Application of Network DEA Model to Vertically Integrated Electric Utilities

Liberalization of the electric power industry has been underway in various countries. Under this situation, it is necessary for electric power companies to improve their management efficiency in order to survive in a competitive market. This study examines management efficiency of vertically integrated electric companies, which consist of several divisions, such as generation, transmission, distribution and so forth. Previous studies mainly focused on efficiency of only a specific division independently. However, we should evaluate firm-level management efficiency based on divisional efficiencies, because these divisions are closely linked each other. For measuring firm-level efficiency, we apply a network DEA model that considers a streamlined relationship among divisions under vertical integration. Furthermore we newly proposed a constrained network DEA model to obtain more practical efficiency index.