Limitations of weight restrictions in data envelopment analysis for benchmarking Brazilian electricity distribution system operators

The Brazilian regulator has applied weight restrictions to Data Envelopment Analysis (DEA) for estimating the regulatory expenditures of distribution system operators. An ad-hoc procedure is currently being proposed, using a previous model without weight restrictions to estimate upper and lower boundaries using a data-driven approach. Nevertheless, DEA is subject to multiple solutions that may be achieved with a random switch of the dataset rows. In brief, the proposed methodology is extremely sensitive to multiple solutions. Using a simulation study, we see regulatory operational expenditures may vary close to US$ 42 million, thus compromising the financial integrity of companies.