Methodology to determine the optimal electricity distribution tariff using benchmarking techniques

The electric power distribution is considered as a monopoly public service, in which there cannot be direct competition, so it must be submitted to price and service quality regulation. In recent years, regulators, in order to improve the efficiency of the sector, have included incentive-based regulatory mechanisms. These mechanisms are still developing but there is no consensus to define the optimal methodology for determining the final tariff for the service given. The present article proposes regulatory procedures to calculate the Distribution Added Value (DAV) of electricity distribution companies through a robust and integrated designed methodology which includes benchmarking techniques. This work is based on the calculation of efficiency of a comparator group of companies. From the data of these companies are determined equations to calculate operating costs and level of investment. The methodology of this research was applied in the tariff determination of Latin-American companies taking into account data from USA distribution companies. Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) are techniques used in this research to determine the efficiency of a compared group of distribution companies of the United States. Finally, through a sensitivity analysis over different parameters the DAV range of variation is observed. Based on these results, conclusions are drawn and the optimal tariff level of a company can be determined.