Distinguishing Operational Performance in Power Production: A New Measure of Effectiveness by DEA

Measuring the efficiency of power plant systems requires capturing fluctuations in the level of sales to customers as well as accounting for the effects of regulatory caps on emissions. This study proposes a novel effectiveness measure considering desirable outputs and undesirable outputs via data envelopment analysis (DEA). The new measure complements typical efficiency measures. We test the validity of the proposed measure with an empirical case study of the fifty U.S. states and the District of Columbia. We find that the current interregional electricity transmission plan increases 8.56% in effectiveness. For the emissions control, we suggest a 9.8% reduction in electricity generation towards an effective production frontier. We conclude that the proposed effectiveness measure´s ability to distinguish sales and regulation effects from typical productive efficiency eliminates the bias often found in currently used measures.