Riccardo Vailati Co-chair CEER/ERGEG Electricity Quality of Supply task force

1. Guidelines of Good Practice on customer cost surveysas an input for infrastructure development and its regulation Riccardo VailatiCo-chair CEER/ERGEG Electricity Quality of Supply task force Autorità per l’energia elettrica e il gas, Italy Florence Forum, Florence, 14th December 2010

2. Outline • Cost estimation studies • The CEER Guidelines of Good Practice on estimation of costs due to electricity interruptions and voltage disturbances and the Sintef Energy Research report which supported CEER work • Importance of results for (transmission) infrastructure development • Use of results of cost-estimation studies for regulatory purposes • Conclusions

3. European Energy Regulators and cost estimation studies • Some NRAs and countries estimated cost of interruptions through surveys • Few estimated cost of voltage disturbances • Info: 3rd and 4th benchmarking reports on quality of electricity supply www.energy-regulators.eu

4. CEER recommendations (1) • The CEER Guidelines of Good Practice on estimation of costs due to electricity interruptions and voltage disturbances - together with the consultancy study of Sintef Energy Research commissioned and published by CEER (www.energy-regulators.eu) - are intended as a guidance for NRAs and other parties interested in how to design and develop nationwide cost-estimation studies • Survey-based approach (questionnaires sent to a large and representative sample) is complementary to a case-based approach (direct interviews for few significant cases with high impact of interruptions or voltage disturbances)

5. CEER recommendations (2) • Some key steps (for costs of both quality disturbances): • Specification of customer groups (households; commercial services; public services; industry without large customers; large customers and infrastructure) • Choice of cost-estimation method (direct worth; direct worth in case studies for large customers and infrastructure; contingent valuation: willingness to pay and to accept; conjoint analysis) • Choice of means to conduct the survey (web; telephone; face-to-face interviews) • Design of scenarios (occurrence: time of day, day of week, season; duration: 1 s, 1 min, 1-4-8-24 h; warning?)

6. CEER recommendations (3) • Some key steps (cont’d): • Selection of sample: assess expected response rate and expected standard deviation through pilot surveys; identify sub-sampling according to categories (NACE) • Cost analysis: execute logical tests; exclude careless responses; do not exclude zeroes; do no censor outliers • Key steps for cost-estimation of voltage disturbances: • For case-based approach (to be used for industry, large customers and infrastructure): deployment of VQ measurement instruments; logging of VQ events; analysis of logging journals and measurement data

7. Use of results • Customer cost estimations and surveys are traditionally largely used for power system development (e.g. as described in Cigré report of Task Force 38.06.01 “Methods to consider customer interruption costs in power system analysis”, year 2001, by R. Billinton et alii) • Possible applications include: • Input to investment decision-making process by means of contributions to cost-benefit analyses • Evaluation of load shedding priorities • Contribution to contingency planning and minimisation of risks associated to maintenance • Setting of standards and reliability and security criteria

8. ‘Regulatory’ use of results • Setting proper financial incentives to pursue an ‘optimal’ level of quality (transmission continuity) • Provide reference for setting compensations for customer e.g. after large (long) interruptions • Contribute to the regulatory approval of investment plans proposed by the network companies • Setting regulatory schemes for ‘interruptibility’ service • Contribute to monitoring quality of supply and to assess customer expectations; understand VQ phenomena which impact more on customers, in order to prioritise VQ regulatory monitoring/treatment • Contribute to monitor/understand customer satisfaction

9. ‘Regulatory’ use of results • Performance-based incentive regulation of transmission continuity (an example: rewards and penalties in Italy as determined by ENS) Over-performance reward Under-performance penalty Reference level (target): 4% ENS improvement in 4 years Floor limiting risk

10. ‘Regulatory’ use of results Differentiated rates for distribution Single reward/penalty rate for transmission

11. ‘Regulatory’ use of results • Performance-based regulation of transmission continuity is being increasingly implemented in European countries • Setting financial incentives: • An option is to reflect the results of estimations of the customer costs through survey, taking appropriately into account the complementary presence and impact of more indices e.g. ENS and frequency of interruptions (AEEG, transmission continuity regulation, 2008-2011) • Another option is to define rates in order to stimulate TSO management attention on the costs of disruption to consumers and to encourage a strategy minimising the overall risk (Ofgem, reliability incentive consultation and decision, 2004)

12. CEER GGP conclusions I • Customer costs due to electricity interruptions are of key importance in order to set proper incentives for continuity • Customer costs due to voltage disturbances are important input when deciding where to focus regulation • Society costs should be considered in addition to customer costs, as these can differ significantly • NRAs should perform nationwide cost-estimation studies on interruptions and voltage disturbances

13. CEER GGP conclusions II • CEER GGP should be used as basis for nationwide cost-estimation studies • A pre-study should define objectives, clarify country-specific characteristics, budget and consultancy needs, possible funding partners, timeline for the nationwide cost-estimation study • Results and experiences from cost-estimation studies shall be disseminated among interested stakeholders

14. Thanks for your attention Guidelines of Good Practice on customer cost surveysas an input for infrastructure development and its regulation Riccardo VailatiCo-chair CEER/ERGEG Electricity Quality of Supply task force Autorità per l’energia elettrica e il gas, Italy Florence Forum, Florence, 14th December 2010