DESIGN OF ESKOM DISTRIBUTION SERVICE INCENTIVE SCHEME FOR MYPD2 (2010/ /13) (IDMS no: 47217v1)

Transcription

1 DESIGN OF ESKOM DISTRIBUTION SERVICE INCENTIVE SCHEME FOR MYPD2 (2010/ /13) (IDMS no: 47217v1)

2 TABLE OF CONTENTS Abbreviations Introduction First MYPD Incentive Scheme Review Performance Data History MYPD2 SAIDI Rules and Exclusions MYPD2 SAIDI Rules Incentive Scheme Events Exclusion MYPD2 Incentive Scheme Conclusion... 5

3 Abbreviations DSLI Distribution Supply Loss Index Dx Distribution ESI Electricity Supply Industry IPS Integrated Power System MYPD Multi-Year Price Determination NRS National Rationalised Standards RSLI Reticulation Supply Loss Index SAIDI System Average Interruption Duration Index SAIFI System Average Interruption Frequency Index

4 Rands(mil) 1. Introduction The National Energy Regulator of South Africa (NERSA) introduced the service incentive during the introduction of the first multi-year price determination (MYPD1) as a means to regulate the revenue calculation requirement for distribution in A lot of research was done where it was decided that the best index to use for the regulation of the business was the System Average Interruption Duration Index (SAIDI). The design of the first scheme was based on the data available from Eskom Distribution at the time which indicated that SAIDI was averaging about 50 hours at the time the scheme was designed. The design of the service incentive scheme revolves around encouraging the utility to earn additional revenue if it improves its performance, pay a penalty if its performance deteriorates, and will be allowed its revenue requirement if it maintains existing performance. The scheme runs parallel with the MYPD control period and is reviewed or revised with each MYPD process. This document aims to present the design of the second MYPD incentive scheme for Eskom Distribution. 2. First MYPD Incentive Scheme Review Figure 1 below presents the service incentive/penalty scheme that was designed for the first MYPD. In the first MYPD, Eskom Distribution had indicated that it intended to reduce its SAIDI by between 20 to 30 per cent. 250 Eskom Dx Incentive/Penalty Scheme SAIDI(Hrs) Figure 1: Service Incentive Scheme design on SAIDI for first MYPD The incentive for Eskom Distribution was to improve its SAIDI from 50 hours to a target of 35 hours. Had Eskom improved their performance to the targeted hours it would have received an additional R210m added to its revenue requirements calculation for MYPD2. The final value achieved by Eskom Distribution on its SAIDI hours at the end of the first MYPD control period was hours. 2

5 With the final value of hours on SAIDI, Eskom should have received a total penalty of R210m clawed back from its allowed revenue calculations for MYPD2. However, Eskom applied for a re-adjustment on its SAIDI hours for the penalty zone to start applying at 49.2 hours. These adjustments were allowed by the Energy Regulator which resulted in a total penalty of R30,24m for the first MYPD. 3. Performance Data History The performance data history used in the design of the incentive scheme for Eskom Distribution was the data available from April 2007 to March Although there is data available from Eskom for periods prior to the date mentioned, Eskom undertook an internal audit of the SAIDI and it was found that Eskom was under-reporting on its SAIDI by at least 15 per cent. In an effort to ensure that Eskom was reporting and recording the data accurately, an exercise was undertaken to cleanse the data to ensure that Eskom reported correctly on the measures. After the data cleansing that Eskom Distribution went through, it is believed that the data available from May 2007 onwards was accurate and could be used in a fair design of the incentive scheme for MYPD2. 4. MYPD2 SAIDI Rules and Exclusions During the NERSA and Eskom Distribution task team engagements on the possible design of the incentive scheme for the MYPD2, Eskom made a number of proposals on how it believed the scheme should be treated. 5. MYPD2 SAIDI Rules The following rules will be applicable during the MYPD2 period: Performance is inclusive of both controllable and uncontrollable events. The penalty or reward will be applied at the end of each financial year and the total applied at the end of the MYPD2 control period. The actual value of the 12-month moving average will be the value used when determining the penalty or reward at the end of each financial year of the MYPD2 control period. The total amount of the penalty will be accrued during the MYPD2 period and the overall incentive will be applied when the MYPD3 application is made. Eskom is to report on a six-monthly basis on its SAIDI performance, starting from October A weighting of 50 per cent will be applied for planned outages. New electrification customers are generally not excluded. There is an allowance for Eskom to fix the customer base at the beginning of each financial year, the actual number of new electrification customers will be added to the customer base for the new financial year. Outages caused by theft and vandalism will be treated as unplanned outages. 3

6 6. Incentive Scheme Events Exclusion With the limited control that Eskom Distribution has on certain events, the following exclusions will be allowed during the MYPD2 period when reporting on SAIDI: Transmission-caused interruptions Load shedding caused by generation capacity shortages Generation-caused events Integrated Power System (IPS) system constraints Major events (as defined in NRS 048) Customer-caused events 7. MYPD2 Incentive Scheme Figure 2 below presents the incentive scheme schematic that will be in place during the MYPD2 process. The actual figures of SAIDI will be used during the determination of the penalty or reward attained by Eskom during the MYPD2 control period. Figure 2: Incentive Scheme Design for MYPD2 Table 1 below summarises the incentive scheme as presented in Figure 2 above. In principle, Eskom is expected to improve its SAIDI performance by approximately 20 per cent in line with the scheme applied during the first MYPD. Index Hours Reward/penalty Reference 52 hours The reference is based on 4

7 SAIDI<10% improvement 20%>SAIDI>10% improvement 30%>SAIDI>20% improvement SAIDI improvement between 52 hours and 47 hours Between 47 hours and 42 hours Between 42 hours and 37 hours Table 1: Summary of the service incentive scheme for Eskom Distribution. inclusion/exclusion as indicated. Any change to the reference point will bring about changes in the other values. The reference point is to remain intact for the duration of the MYPD2 period. Any adjustment will happen when considering the MYPD3 application. (1) If the allowed reliability amount is not all spent, clawback will recover unused funds. (2) Apply a linear penalty based on the performance level, capped at R10m for no improvement or simply as R2m per SAIDI hour. (1) If the allowed reliability amount is not all spent, clawback will recover unused funds. (2) No reward or penalty will be applied. (1) If the allowed reliability amount is not all spent, clawback will recover unused funds. (2) Apply a linear reward capped at R10m for 30% improvement or R2m per SAIDI hour improvement below 42 hours. 8. Conclusion The current service incentive design has removed a number of data volatilities with the exclusions considered and the manner in which SAIDI will be recorded during the MYPD2 control period. Technical regulation of the ESI (Electricity Supply Industry) needs to be strengthened and the customers affected will have to be informed regularly on the performance of the regulated entity. It is envisaged that future incentive schemes may have to look at other technical performance indices in order to bolster the technical regulation of the industry as a whole. The task team 5

8 that was established during the design of these schemes will continue to look at other possible indices to be included in future incentive schemes for the industry as a whole. The following current possible indices will be looked at: RSLI (Residential Supply Loss Index); DSLI (Distribution Supply Loss Index); and the segmentation of the SAIDI to measure how different customer types are affected by interruptions. The current scheme only looks at the overall impact of interruptions for the whole distribution, but there might be only a few customers that are affected by the approximate 50 hours of interruptions per annum. 6