Geographical Bayesian second stage analysis for operating efficiency of Brazilian electricity distribution system operators

Since 2011, the Brazilian electricity regulator has applied data envelopment analysis to estimate regulatory operating costs for distribution and transmission companies. Despite the availability of environmental or contextual variables, second-stage analysis has been avoided, primarily due to inconsistent statistical results, including estimated coefficients contrary to technical evidence and significant changes in operating efficiencies for selected companies. Previous studies have shown that environmental adjustments are critical for companies’ revenues operating in harsh environments in Brazil. Additionally, climate changes are affecting expenses with varying effects nationwide. To tackle this challenge, a second-stage model in which changes in efficiencies are also affected by geographical location of companies is proposed. Coefficient constraints and multiple environmental variables are applied to estimate regulatory efficiencies of Brazilian Distributor System Operators for upcoming years. Results indicate maximum efficiency changes of +5.35% and an increase of 1.1% in the total regulatory OPEX if the proposed second stage is applied.