Quality of supply regulation is becoming more and more important as cost-decreasing incentives may have a mid- and long-term effect on the quality provided. This session explains how quality of supply is defined, measured and regulated. Quality definition: Reliability / Commercial quality / Technical quality Quality measurement Relevance of quality regulation Regulatory quality control Indirect controls Minimum standards Incentive schemes Design of incentive schemes for quality Parameters / Controllability / Incentive function (shape, dead bands, cap and floors) Outage cost.

1. Experience you can trust.
http://www.leonardo-energy.org/training-module-electricity-market-regulation-session-7
Training on Regulation
A webinar for the European Copper Institute
Webinar 7: Quality of Supply Regulation
Dr. Konstantin Petrov / Dr. Daniel Grote
22.1.2010

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Agenda
4. Regulatory quality control
3. Relevance of quality regulation
b) Technical quality
a) Reliability
2. Quality measurement
c) Commercial quality
5. Design of incentive schemes for quality
6. Outage cost
a) Indirect controls
1. Quality definition
c) Incentive schemes
b) Minimum standards
7. International examples

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1. Quality definition
Customer expectations
Customers have expectations from their electricity
supplier
Reliable supply
(low frequency of
interruptions)
Timely and
reliable
information in
case of a
problem
Quick restoration
time
Quick response
to complaints
Good technical
quality
(safe operation of
electrical
equipment and
appliances)
Individual expectations of customers do vary significantly
(e.g. depending on individual usage of electricity and the quality levels experienced in the past)

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1. Quality definition
Dimensions of quality
Continuity of
Supply
Technical
Quality
Commercial
Quality
– Reliability of electricity
supply
– Performance indicators
(number and frequency of
interruptions)
– Physical properties of
electricity
– Performance indicators
(voltage variation, dips,
flickers)
– Customer service quality
– Performance indicators
(complaints from
consumers, response time
to consumer complaints,
appointments with
consumers)

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2. Quality measurement
Reliability indicators (absolute numbers)
Number of
interruptions
Number of
customers
affected
Duration
(cumulative)
Unsupplied
energy
Total number of
times during a year
that supply to one
or more customers
was interrupted
Number of
customers affected
for each
consecutive
outage in that year
(some customers
might experience
more than one
outage in a year)
Aggregated time
that customers
who have
experienced an
outage have
actually been
interrupted in the
year (expressed in
minutes or hours)
Aggregated energy
not supplied to
customers during
the year as a
result of the
interruptions
(expressed in kWh
or MWh)

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2. Quality measurement
Reliability indicators (normalised indicators)
System
Average
Interruption
Frequency
Index (SAIFI)
System
Average
Interruption
Duration
Index (SAIDI )
Customer
Average
Interruption
Duration
Index (CAIDI)
Average
Energy Not
Supplied
(AENS)
average number
of outages per
customer
(probability of
experiencing a
power outage)
average time of
interruption per
customer
average time
required to restore
service to an
interrupted
customer
average amount
of energy not
supplied per
customer because
of interruptions
t
i
i
N
N
SAIFI
∑
=
a
i
i
N
N
CAIFI
∑
=
t
i
ii
N
Nr
SAIDI
∑
=
t
i
ii
N
Pr
AENS
∑
=
ri: Restoration time for interruption event i
Pi: Interrupted Power for interruption i
Ni: Number of interrupted customers for interruption i
Nt: Total number of customers served
Na: Number of customers affected by at least one outage
Customer
Average
Interruption
Frequency
Index (CAIFI)
average number
of interruptions for
a customer who
experienced at
least one
interruption
∑
∑
=
i
i
i
ii
N
Nr
CAIDI

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2. Quality measurement
Reliability indicators (normalised indicators) – Potential problems
• A reliance on normalised reliability indicators in isolation might lead to several problems
• SAIDI/SAIFI
– Reductions in SAIDI/SAIFI are proportional to the number of affected customers
 reliability investments based on SAIDI/SAIFI that affect large numbers of customers
(e.g. in urban areas) are more likely to be carried out (even though they already
experience satisfactory reliability levels) than those affecting only small numbers of
customers
• CAIDI
– When the firm reduces the number of small and easy to fix interruptions, the remaining
interruptions will be those taking longer to repair
 CAIDI will go up even though reliability has actually been improved
• Indicators are interdependent on each other:
SAIDI = SAIFI * CAIDI or CAIDI = SAIDI/SAIFI

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2. Quality measurement
Technical quality
Stability and safety of the whole power system as well as the functioning of electrical
equipment and appliances depend on technical parameters
Frequency stability Voltage stability Harmonics
voltage fluctuation
(flickers)
long-term voltage
instability:
1 – 60 minutes
(over- / under- voltage)
short-term / transient
voltage instability:
0 – 30 seconds
(dips, swells and short
interruptions)
– Symmetry of the three
phases and shape of the
voltage wave
– Standard LV and MV
distortion factor ≤ 8%
– HV distortion factor ≤ 3%
– For low voltage between
100 V and 250 V, most
countries 220-230V
– European standard:
230V +/- 10%
– USA standard:
120V +/- 5%
– Normal frequency value:
50 Hz
– North- and parts of South
America: 60 Hz
– Standard range +/- 0.5 Hz

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2. Quality measurement
Commercial quality indicators
Time and Quality
Quality of
Information
Customer
Satisfaction
Indicators
– Estimation of charges
– Notification of customers about
planned interruptions
– Establishment of new
connection
– Restoration of supply
– Change of meters
– Meeting arrangements
– Reaction in case of meter
reading problems
– Answering written complaints
– Answering phone calls
– Response to invoicing questions
– Number of customer complaints
lodged to the regulator
– Customer satisfaction indices
via surveys

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3. Relevance of quality regulation
Interdependencies between price and quality
• Customer value of electricity consumption depends on both price and quality
• Competitive markets produce different price-quality levels, customers select product that
fits their quality preferences, companies that offer inappropriate quality lose customers
• Natural monopoly companies do not face such a threat of customer losses and might
therefore offer low quality
• Under price- or revenue cap regulation companies might cut costs und reduce quality
levels
• Without additional quality regulation, lower prices might come at the expense of lower
quality levels

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4. Regulatory quality control
Groups of regulatory quality measures
Incentive SchemesIndirect quality controls
Minimum Performance
Standards

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4. Regulatory quality control
Indirect controls put external pressure on network companies to pay sufficient
attention to network quality (used by many regulators)
Indirect controls
Performance publication Resolution of conflicts
– Companies required to
publish information about
(trends in) own
performance or relative to
other companies
– “Name and blame”
– Publication in annual
reports, regulatory
publications, or on the
firm’s or regulator’s website
– Relatively simple to implement and limited regulatory involvement
– Effectiveness is questionable
– Brand value may matter
– Consumer complaint
bodies (e.g. hotlines)
– Establishment of an
Ombudsman
– Participation of consumers
in the advisory or
supervisory boards of the
firm

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4. Regulatory quality control
• Define minimum levels (floor) for certain performance aspects
• Violation of standard leads to a fine or tariff rebate
• Two types of standards
– Overall standards: Network quality at system level, e.g. “percentage of customers with
an outage”
– Individual standards: Limits to the level of performance delivered to individual
customers, e.g. limit the number or duration of outages for any customer
• Can provide strong incentives for firms to deliver adequate quality levels
• Impose a discrete relation between performance and price (achieve target or not),
companies might therefore provide minimum level only
Minimum standards

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4. Regulatory quality control
• Can be considered as an extension of a standard
• Impose a continuous relation between price and quality
• Each performance level results in a financial incentive, depending on the difference
between the actual performance level and a predefined target
• Performance below target results in financial penalty
• Performance above target results in financial reward
• Inclusion in the price- or revenue-cap formula possible
– Reward / penalty increases / decreases the allowed revenue
• Various mathematical specifications of incentive function
• Typical indicators for quality incentive schemes
– SAIDI, SAIFI, CAIDI, ENS
• Typical requirements for quality indicators
• Important to customers
• Can be influenced by the company
• Can be measured by the regulator (feasibility)
Incentive schemes

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5. Design of incentive schemes for quality
• Quality targets can be based on
• Individual historic levels
• On comparative basis using the performance of other regulated companies
• Parameters can be determined on system level, for individual or groups of customers
• Quality targets can be differentiated by
– Network operators
– Voltage level
– Geographical regions (rural and urban areas) reflecting customer density
– Warning notice (planned or unplanned)
– Reasons (force majeuere, third party, own fault)
– Customer type (household, commercial, industry)
Parameters

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5. Design of incentive schemes for quality
Incentive function – Shape
Penalty
Reward
Qualityhighlow
continuous
capped
dead band

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5. Design of incentive schemes for quality
• Dead bands
– Define a tolerance range within which quality is allowed to vary
– If quality is lower than the target range  penalty
– If quality is higher than the target range reward
• Caps and floors
– Define an upper limit of rewards and penalties that would be charged or given to
companies that exceed or fail to reach a specific quality level
• Dead bands and caps and floors can be jointly applied
Incentive function – Dead bands and caps and floors

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6. Outage cost
• Quality changes as a function of costs only
– Higher quality requires more costs (at the margin)
• Customers’ quality utility is a function of quality level
– Higher quality provides more benefits (at the margin)
• Theoretically, quality is optimal if:
– Marginal Quality Costs = Marginal Quality Benefits
Trade-off between cost and quality
Reliability costs
Reliability
Costs
Outage costs
Total Social Costs
Optimum

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6. Outage cost
• Duration of the interruption
• Perceived reliability level
– The higher the reliability level, the more severe the impact of an interruption will be
– Perceptions do vary significantly for different customers and different countries
• Timing (e.g. time of the day)
• Advance notice (planned or unplanned outages)
– Properly notified planned interruptions are generally rated as less severe by affected
users
• Nature of customer activities and consumer dependency
– Some customers may be more dependent than others (ability to shift load or abstain
from usage, e.g. hospitals are more vulnerable for an interruption than a residential
consumer)
Factors influencing the costs of an outage

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6. Outage cost
• Different measurement techniques:
– Indirect method
• Proxies (Gross National Product)
• Consumer surplus methods (electricity demand curves)
• Costs of backup power (costs of preventing interruptions)
– Direct method
• Ex post surveys (collect information after blackout)
• Ex ante surveys – direct cost (ask consumers their direct costs)
• Ex ante surveys – econometrics (willingness to pay for higher reliability or
willingness to accept lower reliability)
Outage costs measurement

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7. International examples
Development of unplanned interruptions in Europe
Unplanned interruptions excluding exceptional events, minutes lost per year
Source: 4th CEER benchmarking report on quality of electricity supply 2008

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7. International examples
Application of quality regulation in some European countries
Incentive
scheme
Quality
indicator
Quality target
Italy Continuous SAIDI
Annual
improvement of
16%
Hungary
Discrete with
caps
SAIFI and SAIDI
Annual
improvement of
16%
Netherlands Continuous SAIDI
Annual average
improvement of
industry
Norway Continuous ENS
Historic
performance
Great Britain
Continuous with
caps
Customer
Interruption and
Minutes Lost
Historic
performance

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7. International examples
Application of commercial quality standards in Europe
Source: 4th CEER benchmarking report on quality of electricity supply 2008
Automatic
Upon customer’s
request
Voluntary or
bilateral agreements
Austria X
Cyprus X
Czech Republic X
Hungary X X
Italy X
Portugal X
Slovenia X (proposal)
Spain X X
UK X
Compensations due if commercial quality guaranteed standards are not fulfilled

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7. International examples
Application of quality regulation in UK
• Ofgem monitors and controls the following aspects of quality of supply
– Reliability measured by interruptions
– Quality of service measured by customer satisfaction
– Environmental protection
• DSOs required to carry out quarterly postal customer surveys on
– customers whose electricity supply has been subject to an unplanned interruption and
– customers who have experienced a planned interruption
• Questions addressed in the surveys cover
– the duration of the interruption and the advanced notification of planned interruptions
– communication from the DSO
– the skill and professionalism of the people who carried out the work and the overall
quality of the work
• If performance standards are not met by DSO penalty payments to single customers arise

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Reporting
code
Service Performance Level Penalty Payment
GS1 Respond to failure of distributors fuse
(Regulation 10)
All DNOs to respond within 3 hours on a working
day (at least) 7 am to 7 pm, and within 4 hours on
other days between (at least) 9 am to 5 pm,
otherwise a payment must be made
£20 for domestic and non-domestic
customers
GS2* Supply restoration: normal conditions
(Regulation 5)
Supply must be restored within 18 hours, otherwise
a payment must be made
£50 for domestic customers and £100
for non-domestic customers, plus £25
for each further 12 hours
GS2A* Supply restoration: multiple
interruptions
(Regulation 9)
If four or more interruptions each lasting 3 or more
hours occur in any single year (1 April – 31 March),
a payment must be made
£50 for domestic and non-domestic
customers
GS3 Estimate of charges for connection
(Regulation 11)
5 working days for simple work and 15 working
days for significant work, otherwise a payment
must be made
£40 for domestic and non-domestic
customers
GS4* Notice of planned interruption to supply
(Regulation 12)
Customers must be given at least 2 days notice,
otherwise a payment must be made
£20 for domestic and non-domestic
customers
GS5 Investigation of voltage complaints
(Regulation 13)
Visit customer’s premises within 7 working days or
dispatch an explanation of the probable reason for
the complaint within 5 working days, otherwise a
payment must be made
£20 for domestic and non-domestic
customers
GS8 Making and keeping appointments
(Regulation 17)
Companies must offer and keep a timed
appointment or offer and keep a timed appointment
where requested by the customer, otherwise a
payment must be made
£20 for domestic and non-domestic
customers
GS9 Payments owed under the standards
(Regulation 19)
Payment to be made within 10 working days,
otherwise a payment must be made
£20 for domestic and non-domestic
customers
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7. International examples
Application of quality regulation in UK – Guaranteed Standards of
Performance
* Customers need to claim under these standards, for the remaining standards payments are automatic
Source: Ofgem, Table of Guaranteed Standards

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7. International examples
Application of quality regulation in UK – Incentive Scheme
2008/09 Customer Interruptions (per 100 customers) as a Percentage of Respective
2008/09 Targets
DNO 2008/09 Target Performance Performance / Target (%)
CN West 104.6 92.8 89
CN East 76.7 68.5 89
ENW 57.1 48.3 85
CE NEDL 74.5 64.2 86
CE YEDL 68.5 76.4 112
WPD S Wales 95.3 66.1 69
WPD S West 84.5 58.4 69
EDFE LPN 36.2 28.7 79
EDFE SPN 84.5 82.7 98
EDFE EPN 85.7 84.8 99
SP Distribution 60.8 55.7 92
SP Manweb 46.7 49.3 106
SSE Hydro 95.2 75.8 80
SSE Southern 88.3 64.3 73
GB average 66.6
Source: Ofgem, 2008 / 2009 Electricity Distribution Quality of Service Data Tables

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7. International examples
Application of quality regulation in Italy
Source: Autorità per l'energia elettrica e il gas
Development of quality regulation

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7. International examples
Application of quality regulation in Italy
Source: Autorità per l'energia elettrica e il gas
Quality levels versus customer satisfaction

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End of Webinar 7
KEMA Consulting GmbH
Kurt-Schumacher-Str. 8, 53113 Bonn
Tel. +49 (228) 44 690 00
Fax +49 (228) 44 690 99
Dr. Konstantin Petrov
Managing Consultant
Mobil +49 173 515 1946
E-mail: konstantin.petrov@kema.com