1GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
The challenge of regulating natural monopolies in electrical
distribution – experices from Sweden
Magnus GammelgardRoyal Institute of Technology / KTH
Stockholm, [email protected]
2GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Agenda
• Regulation of Swedish Distribution Utilities
• Network Performance Assessment Model
• The model and the regulatory authority
• Implications on utilities
• Conclusion
3GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
The regulation of Swedish local distribution utilities
• Swedish market deregulated in 1996– Including ~ 5 million domestic customers– ~ 200-250 local distribution utilities
• Ex post regulation• New electricity act in 2002• A regulatory authority with limited
resources• Looking at the utilities from the outside
4GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Objectives and goals of the regulation
Market situation resembling acompetitive market
Self-regulating utilities
Reasonablenetwork tariffs
Efficientreliability
levels
Long termsolution forregulation
Efficientutilities,
regarding totalperformance
Objectives
Goals
5GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
A shift for utilities
• What used to be:
Profit
TariffCosts
Resulted in
Tariff = Costs + Profit
6GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
A shift for utilities
• Has become:
Profit ?
TariffCosts
Limits
Profit = Tariff - Costs
7GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
The Network Performance Assessment Model
• A regulatory tool – legal regulation not dependant of the model
• History– Developed since 1998– Pilot tests in 2001, 2002 and 2003– In operational use 2004
• Developed on commission of the regulatory authority
8GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Input data
• For every customer– Geographical position, actual energy consumption and
revenues
• For connections to other networks– Geographical position, energy delivered and voltage
level
• Outage duration and frequencies (averages) for announced and unannounced outages
• Local generation– Revenues, voltage level and energy delivered
9GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Two main steps in the model
1. Creation of a fictitious network
2. Valuation of the network
Cost of delivering electricity to customers
Reliability level
(Based on the fictitious network) (Outage data from actual network)
10GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Creation of fictitious network
Voltage level 1
Voltage level 2
Voltage level 3
Voltage level 4
Boundary Point
11GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
NetworkPerformance
Network Utility
Transport Labor
Network UtilityDelivery Quality
Supplement
Losses
Customer SpecificUtility
Quality Factor
Valuation of the networkCost of delivering electricity to customers
Valuation of reliability level
12GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
The model and the regulatory authority
• Intended use of the model– Instrument for selecting utilities
• Actual revenues compared to the model’s result (Network Performance)
• Majority of utilities will not be closer reviewed
– Establishing a climate for self-regulation• Code of conduct
• Support communication
13GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Implications on utilities – three dimensions
• Requirements in order to use the model
• Changed fundamental principles
• Implications on the businesses
14GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Requirements in order to use the model – input data
• Input data availability– Several parameters for every customer in
Sweden! (~5 million customers in total)
• Integrating input data– Separate (IT-)systems for positions, revenues
and energy consumption
• Input data quality
15GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Changed fundamental principles
• No guaranteed return– Managing costs according to the allowed revenues –
not covering costs
• Regulation from the outside– Managing cost efficiently should make a good (and
approved) profit
• History not considered– Historical investments does not justify higher tariffs
– Actual capital costs could be lower
16GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Implications on the businesses
• Possibilities to increase incomes
NetworkPerformance
Network Utility
Transport Labor
Network UtilityDelivery Quality
Supplement
Losses
Customer SpecificUtility
Quality Factor
Limited possibility to influence
Possible to influence through outages
17GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
• Evaluating investments– If possible to assess changes in input data
– The changed Network Performance is a valuation of the investment
Implications on the businesses
18GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Implications on the businesses
• Decrease costs– External to model
– Evaluate savings compared to effects on the Network Performance
Networkefficient
Cost andnetworkefficient
NeitherCost
efficient
High Low
Cost of operating andmaintaining the network
Small
Large
Network sizecompared to
NPAM
19GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Conclusions
• Model not possible to implement without widespread availability of input data– Coordinated IT-systems
• For the regulatory authority:– Decide on the exact use of the model– Identify incentives created
20GAMMELGARD SE Session 5 – Block 2 – Paper 39
Barcelona 12-15 May 2003
Conclusions
• For the utility:– Fundamentally altered regulation environment– Possible to influence allowed income through
outages – Actual costs external to model– Managing costs – a challenge
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