1. Autorità per l’energia elettrica e il gas FAULT STATISTICS IN DISTRIBUTION NETWORK: WHAT REGULATORS NEED? Roberto Malaman Autorità per l’energia elettrica e il gas - Italy and Council of European Energy Regulators – WG on Quality of Supply This presentation is not an official AEEG or CEER document

2. Autorità per l’energia elettrica e il gas 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. Autorità per l’energia elettrica e il gas MAIN QUALITY FACTORS Electricity Service VOLTAGE LIMITS VOLTAGE DIPS HARMONICS FLICKER CUSTOMER SERVICE ISSUES SUPPLY DISTRIBUTION 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 ELECTRICITY SERVICE

4. Autorità per l’energia elettrica e il gas 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

5. Autorità per l’energia elettrica e il gas Customer satisfaction is strongly affected by quality levels (Italian regional figures)

6. Autorità per l’energia elettrica e il gas SOME PRINCIPLES FOR QUALITY REGULATION  QUALITY REGULATION CAN BE FOCUSED ON  INPUTS (ENGINEERING SOLUTIONS)  EXPENDITURE (INVESTMENT AND OTHER COSTS)  OUTPUTS (THE CONSEQUENCE ON THE CUSTOMERS)  REGULATION FOCUS IS SHIFTING TOWARD OUTPUTS  REGULATORS SHOULD AVOID TO FORCE TECHNICAL SOLUTIONS OR DECIDE INVESTMENT PLANS  FOCUS ON INPUTS IS WELCOME IF OUTPUTS ARE NOT EASILY MEASURABLE/CONTROLLABLE

7. Autorità per l’energia elettrica e il gas INSTRUMENTS FOR QUALITY REGULATION  GUARANTEED STANDARDS (TO GUARANTEE A MINIMUM QUALITY THRESHOLD TO EACH SINGLE CUSTOMER)  COMPENSATION PAYMENTS (IF GUARANTEED STANDARDS ARE NOT MEET)  OVERALL STANDARDS (TO GUARANTEE A MINIMUM QUALITY THRESHOLD TO THE AVERAGE OF CUSTOMERS)  LEAGUE TABLES (BENCHMARKS) PUBLICATION OF QUALITY PERFORMANCE (ACTUAL LEVELS) OR YARDSTICK COMPETITION  INCENTIVE/PENALTIES MECHANISMS (SANCTIONS)  QUALITY-REVENUE OR QUALITY-TARIFF LINKS

8. Autorità per l’energia elettrica e il gas 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. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY REGULATION  AIMS  GUARANTEE RELIABILITY  ENHANCE SYSTEM QUALITY  PROMOTE ADEQUATE INVESTMENT AND MAINTENANCE  INSTRUMENTS  SYSTEM RULES/RESPONSIBILITIES  INDIVIDUAL STANDARDS (GUARANTEE)  OVERALL STANDARDS (GUARANTEE OR ENHANCEMENT)  PERSPECTIVES  QUALITY DEPENDENT PRICE CAP OR REVENUE CAP SYSTEMS

10. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY REGULATION: SOME EUROPEAN EXPERIENCES  ITALY (2000)  ECONOMIC INCENTIVES AND PENALTIES FOR CONTINUITY OF SUPPLY (Q-ADJUSTED DISTRIBUTION TARIFF)  NORWAY (2001)  COMPENSATION FOR ENERGY NON SUPPLIED  UNITED KINGDOM (2002)  INFORMATION AND INCENTIVES PROJECT  HUNGARY (2003)  Q-ADJUSTED DISTRIBUTION TARIFF

11. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY REGULATION: U.S. EXPERIENCES (Survey sample: 42 States – Source: Ohio University 2002) REPORTING AND MONITORING PERFORMANCE STANDARDS PENALTIES/ REWARDS Yes: 31Yes: 17Yes: 6 Working on it: 1Working on it: 5 No: 10No: 20No: 36

12. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY: REGULATION MAIN STEPS  1. MEASUREMENT RULES: INTERRUPTIONS HAVE TO BE MEASURED IN THE SAME WAY ALL OVER THE COUNTRY  2. CLASSIFICATION  ORIGIN  CAUSES OF INTERRUPTIONS (RESPONSIBILITIES): ACTS OF GOD (“FORCE MAJEURE”) USERS’ OR THIRD PARTIES’ RESPONSIBILITIES  GEOGRAPHIC CLASSIFICATION/NETWORK STRUCTURE  3. REPORTING  4. AUDIT PROCEDURES  5. PERFORMANCE STANDARDS  6. ECONOMIC INCENTIVES/PENALTIES

13. Autorità per l’energia elettrica e il gas REGULATORS NEEDS  REGULATORS NEED RELIABLE AND COMPARABLE STATISTICS ON FAULTS FOR:  COMPARING COMPANIES, REGIONS, AND COUNTRIES  SETTING STANDARDS  MONITORING IMPROVEMENTS  LINKING REVENUES TO QUALITY TARGETS  THESE STATISTICS SHOULD:  ALLOW OMOGENEOUS COMPARISON  ALLOW THE USE OF FEW RELEVANT INDICATORS (NUMBER/DURATION)  ALLOW FAULTS RESPONSIBILITIES SEPARATION  BE SO RELIABLE TO BE USED TO MODIFY CUSTOMERS’ BILLS (TARIFF) AND COMPANIES’ REVENUES

14. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY: BENCHMARKING OF ACTUAL LEVELS  WIDE VARIABILITY OF DEFINITIONS AND REPORTING PRACTICES  CRITICAL ISSUES FOR COMPARISON  ONLY UNPLANNED VS PLANNED+UNPLANNED INTERRUPTIONS  INDICATORS WEIGHTED ON AFFECTED CUSTOMERS VS INDICATORS WEIGHTED ON AFFECTED POWER  DEFINITIONS OF ACTS OF GOD (FORCE MAJEURE)  DEFINITION OF “LONG INTERRUPTION”: 3 MINUTES VS 1 MINUTE  VOLTAGE LEVELS (ALL INTERRUPTIONS VS ONLY ABOVE 1kV)  GEOGRAPHICAL CLASSIFICATION  RECORDING PRACTICES  AN INITIAL CRUDE COMPARISON HAS BEEN ATTEMPTED

15. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY: BENCHMARKING OF ACTUAL LEVELS NOTES (for detail of comparison see full report) (1) Only Enel (93% of Italy) (2) Only interruptions above 1 kV (3) Excluded exceptional storms (455 min. lost storms included) (4) Only interruptions above 1 kV; TIEPI (hours lost; indicator weighted on affected power) (5) Only interruptions above 1 kV, planned and unplanned; TIEPI (see above)

16. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY IN ITALY: North-South Differences before regulation

17. Autorità per l’energia elettrica e il gas MEASURES OF SERVICE QUALITY ( INCLUDED IN THE INCENTIVE SCHEME) DURATION AND NUMBER OF LONG INTERRUPTIONS (PLANNED AND/OR NOT PLANNED) ENERGY NOT SUPPLIED (ENS) UK, VICTORIA, MA, NY, ITALY NORWAY, ARGENTINA DISTRIBUTION LOSSESUK, VICTORIA, MA, NY POWER QUALITYVICTORIA, ARGENTINA LABOR SAFETYMA CUSTOMER SATISFACTION UK, MA MAJOR OUTAGE EVENTS NY

18. Autorità per l’energia elettrica e il gas MEASURES OF SERVICE QUALITY SYSTEM INDEXESUK, VICTORIA, MA, NY, ITALY  PER DISTRIBUTOR UK  PER CIRCUIT TYPEVICTORIA, MA, NY, ITALY INDIVIDUAL INDEXESNORWAY, ARGENTINA UK, VICTORIA, MA (GUARANTEED STANDARDS)

19. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY MEASUREMENT IN ITALY 1/ Supply Interruptions Measurements  THE AUTHORITY DEFINED A METHODOLOGY FOR MEASURING INTERRUPTIONS IN A COMMON WAY  ZONAL MEASUREMENTS FOR LV USERS AND FOR SHORT AND TRANSIENT INTERRUPTIONS IN THE MV NETWORK; AT THIS PURPOSE, TELECONTROL SYSTEM IS REQUIRED AT THE EXIT OF HIGH/MEDIUM VOLTAGE TRANSFORMER  INDIVIDUAL MEASUREMENTS FOR NON PLANNED LONG (>3’) INTERRUPTIONS FOR MV USERS

20. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY MEASUREMENT IN ITALY 2/ Supply Interruptions Classifications  CAUSES OF INTERRUPTIONS HAVE BEEN CLASSIFIED AS FOLLOWS:  ACTS OF GOD (“FORCE MAJEURE”): CIRCUMSTAMCES OF EMERGENCY OR DISASTER TESTIFIED BY LOCAL OR NATIONAL AUTHORITHIES, OR WEATHER CONDITIONS BEYOND DESIGN REQUIREMENTS FOR NETWORKS  USERS’ OR THIRD PARTIES’ RESPONSIBILITIES  DISTRIBUTORS’ RESPONSIBILITIES  INTERRUPTIONS HAVE BEEN ALSO CLASSIFIED BY ORIGIN IN ORDER TO TAKE INTO ACCOUNT DIFFERENT DISTRIBUTION NETWORK LAYOUTS  INTERRUPTIONS ORIGINATED IN THE TRANSMISSION GRID, DISTRIBUTION HV GRID, DISTRIBUTION MV GRID, DISTRIBUTION LV GRID

21. Autorità per l’energia elettrica e il gas CONTINUITY OF SUPPLY MEASUREMENT IN ITALY 3/ Territorial classifications  IN ORDER TO TAKE INTO ACCOUNT DIFFERENCES BETWEEN URBAN AREAS AND RURAL AREAS, ITALY HAS BEEN CLASSIFIED IN THREE DENSITY LEVELS:  HIGH DENSITY (URBAN) AREAS: MUNICIPALITIES WITH MORE THAN 50,000 INHABITANTS  MEDIUM DENSITY (SUBURBAN) AREAS: MUNICIPALITIES WITH MORE THAN 5,000 AND LESS THAN 50,000 INHABITANTS  LOW DENSITY (RURAL) AREAS: MUNICIPALITIES WITH LESS THAN 5,000 INHABITANTS  SPECIAL ATTENTION HAS BEEN DEVOTED TO SEPARATE LOW AND MEDIUM DENSITY AREAS (SUBURBS) FROM THE HIGH DENSITY AREAS (DOWNTOWNS) WITHIN THE LARGEST CITIES (EX: CITY OF ROME)

22. Autorità per l’energia elettrica e il gas THE EFFECTS OF REGULATION IN ITALY: CUSTOMER MINUTES LOST 1998-2001 TOTAL UNDER REGULATION

23. Autorità per l’energia elettrica e il gas THE EFFECTS OF REGULATION IN ITALY: CUSTOMER MINUTES LOST 1998-2001

24. Autorità per l’energia elettrica e il gas AVERAGE NUMBER OF INTERRUPTIONS FOR CUSTOMER (Italy 1998-2001)

25. Autorità per l’energia elettrica e il gas 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 WWW.CEER-EU.ORG

26. Autorità per l’energia elettrica e il gas CEER WORKING GROUP ON QUALITY OF SUPPLY: 2002-2003 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

27. Autorità per l’energia elettrica e il gas CONCLUSION: LESSONS LEARNED  TRANSITION TOWARDS LIBERALISED RETAIL MARKET MAY RAISE NEW QUALITY REGULATORY CHALLENGES  CUSTOMERS’ DEMAND FOR BETTER QUALITY COULD BE A STRONG INCENTIVE TO LONG-TERM IMPROVEMENT  REGULATION OF ELECTRICITY SUPPLY QUALITY SHOULD BE AN INTEGRAL PART OF THE PRICE SETTING PROCESS  ECONOMIC AND TECHNICAL REGULATION ARE MERGING  LACK OF AGREED UPON (INTERNATIONAL & EUROPEAN) QUALITY STANDARDS MEASUREMENT PRACTICE AS WELL AS POOR PERFORMANCE BENCHMARKS MAY SLACKEN REGULATORY SIMPLICITY, EFFECTIVENESS AND PROGRESS TOWARDS SINGLE ELECTRICITY MARKET