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Limitations of weight restrictions in data envelopment analysis for benchmarking Brazilian electricity distribution system operators

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  • Costa, Marcelo Azevedo
  • Lopes-Ahn, Ana Lúcia
  • Kilger, Alexander de Carvalho
  • Micas, Artur Fontenelle

Abstract

The Brazilian regulator has applied weight restrictions to Data Envelopment Analysis (DEA) for estimating the regulatory expenditures of distribution system operators. An ad-hoc procedure is currently being proposed, using a previous model without weight restrictions to estimate upper and lower boundaries using a data-driven approach. Nevertheless, DEA is subject to multiple solutions that may be achieved with a random switch of the dataset rows. In brief, the proposed methodology is extremely sensitive to multiple solutions. Using a simulation study, we see regulatory operational expenditures may vary close to US$ 42 million, thus compromising the financial integrity of companies.

Suggested Citation

  • Costa, Marcelo Azevedo & Lopes-Ahn, Ana Lúcia & Kilger, Alexander de Carvalho & Micas, Artur Fontenelle, 2023. "Limitations of weight restrictions in data envelopment analysis for benchmarking Brazilian electricity distribution system operators," Utilities Policy, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:juipol:v:82:y:2023:i:c:s0957178723000528
    DOI: 10.1016/j.jup.2023.101540
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    References listed on IDEAS

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