APPLICATION OF PRINCIPAL COMPONENT ANALYSIS FOR AGGREGATION OF ENVIRONMENTAL VARIABLES THAT AFFECT THE OPERATIONS OF ELECTRICITY DISTRIBUTORS IN BRAZIL

The National Electric Energy Agency (ANEEL) in Brazil regulates electricity tariffs using benchmarking methods such as Data Envelopment Analysis (DEA), which assesses the efficiency of operating costs among distributors. However, operational efficiency varies with geographic conditions, suggesting that these environmental and operational factors should be incorporated into the DEA to avoid distortions. This study introduces the use of Principal Component Analysis (PCA) to integrate environmental influences into the evaluation of Brazilian electricity distributors. By analyzing 21 environmental variables, PCA condensed them into four main components that significantly affect operating costs: Territoriality, Climatic Factor, Wildfires, and Accessibility/Infrastructure. These components allow for the adjustment of operating costs, leveling the playing field by simulating similar environmental conditions for all companies. They can be applied in a second-stage DEA model to improve the accuracy and fairness of the regulatory benchmarking process, as well as to condense and simplify the analysis of results (by reducing the number of variables under analysis).