for policymakers to assess the maturity level of their local market regulation.