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DNSP Operating Environment Factors for Use in Economic Benchmarking

DNSP Operating Environment Factors for Use in Economic Benchmarking. AER Economic Benchmarking Workshop #1 13 March 2013 Denis Lawrence and John Kain. Background.

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DNSP Operating Environment Factors for Use in Economic Benchmarking

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  1. DNSP Operating Environment Factors for Use in Economic Benchmarking AER Economic Benchmarking Workshop #1 13 March 2013 Denis Lawrence and John Kain

  2. Background • Operating environment conditions can have a significant impact on network costs and measured efficiency and in many cases are beyond the control of managers • Need to ensure reasonably like–with–like comparisons • Adjust for at least the most important operating environment differences • In practice, the number and type of operating environment factors that can be included is often limited by data availability, correlation with other included variables and degrees of freedom considerations

  3. Operating environment factor selection criteria • the variable must have a material impact • the variable must be exogenous to the DNSP’s control, and • the variable must be a primary driver of DNSP costs

  4. The short list • customer density • energy density, and • climatic effects

  5. Candidates (1) • Customer density • Rural DNSPs require more line length to reach customers • Is it always a relationship in the same direction (eg high density may require extra inputs as well as low density, all else equal)? • Is service area an alternative measure? • SA Power Networks advocates the use of line length as the best measure of service area • Energy density/customer mix • Generally DNSPs with higher energy density will require less inputs, all else equal • Is customer mix a good alternative? • Climate • Sub-tropical vs temperate • Impact of storms over time • Relationship to reliability

  6. Candidates (2) • Terrain • Important cost driver • Can a suitable summary measure be formed? • How should terrain differences in service area be weighted? • Peak demand • Important cost driver but is it truly exogenous to the DNSP? • Incentive effects? • Coverage • Should we allow for differences in standard control coverage across DNSPs? If so, how?

  7. The short list • customer density • energy density, and • climatic effects

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