MARKET LIBERALIZATION AND QUALITY OF SUPPLY

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1 MARKET LIBERALIZATION AND QUALITY OF SUPPLY Roberto Malaman - Italy and Council of European Energy Regulators WG on Quality of Supply This presentation is not an official AEEG or CEER document

2 INTRODUCTION CUSTOMER WELFARE IS AFFECTED BY BOTH PRICE AND NON-PRICE ISSUES REGULATORS ARE IN CHARGE OF INSURING THAT APPROPRIATE QUALITY IS DELIVERED TO CUSTOMERS

3 WHAT IS QUALITY OF SUPPLY?. Quality is the primary empirical reality of the World (Robert M. Pirsig, Lila, 1991) QUALITY OF SUPPLY IS WHAT CUSTOMERS REALLY RECEIVE AGAINST THE BILL THEY PAY

4 MAIN QUALITY FACTORS Electricity Service ELECTRICITY SERVICE CUSTOMER SERVICE ISSUES COMMERCIAL QUALITY CONTINUITY OF SUPPLY OTHER PARAMETERS OF POWER QUALITY SECURITY DEPOSITS TOOLS FOR PAYING BILLS NON PAYMENT HANDLING DISCONNECTIONS FOR DEBT COMPLAINTS READING BILLING NEW SUPPLY ESTIMATES CONNECTIONS TO NETWORK PROVING SUPPLY RICONNECTIONS AFTER NON-PAYMENT DISCONNECTIONS APPOINTMENTS VOLTAGE AND METERS INVESTIGATIONS LONG, SHORT AND TRANSIENT NON PLANNED SUPPLY INTERRUPTIONS PLANNED SUPPLY INTERRUPTIONS VOLTAGE LIMITS VOLTAGE DIPS HARMONICS FLICKER SUPPLY DISTRIBUTION

5 PRICE REGULATION AND QUALITY REGULATION PRICE REGULATION INVOLVES INCENTIVES FOR QUALITY OF SUPPLY PRICE REGULATION WITHOUT QUALITY REGULATION MAY GIVE UNINTENDED AND MISLEADING INCENTIVES TO QUALITY LEVELS RATE OF RETURN REGULATION INCENTIVE TO OVER-INVESTMENT (AVERCH-JOHNSON OVER-CAPITALISATION EFFECT, OR INCENTIVE TO GOLD-PLATED SERVICES) PRICE CAP REGULATION QUALITY EXPENDITURE REDUCTION CAN BE USED TO CUT COSTS AND INCREASE PROFITS UTILITY REGULATION SHOULD EXPLICITLY INCLUDE QUALITY TARGETS, EXPECIALLY AFTER UTILITIES PRIVATIZATION

6 PRICE REGULATION AND QUALITY REGULATION An Example HUNGARY: 6 REGIONAL EDCs SOLD IN YEARS OF PRICE CAP ( ) INVESTMENTS REMAINED BELOW REPLACEMENT NEEDS EXTRA CASH FLOW: 210 M USD - DIVIDENDS DECREASING QUALITY OF SUPPLY SERVICES INCREASING NUMBER OF OUTAGES GROWING AMOUNT OF NON-PROVIDED ELECTRICITY

7 OUTAGES IN ELECTRICITY SUPPLY Hungary Number of outages (left hand axis) Non-provided electricity (Mwh, right hand i )

8 REGULATORS APPROACH FROM COMPANIES DECISIONS TO REGULATION MIX OF ECONOMIC AND TECHNICAL REGULATION FOCUS ON COMMERCIAL QUALITY AND CONTINUITY OF SUPPLY, PROVIDING THAT SECURITY OF SUPPLY IS GUARANTEED FOCUS FOR CONTINUITY ON DISTRIBUTION

9 CONTINUITY OF SUPPLY: REGULATION MAIN STEPS MEASUREMENT RULES: INTERRUPTIONS HAVE TO BE MEASURED IN THE SAME WAY ALL OVER THE COUNTRY CLASSIFICATION ORIGIN CAUSES OF INTERRUPTIONS (RESPONSIBILITIES): ACTS OF GOD ( FORCE MAJEURE ) USERS OR THIRD PARTIES RESPONSIBILITIES GEOGRAPHIC CLASSIFICATION/NETWORK STRUCTURE REPORTING AUDIT PROCEDURES PERFORMANCE STANDARDS ECONOMIC INCENTIVES/PENALTIES

10 CONTINUITY OF SUPPLY REGULATION: U.S. EXPERIENCES (Survey sample: 42 States Source: Ohio University) REPORTING AND MONITORING Yes: 31 PERFORMANCE STANDARDS Yes: 17 PENALTIES/ REWARDS Yes: 6 Working on it: 1 Working on it: 5 No: 10 No: 20 No: 36

11 CONCIL OF EUROPEAN ENERGY REGULATORS (CEER) WORKING GROUP ON QUALITY OF SUPPLY: OBJECTIVES COMPARE STRATEGIES FOR DESIGNING AND IMPLEMENTING QUALITY OF SUPPLY REGULATION IDENTIFICATION AND SELECTION OF COMPARABLE INDICATORS/STANDARDS BENCHMARKING STUDY ON QUALITY OF SUPPLY POSSIBLE RECOMMENDATIONS FOR QUALITY OF SERVICE BENCHMARKING 2001 REPORT ON

12 CEER WORKING GROUP ON QUALITY OF SUPPLY: ACTIVITIES COMPARE STRATEGIES FOR DESIGNING AND IMPLEMENTING QUALITY OF SUPPLY REGULATION IMPROVE STATISTICS COMPARABILITY (FOR REGULATORY PURPOSES) BENCHMARKING STUDY ON QUALITY OF SUPPLY (BOTH LEVELS AND STANDARDS) ENLARGING THE SCOPE OF COMPARISON TO PUBLIC SERVICE OBLIGATIONS ADDRESS SPECIAL TOPICS AS FAULTS RESPONSIBILITY AND DATA AUDITS