A consistent approach for performance measurement of electricity distribution companies

Purpose – The purpose of this paper is to present an integrated algorithm composed of data envelopment analysis (DEA), corrected ordinary least squares (COLS) and principal component analysis (PCA) to estimate efficiency scores of electricity distribution units. Design/methodology/approach – Several DEA and COLS models are prescribed and their results are verified and validated by the algorithm. To calculate efficiency scores, three standard internal consistency conditions between DEA and COLS results are checked by the algorithm. If these conditions are satisfied, DEA is chosen as the superior model because it could be used for optimization as well. Otherwise, the geometric mean of DEA and COLS model is used as the final efficiency scores. Findings – The algorithm of this paper may be easily applied to decision‐making units because of its robustness (combined DEA‐COLS input and output) and validity gained through PCA. Originality/value – The integrated approach has several unique features which are: verification and validation mechanism by PCA, consideration of internal consistency conditions between DEA and COLS and consolidation of DEA and COLS for improved ranking given consistency conditions are violated.