Evaluation of cost efficiency in Finnish electricity distribution

This paper describes the process of developing an approach to evaluating the cost-efficiency of Finnish electricity distribution companies based on Data Envelopment Analysis (DEA). The process consisted of three main stages: (1) describing of the problem and exploring the key factors, (2) finding measurable quantities for the most essential factors, and (3) selecting the final model to be used in the regulation. Especially the selection of environmental variables, which allow the comparison of distribution companies operating in different environments, played a key role in the process. The selected model is used as a part of the regulation of distribution pricing.