Tariff Review Research Articles

Regulatory lag, efficiency, and performance. Lessons from a case study

Our main contribution is to identify the risks implied by the existence of prolonged regulatory lags. We hypothesize that a likely first response is to reduce OPEX, increasing efficiency. If the lag persists for enough time, a vicious circle of inefficiency, disinvestment, and reduced performance can follow. We use a regulatory episode affecting natural gas distributors in Argentina as a natural experiment, controlling with other Latin American countries’ utilities not exposed to the same regulatory stimuli. We evaluate the relative efficiency of fourteen firms for five countries, in seven years, using Stochastic Frontiers Analysis (SFA). Thus, we perform a regulatory impact analysis (RIA) to assess the consequences on the performance of two idiosyncratic regulatory policy instruments applied in the distribution gas industry in Argentina in the 1998–2021 period (the 2002 Public Emergency Law and the 2016 Integral Tariff Review).

Changes to the Tariff Policies of the Electricity Distribution Segment And its Effects on the Economic Performance of Investments in Fixed Assets

Objective: This article discusses the effects of changes in electricity distribution regulation on the economic performance of fixed asset investments. Theoretical Framework: The analyses in this study are based on Ferreira's (2021) research conducted on a concessionaire's asset database, considering the period between two tariff cycles. Method: The methodology used in this study included the analysis of regulatory documents related to the 4th Tariff Review Cycle of a specific distributor, from April 2013 to May 2018. The analysis of these documents was conducted through organization and comparison of versions, based on continuous readings, following Ferreira's (2021) guidelines. Results and Conclusions: Although they can cause distortions in the evaluation and decision-making processes regarding investments, the regulatory changes analyzed in the research had a positive effect on the economic performance of the selected sample's assets. Research Implications: It was observed that regulatory changes are important for regulation to adapt to the reality and needs of the sector but can impair the evaluation and decision-making process regarding fixed asset investments in the electricity distribution segment in Brazil. Originality/Value: The research results emphasize the importance of concessionaires actively participating in public discussions proposed by the regulatory agency to carefully evaluate all possible consequences of regulatory changes for the economic performance of assets and the provision of public service.

Stochastic Data Envelopment Analysis applied to the 2015 Brazilian energy distribution benchmarking model

The Brazilian energy regulator has been applying data envelopment analysis to set operating costs for distribution system operators since 2013. In addition to data envelopment analysis, further adjustments using Bootstrap and a reference efficiency, estimated as 79%, allow companies to have cost efficiencies above their observed costs. Thus, companies are allowed to cross the efficiency frontier. Similarly, stochastic frontier models also allow companies to cross the efficiency frontier. This work proposes the use of stochastic data envelopment analysis as an alternative for estimating efficient costs, thus providing a much simpler alternative. A new estimation algorithm is proposed in which the number of companies crossing the frontier comprises one important parameter. Simulation studies provide convergence evidence of the proposed model and results using the Brazilian database show that the stochastic data envelopment analysis is a promising model for upcoming tariff review cycles.

Tariff Optimization under Incentive Regulation of Public Services Using Simplex method

The tariffs of regulated public services under price cap regulation are variables defined in the tariff review process, subject to a major technical complexity and many restrictions. Given the complex scenario that involves the tariffs definition, the present paper seeks to verify the effectiveness of the implementation of a Linear Programming model to support decision-making in optimal tariffs definition. The Solver add-in of Microsoft Excel software was used to generate the optimal solution for the proposed model. The results indicated that the proposed model generated a reasonable result, incorporating the various restrictions for modeling and ensuring details at a sufficient level for modeling adjustments throughout the process, if necessary.

The Infrastructure Performance of Wajo Regency’s Regional Water Company Based on Costumer’s Perceptions

Regional Water Company (PDAM) is a company that serves the clean water needs for Wajo Regency. Because there are still many customers’ complaints, it is deemed necessary to analyze the performance model of PDAM Wajo Regency infrastructure and analyze how to improve its performance. The data collection method used was a questionnaire by distributing to 155 PDAM Wajo Regency customers and then processed using the SPSS application. Based on the condition of the existing PDAM Wajo Regency infrastructure can be categorized as good. The infrastructure performance model of PDAM Wajo Regency based on customer perception is Y = −0,280 + 0.192X1 + 0.229X2 + 0.202X3 + 0.174X4 + 0.226X5, X1 is realiability variable, X2 is tangible variable, X3 is responsiveness variable, X4 is empathy variable, and X5 is assurance variable. Correlation coefficient (R) is 0.993. The assurance variable has the greatest influence at 28,216% performance for PDAM Wajo Regency infrastructure. The average performance of PDAM Wajo Regency infrastructure based on customer perception is 3.75 categorized as having a good performance. How to improve PDAM Wajo Regency performance is according to customer perceptions by developing a water treatment plan (IPA), replacing damaged distribution installations, replacing customers’ damaged water meters, replacing non-functioning main water meters, and replacing damage distribution pipes. regular metering and water tariff review, according to Permendagri Number 71 Year 2016. Training needs to be held for all employees to improve the quality of human resources of PDAM Wajo Regency.

Determinants of the economic performance of Brazilian electricity distributors

This research aims to quantify the determinants of Brazilian Distribution System Operators (DSOs) economic performance. In this sense, seven cost and performance drivers of a DSO economic performance were defined. The contribution of each one to the actual DSO profit was measured by using Brazilian regulatory agency financial and operating data from 2009 to 2016. The analysis helps explain why Brazilian DSOs earnings have been, on average, lower than regulator-authorized earnings defined in the tariff review process over the last years, and the main determinant of it was the adverse effect on the market (2009 and 2014 to 2016), which was probably due to the economic crisis. Additionally, we have shown that part of the finance distress comes from electricity losses no recovery in tariff and we confirm that province-owned are prone to be less efficient than private utilities.

Analysis of electric distribution utilities efficiency levels by stochastic frontier in Brazilian power sector

The regulatory power sector model in several countries determines tariff review forms based, among other things, on sharing efficiency gains with consumers. As these reviews have an important impact on consumers and distribution utilities, it is necessary that the adopted methodologies always be improved. To this end, this article assessed a Bayesian inference application in order to estimate a stochastic cost frontier considering temporal efficiency dynamics. Taking this point into consideration is essential, since studies carried out to assess power sector efficiency have neglected the fact that part of efficiency increases originate from scale gain due to market expansion, which occurs over time. The sample assessed herein is composed of panel data from 61 electric power utilities between 2003 and 2016. The results demonstrate that the tariff review is positively affected by distributor efficiency.

Transport policy, rail freight sector and market structure: The economic effects in Brazil

Abstract After fifteen years of railway concessions in Brazil, the rail freight sector became responsible for over 26% of the total transported volume in the country, an increase of 20% during this period. This Brazilian experience led a recovery in productivity and investment levels, with an improvement in service quality and modernization of the sector. Nevertheless, the rail price control mechanisms were almost unrestricted, allowing the concessionaires keep prices at very high levels. Just in 2012, it was held the first revision of price cap regulation of the sector. In this paper, we analyze the long-turn economic impacts of the rail freight sector tariff review policy in Brazil through the use of a dynamic general equilibrium model. The model incorporates some forms of market imperfections within its theoretical structure. Regardless the assumptions attributed to productive system, the main findings suggest that tariff policies promote positive effects on GDP growth, exports, and investments, as well as on other sectors, such as those most intensive in freight railways. However, the projections seem to confirm an onus on rail freight sector, with fall on its supply, return rate and private investment.

Alterações de Taxas e Gestão de Resultados nas Distribuidoras de Energia Elétrica Doméstica

Objective: To verify whether the concessionaires of electric energy adopt earnings management (EM) practices, before and after the Periodic Tariff Review (PTR), in order to obtain better rates and attract investors and/or pay bonuses to their managers. Method: The sample of this study contains all electric power utility companies of B3, covering the period of 2010-2016. We analyzed the impact of PTR using the panel data method. Originality/Relevance: It was analyzed whether the EM is related to PTR, since the interest of the consumer, the government and the investors is different of the concessionary´s interest with respect to the value of the tariff. Notice that investors can make better decisions on how and when to allocate their resources to a specific PTR event. Theoretical/Methodological Contributions: The findings indicate that in the years of tariff review, there is a greater generation of accruals and dimishments 2 years after the PTR. On the other hand, in EM (operational) the cyclical behavior is similar, but the PTR is negative in the year of the tariff review and positive two periods ahead. Social contributions to management: These results are understood as long as the concessionaires know that the result of the year of PTR will not influence the Regulatory Agency in the determination of the present revision and reverse them 2 periods ahead, in order to anticipate for the next PTR.

Evaluation of technical efficiency of Brazilian distribution companies of electrical energy through Data Envelopment Analysis (DEA)

The Brazilian Provisional Act No. 579/2012 established a significant change in the rules applied to the electric energy sector, in particular in relation to the renewal of concessions of power generation, transmission and distribution of power from those who have contract termination between 2013 and 2017. Besides this measure, the electric energy distributors are going through the third Cycle of Periodic Tariff Review, a fact that also foresees the reduction of charges imposed on the electricity, thereby requiring a greater efficiency of its management. Thus, this research analyses the technical efficiency on the electric energy distribution companies. This is a study with a quantitative approach, based on data from 2012. With the application of Data Envelopment Analysis, we determined the relative technical efficiency of 18 companies of the population. The relative technical efficiency reached a score of 100% in seven of the 18 companies analyzed. Efficient firms are spread across Brazil, with a greater concentration in the Southeast. The Municipal Human Development Index, the size of the concession area and the extent of distribution network, as well as the population density are not explanatory to the attainment of efficiency factors.

Challenges with the public policy of measuring assets to set tariffs in the electricity sector: should someone benefit and someone be sacrificed?

ABSTRACT This paper contributes by encouraging discussions about the public policy of setting tariffs for public services based on the value of the investment made by the providers of these services. The purpose of this study was, in an unprecedented way and by combining theories of equity valuation and finance, to identify the asset valuation method that can lead to a fair value and balance between an affordable price for the consumer and an adequate return on investment for the concessionaires. The value assigned to these assets affects the tariff in two ways: (i) via depreciation/amortization, which affects the cost of service; (ii) via the return on investment, which is the portion that corresponds to the investor’s profit. We analyzed the Brazilian electricity sector, in which the rates set by the Brazilian Electricity Regulatory Agency (ANEEL) currently use the new replacement value (NRV) approach. We carried out empirical tests using data available on the ANEEL website from the second cycle periodic tariff review and information obtained in financial statements from 1995 onwards. The analysis included the NVR and restated historical cost (RHC) methods, the latter being updated by the extended consumer price index (IPCA). After the descriptive and statistical analyses, we used the test of means to verify the differences between the variables in terms of NRV vs. RHC. The first conclusion was the absence of a significant difference between the NRV and RHC methods; that is, on average, the replacement price showed no significant difference to what would be the pure and simple restatement of assets. But this was found to hide something relevant, the fact that this average is derived from two main groups: that of the consumers who are paying more for energy services than they should, which constitutes a visible benefit to investors and loss for these consumers, and that of the consumers who are paying less than they should, which benefits them but harms investors.

Critical evaluation of the performance assessment model of Brazilian electricity distribution companies

This study presents a critical view of the performance evaluation model of Brazilian distribution service operators(DSOs) conducted in the 4th. Cycle of Periodic Tariff Review (TN 66/2015-SRM/SGT/ANEEL). More mature regulation models were used as parameters for the development of this work, besides the scientific references on the methodology used in Brazil (Data Envelopment Analysis - DEA). Alternative analyzes were developed with the same data used by the regulator to compare the official results and those in this research. The results indicate that measures used by the regulator can be refined through the suggested contributions, among them: removal of variables with zeroed data; inclusion of environmental variables to correct the model; removal of weight restrictions. The results indicate the existence of distortions between theory and other regulation references, and its application in the Brazilian model.

Risk ranking and analysis in PPP water supply infrastructure projects

Purpose – This paper aims to identify and evaluate the most significant risk factors that strongly affect the implementation of public–private partnership (PPP) water supply projects. PPP for water supply infrastructure services has seen continued growth over the past two decades, following public sector’s budgetary constraints and inability to provide infrastructure-based water services efficiently and cost effectively. However, these projects are often subjected to major risks leading to failures. Design/methodology/approach – Following extensive literature review and case study analyses, an international questionnaire survey was conducted with practicing and experienced PPP experts to establish the significant risks in PPP water projects. Both the probability of occurrence and severity of 40 risks were evaluated by the expert panel to determine their significance and impact on water projects procured under the PPP arrangement. Findings – The paper presents a derived risk factor list, ranks the factors and describes the “top-ranked” risk factors as: poor contract design, water pricing and tariff review uncertainty, political interference, public resistance to PPP, construction time and cost overrun, non-payment of bills, lack of PPP experience, financing risk, faulty demand forecasting, high operational costs and conflict between partners. Originality/value – This factor list broadens PPP stakeholders’ view of important project risks, rather than relying on culture-dependent studies – an area that has received less attention in PPP risk management research. The identified risk factors would provide governments and investors a useful tool in implementing constructive water PPPs by facilitating the development of risk mitigation strategies, particularly for developing countries with poor risk management practices.

Avaliação cruzada das distribuidoras de energia elétrica

No terceiro ciclo de revisão tarifária, a Agência Nacional de Energia Elétrica (Aneel) adotou uma metodologia baseada na Análise Envoltória de Dados (DEA) para a definição dos níveis eficientes dos custos operacionais das distribuidoras. Neste trabalho são apresentadas propostas que aprimoram a metodologia da Aneel. Em particular, propõe-se a segmentação do conjunto de distribuidoras por técnicas de análise de agrupamentos, com a finalidade de estabelecer comparações justas entre as empresas. Adicionalmente, visando obter índices de eficiência que levem em conta as avaliações realizadas pelos pares de cada empresa, propõe-se o uso da avaliação cruzada na definição dos níveis eficientes dos custos operacionais.

Public hearings as a tool to improve participation in regulatory policies: case study of the National Agency of Electric Energy

The participation of citizens in public policies is an opportunity not only to educate them, but also to increase their empowerment. However, the best way for deploying participatory policies, defining their scope and approach, still remains an open and continuous debate. Using as a case study the Brazilian National Agency of Electric Energy (Aneel), with its public hearings about tariff review, this paper aims at analyzing the democratic aspects of these hearings and challenges the hypothesis of many scholars about the social participation bias in this kind of procedure. This study points out a majority participation of experts, contrasting with the political content of discussions. And, this way, it contributes to a critical analysis of the public hearings as a participatory tool, indicating their strengths and their aspects which deserve a special attention.

Does MYTO Tariff Review Impact on the Flow of Private Investment to the Nigerian Electricity Supply Industry

The Nigerian economy has been experiencing severe electricity supply crunch which has negatively impacted on the operation of the economy and the people's wellbeing. For decades the industry, dominated by the government SOE (NEPA and now renamed PHCN) provides epileptic service to the economy that has failed to meet the electricity needs of Nigerians. Government introduced industry reform captured in the 2005 EPSR ACT. The reform seeks to open the market for private investment in the generation segment and promote competition with the ultimate aim of increasing generation and supply of electricity to the national economy. To attract the private sector to the Nigerian Electricity Supply Industry (NESI) the government introduced gradual tariff review called Multi Year Tariff Order (MYTO) .The paper assesses the impact of MYTO on the flow of private investment to NESI. Questionnaires were used to generate data from sampled respondents. Simple regression analysis was used for data analysis and hypothesis testing. The result of the analysis indicates that tariff review has a positive and significant impact on the flow of private investment to NESI though it explains only about 3% of the variation in the dependent variable (FPI). This shows that investors' response to the government tariff review has been very slow. Government therefore needs to take another look at the current tariff adjustment order (MYTO) as a way of fast-tracking the flow of private investment to the industry for enhanced electricity supply to the Nigerian economy.

Privatisation and electricity sector reforms in Brazil: accounting perspective

PurposeThe paper seeks to examine the evolution of regulatory accounting within the context of the Brazilian electricity sector reforms. The paper traces the process of the reforms and the development of the regulatory accounting system.Design/methodology/approachThe paper is based on data collected from various documents including those published by the regulator (such as laws, resolutions and technical notes), as well as information from distribution companies and other government agencies.FindingsIt is found that regulatory accounting played different roles under the different electricity sector reforms implemented in Brazil. For example, regulatory accounting was minimally used during the first reform, and this brought a range of problems of implementation and consolidation of the electricity sector model. However, regulatory accounting played an essential role in the regulatory framework under the second reform, and this in part contributed to addressing some of the problems of the sector.Originality/valueThis is the first study that describes and explains the Brazilian electricity sector reforms by analysing the so‐called core issues in regulatory accounting and tariff review process. The paper contributes to the literature by providing a broader picture of the interconnection between regulatory accounting and the regulator's objectives.

Forest Resources Management for Sustainable Development in Cross River State of Nigeria: Challenges of the 21st Century

This article dwells on the importance of current management strategies of forest resources and the way forward vis-a-vis the sustainability of the Tropical High Forest (THF) for livelihood, housing and commerce. Over seventy percent of the Cross River State population, occupying about two thousand communities live in rural areas with their characteristic mud-walled and thatch-roofed houses. Their mainstay being crude agricultural practices involving mixed cropping, hunting, non-timber forest product gathering, fishing and other resources exploitation. The high poverty level of these agrarian communities has resulted in mass deforestation of the virgin rain forest biochure for lucre and livelihood. If the importance of the rural environment as a source of industrial raw-material, waste product recycling and a life support regulatory organ has to be appreciated, there is need for sustainable forest and land-use options to protect the natural habitats and biodiversities of our rural communities. Efforts to control the unsustainable timber logging, other forms of deforestation and poor land utilization such as concession granting, check posts/control points, tariff review, revocation orders, awareness creation, formation of community management committees, and introduction of alternative forest and land-use options, among others, are covered in this article. Given the maxims of local, national and global problems confronting the implementation of these strategies, recommendations are made on enhancing the roles played by the Cross River State Forestry Development Department and Land Ordinance Act for sustainable land-use and management of the State’s forestry estates. The article concludes that enormous benefits would be reaped by Cross River State for the sustainable development of its local communities if adequate steps are taken to conserve its forest resources.