Advanced Materials Research Vols. 838-841 (2014) pp 1972-1978 © (2014) Trans Tech Publications, Switzerland doi:10.4028/www.scientific.net/AMR.838-841.1972
Gas distribution in Italy: a non parametric analysis of companies operational efficiency Corrado lo Storto University of Naples Federico II, Piazzale V. Tecchio n. 80, 80125 Naples, Italy
[email protected] Keywords: data envelopment analysis, efficiency, scale economies, gas distribution
Abstract. This paper investigates the levels of technical efficiency in the distribution segment of the natural gas industry in Italy. An empirical analysis is conducted on a sample of 32 gas distributors, while Data Envelopment Analysis (DEA) is performed to calculate efficiency scores. Technical and scale efficiency, and density measurements are also used. Results show that the sample average technical efficiency is about at 75.58%, with a standard deviation of 31.24%. Scale economies are also relevant in the industry as scale efficiency is only 49.28%, with the bulk of companies showing decreasing returns to scale. Furthermore, from graphical analysis apparently no association between technical, scale efficiency and density measurements emerges, indicating that there is no one optimal way to improve efficiency of gas distributing companies. Introduction The Italian gas market is one of the most dynamic in Europe, while Italy is the fourth importer of natural gas in the world [1, 2]. In 2000, the Legislative Decree no. 164 has introduced important changes in the regulatory framework of the Italian gas industry. In particular, import, production and sale were regarded as liberalized and competitive economic activities, while transmission, storage and distribution, because of their technical and economical characteristics that make them a natural monopoly, were severely regulated. Finally, import, production, transmission, storage, distribution and sale were unbundled with the complete separation between service provision and assets ownership, and fully redefined by the following AEEG1 deliberations in 2001 and 2004. But, the liberalization process started in 2000 and the right granted to third parties to have access to the gas infrastructure network, have been unable to change in depth the structure of the industry and generate real cost savings and benefit for the customer, and some activities of the gas value chain such as distribution still remain scarcely efficient, and many existing distribution operators still maintain their local monopolistic markets. Before the reform started by the Decree no. 164, in Italy there were about 800 local and municipal gas companies that provided both distribution and sale services, and after a sequence of mergers and acquisitions, in 2004 the amount of companies decreased to 480, and in 2011 to 239 [1]. The restructuring process is still in action, and competition for being awarded a concession for service provision, the entrance in the market of new and more efficient companies, and merger and acquisition strategies necessary to increase the operations size, are all ways to achieve a reduction in total costs and improve service quality to customers. Thus, in Italy efficiency remains a major goal of the distribution activity along the natural gas value chain. This paper presents a study that implements Data Envelopment Analysis to evaluate operational efficiency of natural gas distributors in Italy and investigate certain causes of industry efficiency, i.e. technical and scale efficiency, and density or agglomeration economies. An empirical analysis was performed using recent data relative to a sample of 32 Italian distribution companies.
1
The Italian Regulatory Authority for Electricity and Gas.
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Advanced Materials Research Vols. 838-841
1973
The empirical research setting Method for measuring efficiency. Several methods and techniques to measure efficiency can be find in the literature, generally classified as ratio ranks methods, parametric methods, and nonparametric methods [3, 4, 5, 6]. Among these methods and techniques, Data Envelopment Analysis (DEA) is widely accepted and used by scholars to calculate efficiency for its strengths, and well recognized as a valuable decision support tool for managerial control and organizational diagnosis [7, 8, 9, 10, 11, 12]. Literature includes several studies in which DEA has been performed to measure efficiency in the gas industry [13, 14, 15, 16, 17, 18]. DEA is a non-parametric deterministic mathematical programming technique that extends the Farrell’s efficiency measure to a multiple outputs, multiple inputs setting, and adopts very weak assumptions related to the estimation of the empirical production function converting inputs into outputs and assuming the existence of a convex production frontier [19]. DEA measures the efficiency of different units, called “Decision Making Units” (DMUs). In this study, the units are individual gas distributors that may be considered as production functions which produce Y outputs by combining X inputs. Every gas distributor is associated to a specific production function that uses the same typologies of inputs and outputs. The ability of a unit to produce a given set of outputs with minimum consumption of a set of corresponding inputs, independently of any input prices is denominated technical efficiency which is measured as the maximum ratio of the linear combination of the outputs to the linear combination of the inputs. Efficiency scores range between 0 and 1. The production frontier is generated solving a sequence of linear programming problems, one for each unit of the sample, while the relative technical efficiency rate (TEF) of the unit is measured by the distance between the actual observation and the frontier obtained from all the units under examination. A unit is efficient if TEF=1, but if TEF
