Associate Director George Anstey and Senior Consultant Marco Schönborn will present a forthcoming paper at the DEA40: International Conference of Data Envelopment Analysis (DEA) at Aston Business School. The conference brings together academics and practitioners to discuss theoretical papers and numerous aspects of real-life problems. This year’s event celebrates the 40th anniversary of DEA.

A. Charnes, W.W. Cooper, and E. Rhodes developed Data Envelopment Analysis (DEA) as a measure of “decision making efficiency”. Their interest was “centred on decision making by not-for-profit entities rather than the more customary ‘firms’ and ‘industries’”. Today, DEA has become a popular tool used by energy sector regulators to set revenue allowances and tariffs of regulated entities. Whilst popular, this practical application is not without challenges and limitations, not always recognised by the regulators themselves.

Most countries have only a single gas or electricity transmission system operator (TSO) and the remainder have only a handful. Starting with E3Grid2012, a pan-European group of regulators has benchmarked their TSOs using DEA. Mr. Anstey and Mr. Schönborn’s paper describes the process used to benchmark electricity and gas TSOs and the practical difficulties experienced by the pan-European benchmarks to date. They draw on the experience of E3Grid2012 and E2Gas, as well as other benchmarking exercises performed by regulators across Europe, and argue that the cumulative effect of the difficulties in applying DEA means it is more suited for investigating cost differences between TSOs than setting regulatory allowances for individual companies. Recent applications of the results from these benchmarks suggest that regulators and courts are coming to a similar view.