Incorporating Quality of Service into Incentive-based Regulation

Juan Rivier

Juan.Rivier@upcomillas.es

Florence School of Regulation Workshop

Improving and Extending Incentive-based Regulation in the Energy Sector

Florence, 24 November 2006

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Contents

• Introduction• Interruptions• EVC functions

• Continuity of supply regulation

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• Introduction• Interruptions• EVC functions

• Continuity of supply regulation

Contents

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Introduction: quality of service

Quality of service• Commercial quality

• Supply technical quality– Power quality– Continuity of supply

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Introduction: continuity of supply

• Continuity = Reliability

• Limit of 3 minutes– To isolate permanent faults (that need some

repair) from the rest

• 95% of total interruptions have their origin within the distribution network– Rest in Generation + Transmission

• Highly linked to the investments and operation and maintenance of the distribution network

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Introduction: new regulatory framework

• Changes in the regulatory framework of power systems

• Distribution: natural monopoly

• New regulatory framework centered in costs reduction and efficiency increase– Price or revenue cap type of regulation– Negative perspective for quality of service

evolution

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• Introduction• Interruptions• EVC functions

• Continuity of supply regulation

Contents

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• Networks are formed by elements

– lines, transformers, isolators, etc.

• Each element has a fault rate

– An element can fail due to several reasons

• The failure of one element implies:

– Fault isolation

– Fault repair

– Supply reconnection

Supply interruption

Interruptions: distribution networks

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• individualsNumber, average duration, ENS

– Advantage: measures the quality level offered to each individual client

– Disadvantage: necessary means to measure them

• systemTIEPI, NIEPI, SAIDI, SAIFI, IKR, ENS

– Advantage: capacity to represent the system quality level in a compact way

– Disadvantages: can hide low quality areas

Interruptions: reliability indexes

Two main type of reliability indexes

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– Continuity depends on the fault rate of each element of the network (quality of each element)

– Operation and maintenance does affect the fault rate

– There are investment in quality improvement

Interruptions: investments

• Continuity Investments

• Distribution company as the main responsible for quality of supply:

Investment and operation and maintenance policy

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Interruptions: Improvement measures

Planning stage

Operation & maintenance

Investments for quality improvement

1) Increase number of substations and reduce distances

2) Reliability improvement of the network elements

3) To mesh the network

4) Increase operation & maintenance crew and the available tools

5) Signalization equipment installation

6) Isolating & switching equipment installation

7) Distribution network automation

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Investment optimization

• Cost curve versus continuity level

• Multi-attribute optimization problem

Continuity

€Distribution

investment costs

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Investment optimization and Network Reference Models

• Network Reference Models can be used to determine such curve

• Regulator can know– what should be the quality of service attainable

with a specific network– Or, what network is needed to provide a pre-

specified quality of service

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Índice

• Introduction• Interruptions• EVC functions• Continuity of supply regulation

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Interruptions: EVC functions

• Most common one: ENS• Costs of the Distribution Company (DISCO)

• + Costs of the customer

– Only takes into account duration and consumption

• Complex EVC: duration + number of int.

The continuity of supply has an economic value:

Customers interruptions costs

EVC Functions(Economic Value of Continuity of supply)

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• Introduction• Interruptions• EVC functions• Continuity of supply regulation

Contents

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• Distribution: natural monopoly

• Regulation has to replace competition– Offered quality of service should be related to

the remuneration– Offered quality of service

= socio-economic optimum– Mimimum guaranteed level to all customers

• It is necessary to have– Transparent, objective and clear rules– Integrated within the DISCOs remuneration

Distribution: objectives

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€.

Quality

Optimum Quality Level (OQL)

Quality DISCOs costs NSC: Quality Net

Social Cost

Customer costs due to lack of quality

Slope = -K at the OQL

Slope = K at the OQL

Distribution: Optimum Quality Level

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• Revenue cap regulatory scheme

• Basic remuneration Basic continuity level

• Adapt remuneration to the offered quality level– Incentives/penalizations scheme

• Guaranteed individual level of continuity– Penalizations in case of non-compliance

• Market zonification– Each market has its own OQL

Distribution: regulatory proposal

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• To adapt remuneration to the offered quality level

• Linear incentives/penalizations with offered continuity of supply

• Incentives/penalizations coefficients should be equal to slope at the OQL = K

Guarantees the Net Social Cost

Assign equitably the benefits between all the agents

Distribution: incentives/penalizations

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Costs (€)

Quality (QUA) Optimum

Quality Level (OQL)

I(QUA): DISCOs investment costs

NSC: Net Social Cost of quality

OQLQUA

CK

Slope of I(QUA) = K at the OQL

Reference Quality Level (RQL)

BSN

RCC

BRC

IT (= Incen)

CID

BRD Incen (= IT)

C(QUA): Customers costs due to lack of quality

Distribution: incentives/penalizations

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• Incentives/penalizations does not guarantee a minimum level to all customers

• Individual indexes– Direct Compensations to customers that did

not have the minimum guaranteed levels– Differentiation between voltage levels and supply

zone– Should be at least equal to immunization costs of

the customer

Distribution: minimum levels

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Customers

Quality

OQL = MB

Guaranteed minimum

level Customers with compensation rights

b) DISCO B with average quality level MB equal to OQL and high standard variation.

c) DISCO C with average quality level MC inferior to OQL and small standard variation.

Customers

Quality

OQL

Guaranteed minimum

level

Customers with compensation rights

MC

QUA

Distribution: schemes combination (i)

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Distribution: schemes combination (ii)

Customers

Quality

OQL = MA

Guaranteed minimum

levels Customers with compensation rights

a) DISCO A with average quality level MA equal to OQL and normal standard variation.

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Distribution: zonification

• Market division into areas defined by objective criteria based on the market

• Urban (municipalities: customers>10.000)

• Semi-urban (municipalities: 1.000>customers>10.000)

• Rural (municipalities: customers<1.000)

• Each zone has its own OQL– DISCO investment costs– Customers lack of quality costs