Quality dependent revenue caps - a model for quality of supply regulation

Abstract

The paper describes the new model for quality dependent revenue caps (the CENS arrangement), introduced by the Norwegian regulator from 2001. The arrangement takes into account all incidents in networks with voltage levels above 1 kV that results in interruptions of duration above 3 minutes. Based on estimates of energy not supplies (ENS) and average specific interruption costs for each customer category, interruption costs (IC) are calculated for each company annually. The expected level of ENS is calculated for each company and hence the expected level of IC. At the end of the year the regulator calculates the difference between expected and actual IC. If the difference is positive, i.e. the quality of supply has been better than expected, the difference will be added to the company's revenue cap. The difference will be subtracted from the revenue caps if the quality has been worse than expected.

Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution networks

“…For instance, the Norwegian regulator estimates interruption costs at an aggregate level, where customers are classified as being either residential/ agricultural or industrial/commercial (Langset et al, 2001). Service quality regulation also involves a political aspect that can come into conflict with economic considerations.…”

“…However, to this date, few regulators have adopted quality-inclusive methods directly in setting the price caps. A notable exception is Norway which introduced a fully functioning system of quality-dependent revenue caps in 2001 Langset et al, 2001).…”

The Effect of New Public Management Reforms on Climate Change Adaptive Capacity: A Comparison of Urban Planning and the Electricity Sector

“…The NVE gradually developed a model for incentive regulation of the grid companies, which was implemented in the later part of the period (Langset et al 2001). With the model revenue caps could be estimated to use for economic incentive-based regulation of the grid companies.…”

Integrated approach for security of electricity supply analysis

“…to estimate the frequency and duration of interruptions (or reduced supply), energy not supplied and the corresponding cost of energy not supply (CENS) e.g. according to the Norwegian quality of supply regulation (Langset et al 2001). For this purpose the OPAL methodology is used (Samdal et al 2006).…”