Electricity Markets Regulation - Lesson 7 - Quality Of Supply Regulation

Experience you can trust.http://www.leonardo-energy.org/training-module-electricity-market-regulation-session-7

Training on Regulation

A webinar for the European Copper Institute

Webinar 7: Quality of Supply Regulation

Dr. Konstantin Petrov / Dr. Daniel Grote

22.1.2010

http://www.leonardo-energy.org/training-module-electricity-market-regulation-session-7

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Agenda

4. Regulatory quality control

3. Relevance of quality regulation

b) Technical quality

a) Reliability

2. Quality measurement

c) Commercial quality

5. Design of incentive schemes for quality

6. Outage cost

a) Indirect controls

1. Quality definition

c) Incentive schemes

b) Minimum standards

7. International examples


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Customer expectations

Customers have expectations from their electricity supplier

Reliable supply (low frequency of

interruptions)

Timely and reliable

information in case of a problem

Quick restoration time

Quick response to complaints

Good technical quality

(safe operation of electrical

equipment and appliances)

Individual expectations of customers do vary significantly

(e.g. depending on individual usage of electricity and the quality levels experienced in the past)


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Dimensions of quality

Continuity of Supply

Technical Quality

Commercial Quality

– Reliability of electricity supply

– Performance indicators (number and frequency of interruptions)

– Physical properties of electricity

– Performance indicators (voltage variation, dips, flickers)

– Customer service quality

– Performance indicators (complaints from consumers, response time to consumer complaints, appointments with consumers)


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Reliability indicators (absolute numbers)

Number of

interruptions

Number of

customers

affected

Duration

(cumulative)

Unsupplied

energy

Total number of times during a year that supply to one or more customers

was interrupted

Number of customers affected

for each consecutive

outage in that year

(some customers might experience

more than one outage in a year)

Aggregated time that customers

who have experienced an

outage have actually been

interrupted in the year (expressed in minutes or hours)

Aggregated energy not supplied to

customers during the year as a result of the interruptions (expressed in kWh

or MWh)


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Reliability indicators (normalised indicators)

System Average

Interruption Frequency

Index (SAIFI)

System Average

Interruption Duration

Index (SAIDI )

Customer Average

Interruption Duration

Index (CAIDI)

Average Energy Not Supplied (AENS)

average number of outages per

customer

(probability of experiencing a power outage)

average time of interruption per

customer

average time required to restore

service to an interrupted customer

average amount of energy not supplied per

customer because of interruptions

t

ii

N

NSAIFI

a

ii

N

NCAIFI

t

iii

N

NrSAIDI

t

iii

N

PrAENS

ri: Restoration time for interruption event i

Pi: Interrupted Power for interruption i Ni: Number of interrupted customers for interruption i

Nt: Total number of customers served

Na: Number of customers affected by at least one outage

Customer Average

Interruption Frequency

Index (CAIFI)

average number of interruptions for a customer who experienced at

least one interruption

ii

iii

N

NrCAIDI



Reliability indicators (normalised indicators) – Potential problems

A reliance on normalised reliability indicators in isolation might lead to several problems

SAIDI/SAIFI

– Reductions in SAIDI/SAIFI are proportional to the number of affected customers

reliability investments based on SAIDI/SAIFI that affect large numbers of customers

(e.g. in urban areas) are more likely to be carried out (even though they already

experience satisfactory reliability levels) than those affecting only small numbers of

customers

CAIDI

– When the firm reduces the number of small and easy to fix interruptions, the remaining

interruptions will be those taking longer to repair

CAIDI will go up even though reliability has actually been improved

Indicators are interdependent on each other:

SAIDI = SAIFI * CAIDI or CAIDI = SAIDI/SAIFI


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Technical quality

Stability and safety of the whole power system as well as the functioning of electrical equipment and appliances depend on technical parameters

Frequency stability Voltage stability Harmonics

voltage fluctuation (flickers)

long-term voltage instability:

1 – 60 minutes(over- / under- voltage)

short-term / transient voltage instability:

0 – 30 seconds(dips, swells and short

interruptions)

– Symmetry of the three phases and shape of the voltage wave

– Standard LV and MV distortion factor ≤ 8%

– HV distortion factor ≤ 3%

– For low voltage between 100 V and 250 V, most countries 220-230V

– European standard: 230V +/- 10%

– USA standard: 120V +/- 5%

– Normal frequency value: 50 Hz

– North- and parts of South America: 60 Hz

– Standard range +/- 0.5 Hz


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Commercial quality indicators

Time and QualityQuality of

Information

Customer Satisfaction Indicators

– Estimation of charges

– Notification of customers about planned interruptions

– Establishment of new connection

– Restoration of supply

– Change of meters

– Meeting arrangements

– Reaction in case of meter reading problems

– Answering written complaints

– Answering phone calls

– Response to invoicing questions

– Number of customer complaints lodged to the regulator

– Customer satisfaction indices via surveys


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3. Relevance of quality regulation

Interdependencies between price and quality

Customer value of electricity consumption depends on both price and quality

Competitive markets produce different price-quality levels, customers select product that

fits their quality preferences, companies that offer inappropriate quality lose customers

Natural monopoly companies do not face such a threat of customer losses and might

therefore offer low quality

Under price- or revenue cap regulation companies might cut costs und reduce quality

levels

Without additional quality regulation, lower prices might come at the expense of lower

quality levels


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Groups of regulatory quality measures

Incentive Schemes Indirect quality controlsMinimum Performance

Standards


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Indirect controls put external pressure on network companies to pay sufficient

attention to network quality (used by many regulators)

Indirect controls

Performance publication Resolution of conflicts

– Companies required to

publish information about

(trends in) own

performance or relative to

other companies

– “Name and blame”

– Publication in annual

reports, regulatory

publications, or on the

firm’s or regulator’s website

– Relatively simple to implement and limited regulatory involvement

– Effectiveness is questionable

– Brand value may matter

– Consumer complaint bodies

(e.g. hotlines)

– Establishment of an

Ombudsman

– Participation of consumers

in the advisory or

supervisory boards of the

firm


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Define minimum levels (floor) for certain performance aspects

Violation of standard leads to a fine or tariff rebate

Two types of standards

– Overall standards: Network quality at system level, e.g. “percentage of customers with

an outage”

– Individual standards: Limits to the level of performance delivered to individual

customers, e.g. limit the number or duration of outages for any customer

Can provide strong incentives for firms to deliver adequate quality levels

Impose a discrete relation between performance and price (achieve target or not),

companies might therefore provide minimum level only

Minimum standards


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Can be considered as an extension of a standard

Impose a continuous relation between price and quality

Each performance level results in a financial incentive, depending on the difference

between the actual performance level and a predefined target

Performance below target results in financial penalty

Performance above target results in financial reward

Inclusion in the price- or revenue-cap formula possible

– Reward / penalty increases / decreases the allowed revenue

Various mathematical specifications of incentive function

Typical indicators for quality incentive schemes

– SAIDI, SAIFI, CAIDI, ENS

• Typical requirements for quality indicators

• Important to customers

• Can be influenced by the company

• Can be measured by the regulator (feasibility)

Incentive schemes


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Quality targets can be based on

Individual historic levels

On comparative basis using the performance of other regulated companies

Parameters can be determined on system level, for individual or groups of customers

Quality targets can be differentiated by

– Network operators

– Voltage level

– Geographical regions (rural and urban areas) reflecting customer density

– Warning notice (planned or unplanned)

– Reasons (force majeuere, third party, own fault)

– Customer type (household, commercial, industry)

Parameters


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Incentive function – Shape

Penalty

Reward

Qualityhighlow

continuous

capped

dead band


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Dead bands

– Define a tolerance range within which quality is allowed to vary

– If quality is lower than the target range penalty

– If quality is higher than the target range reward

Caps and floors

– Define an upper limit of rewards and penalties that would be charged or given to

companies that exceed or fail to reach a specific quality level

Dead bands and caps and floors can be jointly applied

Incentive function – Dead bands and caps and floors


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6. Outage cost

Quality changes as a function of costs only– Higher quality requires more costs (at the margin)

Customers’ quality utility is a function of quality level– Higher quality provides more benefits (at the margin)

Theoretically, quality is optimal if:– Marginal Quality Costs = Marginal Quality Benefits

Trade-off between cost and quality

Reliability costs

Reliability

Costs

Outage costs

Total Social Costs

Optimum


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6. Outage cost

Duration of the interruption

Perceived reliability level

– The higher the reliability level, the more severe the impact of an interruption will be

– Perceptions do vary significantly for different customers and different countries

Timing (e.g. time of the day)

Advance notice (planned or unplanned outages)

– Properly notified planned interruptions are generally rated as less severe by affected

users

Nature of customer activities and consumer dependency

– Some customers may be more dependent than others (ability to shift load or abstain

from usage, e.g. hospitals are more vulnerable for an interruption than a residential

consumer)

Factors influencing the costs of an outage


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6. Outage cost

Different measurement techniques:

– Indirect method

Proxies (Gross National Product)

Consumer surplus methods (electricity demand curves)

Costs of backup power (costs of preventing interruptions)

– Direct method

Ex post surveys (collect information after blackout)

Ex ante surveys – direct cost (ask consumers their direct costs)

Ex ante surveys – econometrics (willingness to pay for higher reliability or

willingness to accept lower reliability)

Outage costs measurement


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Development of unplanned interruptions in Europe

Unplanned interruptions excluding exceptional events, minutes lost per year

Source: 4th CEER benchmarking report on quality of electricity supply 2008


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Application of quality regulation in some European countries

Incentive scheme

Quality indicator

Quality target

Italy Continuous SAIDIAnnual

improvement of 16%

HungaryDiscrete with

capsSAIFI and SAIDI

Annual improvement of

16%

Netherlands Continuous SAIDIAnnual average improvement of

industry

Norway Continuous ENSHistoric

performance

Great BritainContinuous with

caps

Customer Interruption and

Minutes Lost

Historic performance


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Application of commercial quality standards in Europe

Source: 4th CEER benchmarking report on quality of electricity supply 2008

AutomaticUpon customer’s

requestVoluntary or

bilateral agreements

Austria X

Cyprus X

Czech Republic X

Hungary X X

Italy X

Portugal X

Slovenia X (proposal)

Spain X X

UK X

Compensations due if commercial quality guaranteed standards are not fulfilled


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Application of quality regulation in UK

Ofgem monitors and controls the following aspects of quality of supply

– Reliability measured by interruptions

– Quality of service measured by customer satisfaction

– Environmental protection

DSOs required to carry out quarterly postal customer surveys on

– customers whose electricity supply has been subject to an unplanned interruption and

– customers who have experienced a planned interruption

Questions addressed in the surveys cover

– the duration of the interruption and the advanced notification of planned interruptions

– communication from the DSO

– the skill and professionalism of the people who carried out the work and the overall

quality of the work

If performance standards are not met by DSO penalty payments to single customers arise


Reporting code

Service Performance Level Penalty Payment

GS1 Respond to failure of distributors fuse(Regulation 10)

All DNOs to respond within 3 hours on a working day (at least) 7 am to 7 pm, and within 4 hours on other days between (at least) 9 am to 5 pm, otherwise a payment must be made

£20 for domestic and non-domestic customers

GS2* Supply restoration: normal conditions(Regulation 5)

Supply must be restored within 18 hours, otherwise a payment must be made

£50 for domestic customers and £100 for non-domestic customers, plus £25 for each further 12 hours

GS2A* Supply restoration: multiple interruptions(Regulation 9)

If four or more interruptions each lasting 3 or more hours occur in any single year (1 April – 31 March), a payment must be made


GS3 Estimate of charges for connection(Regulation 11)

5 working days for simple work and 15 working days for significant work, otherwise a payment must be made


GS4* Notice of planned interruption to supply(Regulation 12)

Customers must be given at least 2 days notice, otherwise a payment must be made


GS5 Investigation of voltage complaints(Regulation 13)

Visit customer’s premises within 7 working days or dispatch an explanation of the probable reason for the complaint within 5 working days, otherwise a payment must be made


GS8 Making and keeping appointments(Regulation 17)

Companies must offer and keep a timed appointment or offer and keep a timed appointment where requested by the customer, otherwise a payment must be made


GS9 Payments owed under the standards(Regulation 19)

Payment to be made within 10 working days, otherwise a payment must be made


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7. International examplesApplication of quality regulation in UK – Guaranteed Standards of Performance

* Customers need to claim under these standards, for the remaining standards payments are automatic

Source: Ofgem, Table of Guaranteed Standards


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Application of quality regulation in UK – Incentive Scheme

2008/09 Customer Interruptions (per 100 customers) as a Percentage of Respective 2008/09 Targets

DNO 2008/09 Target Performance Performance / Target (%)

CN West 104.6 92.8 89

CN East 76.7 68.5 89

ENW 57.1 48.3 85

CE NEDL 74.5 64.2 86

CE YEDL 68.5 76.4 112

WPD S Wales 95.3 66.1 69

WPD S West 84.5 58.4 69

EDFE LPN 36.2 28.7 79

EDFE SPN 84.5 82.7 98

EDFE EPN 85.7 84.8 99

SP Distribution 60.8 55.7 92

SP Manweb 46.7 49.3 106

SSE Hydro 95.2 75.8 80

SSE Southern 88.3 64.3 73

GB average 66.6

Source: Ofgem, 2008 / 2009 Electricity Distribution Quality of Service Data Tables


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Application of quality regulation in Italy

Source: Autorità per l'energia elettrica e il gas

Development of quality regulation


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Application of quality regulation in Italy

Source: Autorità per l'energia elettrica e il gas

Quality levels versus customer satisfaction

Experience you can trust.http://www.leonardo-energy.org/training-module-electricity-market-regulation-session-7

End of Webinar 7

KEMA Consulting GmbH

Kurt-Schumacher-Str. 8, 53113 Bonn

Tel. +49 (228) 44 690 00Fax +49 (228) 44 690 99

Dr. Konstantin Petrov

Managing Consultant

Mobil +49 173 515 1946 E-mail: [email protected]

Electricity Markets Regulation - Lesson 7 - Quality Of Supply Regulation

Technology

Transcript of Electricity Markets Regulation - Lesson 7 - Quality Of Supply Regulation