Incorporating Quality of Service into Incentive-based Regulation

1. Incorporating Quality of Service into Incentive-based Regulation Juan Rivier Juan.Rivier@upcomillas.es Florence School of RegulationWorkshopImproving and Extending Incentive-based Regulation in the Energy SectorFlorence, 24 November 2006

2. Contents • Introduction • Interruptions • EVC functions • Continuity of supply regulation

3. Contents • Introduction • Interruptions • EVC functions • Continuity of supply regulation

4. Introduction: quality of service Quality of service • Commercial quality • Supply technical quality • Power quality • Continuity of supply

5. 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

6. 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 perspectivefor quality of service evolution

7. Contents • Introduction • Interruptions • EVC functions • Continuity of supply regulation

8. Interruptions: distribution networks • 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

9. Interruptions: reliability indexes Two main type of reliability indexes • individuals • Number, average duration, ENS • Advantage: measures the quality level offered to each individual client • Disadvantage: necessary means to measure them • system • TIEPI, NIEPI, SAIDI, SAIFI, IKR, ENS • Advantage: capacity to represent the system quality level in a compact way • Disadvantages: can hide low quality areas

10. Interruptions: investments • Continuity  Investments • 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 • Distribution company as the main responsible for quality of supply: • Investment and operation and maintenance policy

11. Interruptions: Improvement measures 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 Planning stage Operation & maintenance Investments for quality improvement

12. Investment optimization • Cost curve versus continuity level • Multi-attribute optimization problem Distributioninvestment costs € Continuity

13. 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

14. Índice • Introduction • Interruptions • EVC functions • Continuity of supply regulation

15. Interruptions: EVC functions The continuity of supply has an economic value: • 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. • Customers interruptions costs • EVC Functions(Economic Value of Continuity of supply)

16. Contents • Introduction • Interruptions • EVC functions • Continuity of supply regulation

17. Distribution: objectives • Distribution: natural monopoly • Regulation has to replace competition • Offered quality of service should be related to the remuneration • Offered quality of service= socio-economicoptimum • Mimimum guaranteed level to all customers • It is necessary to have • Transparent, objective and clear rules • Integrated within the DISCOs remuneration

18. Distribution: Optimum Quality Level

19. Distribution: regulatory proposal • 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

20. Distribution: incentives/penalizations • To adapt remuneration to the offered quality level • Linear incentives/penalizationswith 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

21. Distribution: incentives/penalizations

22. Distribution: minimum levels • 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

23. Distribution: schemes combination (i)

24. Distribution: schemes combination (ii)

25. 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