Incorporating quality into frontier-based benchmarking in the context of Brazilian transmission service operators

Abstract

This study uses an academic and technical structure to clarify relevant issues of incorporating service quality level into a frontier-based benchmarking model in the electric transmission segment. The goal of this research is to contribute to the literature with a survey on service quality in the electrical energy sector and with a review of quality proxies and modeling applications into frontier-based benchmarking models. The Brazilian transmission regulatory model and the efficiency process adopted in 2007, 2009, 2012 and the latest proposed model in 2017 are presented and analyzed. The benchmarking model proposed in 2017 by the Brazilian regulator, Agência Nacional de Energia Elétrica (ANEEL) has limitations in evaluating quality proxies and in understanding how to incorporate this information into benchmarking efficiency analyses. Results showed that it is more effective to incorporate quality into the efficiency analysis when it is assumed as an input by adjusting operational expenses (OPEX) through a monetary value. When the monetary value of quality was added to the OPEX, the average score presented less standard error deviation, consistent with predicted results. This research used the Parcel Variable (PV), a monetary value for non-disposability in electric transmission service, as a proxy for quality. Based on the 2017 ANEEL proposal, this research recommends the adoption of PV as a quality proxy, inserted as an input to adjust OPEX. This new approach will lead to a government saving of R$ 2 billion reals on cost reimbursement based on benchmarking efficiency measurement at Brazilian transmission segment