Environmental variables in regulatory models: Lessons from electricity distribution in Brazil

The present article analyzes the treatment given to environmental variables by the Brazilian Electricity Regulatory Agency (ANEEL) in the efficiency assessment of electricity distribution companies, from a regulatory trajectory perspective. Data Envelopment Analysis (DEA) is used as the benchmarking methodology. Although the regional diversity of the sector is acknowledged, the regulatory model has not consistently incorporated such variables into the efficiency model. A qualitative and documentary analysis of the main Technical Notes published between 2010 and 2025 shows that, even after successive tests in second-stage models, the regulator chose not to adopt them. Low statistical significance, inconsistent results, and risks of overestimation are cited. This decision may reduce the ability of the model to capture structural differences among distributors and underscore tariff equitability. Moreover, the Brazilian experience highlights the methodological challenges of the corrections applied to the DEA model, including the use of bootstrapping, as well as in the selection of relevant environmental variables. These issues are also relevant in international regulatory contexts, particularly in countries with large territorial scope and high structural heterogeneity, where the Brazilian case may offer illustrative insights. The relevance of the present investigation lies in advancing the academic debate on how to balance methodological rigor and regulatory equity, providing insights for the refinement of efficiency-based regulation in heterogeneous contexts.