Petrov Quality of Supply Regulation Tariff Budapest 2010 Eng

Experience you can trust.

Quality of Supply

Presentation for ERRA Tariff Committee

Dr. Konstantin Petrov / Dr. Daniel GroteApril 2010

22/01/2010 1

Agenda

4. Regulatory quality control 3. Relevance of quality regulation

b) Technical qualitya) Reliability

2. Quality measurement

c) Commercial quality

5. Design of incentive schemes for quality6. Outage cost

a) Indirect controls

1. Quality definition

c) Incentive schemesb) Minimum standards

7. International examples

22/01/2010 2

1. Quality definitionCustomer 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)

22/01/2010 3

1. Quality definitionDimensions 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)

22/01/2010 4

2. Quality measurementReliability 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)

22/01/2010 5

2. Quality measurementReliability 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 iPi: Interrupted Power for interruption i

Ni: Number of interrupted customers for interruption iNt: Total number of customers servedNa: 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

2. Quality measurementReliability 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

22/01/2010 7

2. Quality measurementTechnical 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

22/01/2010 8

2. Quality measurementCommercial quality indicators

Time and Quality Quality of InformationCustomer

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

22/01/2010 9

3. Relevance of quality regulationInterdependencies 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

22/01/2010 10

4. Regulatory quality control Groups of regulatory quality measures

Incentive Schemes Indirect quality controls Minimum Performance Standards

22/01/2010 11

4. Regulatory quality control

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 firms or regulators 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

22/01/2010 12


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

22/01/2010 13


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

22/01/2010 14

5. Design of incentive schemes for quality

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

22/01/2010 15

5. Design of incentive schemes for qualityIncentive function Shape

Penalty

Reward

Qualityhighlow

continuous

capped

dead band

22/01/2010 16

5. Design of incentive schemes for quality

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

22/01/2010 17

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

22/01/2010 18

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

22/01/2010 19

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

22/01/2010 20

7. International examplesDevelopment 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

22/01/2010 21

7. International examplesApplication of quality regulation in some European countries

Incentive scheme

Quality indicator

Quality target

Italy Continuous SAIDIAnnual

improvement of 16%

Hungary Discrete with caps SAIFI and SAIDI

Annual improvement of

16%

Netherlands Continuous SAIDIAnnual average improvement of

industry

Norway Continuous ENS Historic performance

Great Britain Continuous with caps

Customer Interruption and

Minutes Lost

Historic performance

22/01/2010 22

7. International examplesApplication of commercial quality standards in Europe

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

Automatic Upon customers request

Voluntary or bilateral agreements

Austria XCyprus XCzech Republic XHungary X XItaly XPortugal XSlovenia X (proposal)Spain X XUK X

Compensations due if commercial quality guaranteed standards are not fulfilled

22/01/2010 23

7. International examplesApplication 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 customers 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


22/01/2010 24

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

22/01/2010 25

7. International examplesApplication 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 89CN East 76.7 68.5 89

ENW 57.1 48.3 85CE NEDL 74.5 64.2 86CE YEDL 68.5 76.4 112

WPD S Wales 95.3 66.1 69WPD S West 84.5 58.4 69EDFE LPN 36.2 28.7 79EDFE SPN 84.5 82.7 98EDFE EPN 85.7 84.8 99

SP Distribution 60.8 55.7 92SP Manweb 46.7 49.3 106SSE Hydro 95.2 75.8 80

SSE Southern 88.3 64.3 73GB average 66.6

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

22/01/2010 26

7. International examplesApplication of quality regulation in Italy

Source: Autorit per l'energia elettrica e il gas

Development of quality regulation

22/01/2010 27

7. International examplesApplication of quality regulation in Italy

Source: Autorit per l'energia elettrica e il gas

Quality levels versus customer satisfaction

Experience you can trust.

Many thanks!

KEMA Consulting GmbHKurt-Schumacher-Str. 8, 53113 BonnTel. +49 (228) 44 690 00Fax +49 (228) 44 690 99

Dr. Konstantin PetrovManaging ConsultantMobil +49 173 515 1946 E-mail: [email protected]

Documents

Petrov Quality of Supply Regulation Tariff Budapest 2010 Eng