Cruces sobre e agua

QUALITY REGULATION IN ELECTRICITY DISTRIBUTION BUSINESS
Kaisa Tahvanainen1, Satu Viljainen, Samuli Honkapuro, Jukka Lassila and Jarmo Partanen, Lappeenranta University of Technology Pertti Järventausta, Kimmo Kivikko and Antti Mäkinen, Tampere University of Technology 1 kaisa.tahvanainen@lut.fi ABSTRACT Regulatory bodies in electricity sector are trying to find suitable methods to compensate theeffects of cost reductions emerged from regulatory models used to control electricity distribution monopolies. Quality aspects have to be recognised also due to growing interest stemming from the customers. This paper describes the regulatory measures taken by several European regulators in order to implement quality regulation in electricity distribution business. Planned regulatory measures inFinland are described in detail. INTRODUCTION Quality demands for electricity have risen. There are industrial processes that would suffer greatly due to disruptions. Besides the requirement needed by the industry, also the level of service in which the residential customers have accustomed has risen. This has forced energy sector regulators to consider quality aspects when deciding properregulatory measures for electricity distribution monopoly. On the other hand the methods used for price regulation can create a need for a specific quality regulation. The liberalisation process of energy markets has changed the need to regulate electricity distribution and transmission that have remained as natural monopolies. Performance based regulation methods, i.e. price or revenue cap regulation,have been popular among European regulatory bodies. These methods create strong incentives to cost reductions. Cost reductions can have a negative impact on the quality of electricity. This represents a challenge for the regulatory bodies to find a suitable method to compensate the effects of cost reductions to the quality of electricity supply. Power quality issues have to be recognised in otherregulation methods as well. The regulator cannot rely on the engineering rationale of the companies in e.g. rate-of-return regulation where companies usually define their own investment and quality levels. In this case there is a strong incentive to over-invest and this does not lead to socio-economic optimum level concerning quality and efficiency. High quality level requires high costs and hencehigh tariffs for electricity. The European Commission has appointed monitoring responsibilities to the national regulatory body relating to quality of supply. In addition the regulator has to provide adequate economic incentives for the maintenance and construction of the necessary network infrastructure (2003/54/EC). Quality of electricity supply regulation can take many forms. In most countriesquality standards are in place. There can be financial penalties if these standards are not met. Financial consequences can also be more severe. Mostly in price or revenue cap regulation the incentive to improve quality can be focused on the allowed revenue.

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QUALITY REGULATION The purpose of quality regulation is to ensure that the development of the networks is focused on the mostrational targets from social-economic point of view. This requires that quality issues are dealt with extensively, so that every perspective is considered. Regulators face a challenging task when deciding proper solutions for the implementation of quality incentive schemes. Different interest groups in electricity distribution business have different needs and therefore they value quality variously.CUSTOMER
Natural monopoly income Efficiency and quality Quality and price Possible ownership

REGULATOR
Efficiency and quality incentives Monitoring responsiblities Profit requirement Profit

COMPANY

OWNER

Figure 1. Expectations of different interest groups in electricity distribution business. As seen in the figure 1 there is four major interest groups in electricity distribution...