“Investments to guarantee network reliability ”

1. “Investments to guarantee network reliability” Robert Haffner Office for Energy Regulation DTe The Hague, 6 October 2004 comment on David Newbery

2. Outline presentation Reliability of electricity markets • Short term reliability of Dutch networks • Instruments for regulation of quality • Role of DTe Long term security of supply • Security of supply in the Netherlands • Key policy issues

3. Netherlands has high reliability Average interruption duration per client (unplanned and planned, minutes, 2001)

4. Differences in reliability between largest operators small Sectoral average 2001-2003 = 27 minutes

5. Quality regulation on 3 levels Instrument • N-1 /power quality • Decisions DTe • Capacity and quality plans • Measurement outages • Intervention Minister • Liability (BW) • Compensation (technical codes) • Tariff adjustment (q-factor) Kind Input Process Output

6. Advantage - `right` price through negotiation - works well for large customers Disadvantage - high costs of legal procedures Ladder of outputregulation: Liability Market price through negotiation for each client with damages

7. Advantage - `right` price through negotiation - works well for large customers Disadvantage - high costs legal procedures Ladder of outputregulation: Liability Market price through negotiation for each customer with damages Compensation Standard price for each customer with damages Advantage - transparent Disadvantage - link between administration outages and clients - high administrative costs

8. Advantage - `right` price through negotiation - works well for large customers Disadvantage - high costs legal procedures Ladder of outputregulation : Liability Market price through negotiation for each customer with damages Compensation Standard price for each customer with damages Advantage - transparent Disadvantage - link between administration outages and clients - high administrative costs Advantage - works well for smaller customers/outages Disadvantage - no direct relation between compensation and damages Tariff adjustment (q-factor) Standard average price for each customer

9. Advantage - `right` price through negotiation - works well for large customers Disadvantage - high costs legal procedures Ladder of outputregulation : Liability Market price through negotiation for each customer with damages DTe takes care of compensation and tariff adjustment; liability claims are individual responsibility Compensation Standard price for each customer with damages Advantage - transparent Disadvantage - link between administration outages and clients - high administrative costs Advantage - works well for smaller customers/outages Disadvantage - no direct relation between compensation and damages Tariff adjustment (q-factor) Standard average price for each customer

10. Optimal level of quality Depends on: • Preferences consumers for quality • Costs of network operators to improve quality • Internalise external effect in regulation (q—factor) • Companies compete on quality • Equalize marginal costs and benefits of reliability

11. Long term security of supply Source: Tennet

12. Long term security of supply: policy issues • Allow markets to signal need for new investments • Develop demand responses • Beware of wholesale market manipulation • Improve functioning gas market • Provide predictable investment environment => Zero risk of black-outs very costly

13. WWW.NMA-DTE.NL