The Impacts of Brazilian Provisional Measure nº 579/2012 on the efficiency of electrical distribution companies

Abstract

Although the Brazilian Provisional Measure (Medida Provisória – MP) No. 579/2012 have taken to a reduction in electricity tariffs in the short term, it had a series of adverse effects on the electricity sector in the medium and long term. Using the sample com posed of panel data from 61 electric power utilities between 2003 and 2016, we propose to investigate the effect of this measure on the efficiency of operational cost of Brazilian distribution companies. To this end, this article applies Bayesian inference to estimate a stochastic cost frontier that incorporates temporal efficiency dynamics. The analysis of efficiency is expanded into two directions. We apply the Malmquist index that decom poses the change in productivity, technical efficiency and technological progress. As one knows, reducing investment maintenance and modernization of network leads not only to an increase in technical but also in non-technical losses (NTL). That’s why this study also evaluates the impact of NTL on the operational cost. Considering their magnitude, NTL have become increasingly relevant to the operational costs of Brazilian electricity distributors, as they compel companies to purchase additional energy, thereby reducing overall efficiency. The results of stochastic frontier model confirm that MP No. 579/2012 was not a good example of intervention in the regulation of the electricity system. They show that there was a great disruption in efficiency across the entire distribution sector. The results confirm the significant influence of NTL on cost efficiency.