Selected Elements of Service Quality Regulation Advice to ANRE based on the EU members’ practice and on the present regulation and local circumstances

Selected Elements of Service Quality Regulation

Advice to ANRE based on the EU members’ practice and on the present regulation and local circumstances of

Rep. of Moldova

Dr. Gábor SzörényiSenior electricity expert

Assistance from the Ad Hoc Expert Facility

Agenda of Report

• I. Importance of Supply Quality Regulation and its complex nature• Supply Quality Regulation as one of the necessary supplement to the positive result of

„Incentive price regulation”• Consumers’ expectation and satisfaction measurement; Setting Quality of Supply

requirements; Measuring and enforcing Quality of Supply related parameters• II. EU Service Quality Regulation - Benchmarking the Continuity of Supply and

Commercial Quality (tendencies, levels of quality, different solutions and general advises) • Reliability of Supply /Continuity of Supply/

• General EU practice (indicators; concept of Overall and Guaranteed Standards; financial incentives) compared to the regulatory practice of ANRE and suggested amendments

• Correlation between network related expenditures and service quality

• Commercial Quality Regulation• What does it mean and why to regulate it? • Mayor elements of CQ measurements in the EU and in ANRE regulation (comparing and suggested amendments)

• III. Data management as basis of indicators and financial incentives (elements of best practice on data collection, validation, auditing and ensuring data-accuracy) – discovered possibilities of development

• IV. Classification of exceptional events (e.g. extreme weather conditions) and handling Supply Quality requirements during and after these events – discovered possibilities of

development • V. Conditions and proposed schedule of implementation of automatic compensation

scheme in the Rep. of Moldova• VI. Summary of Proposals

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Agenda of Report












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Dr. Gábor Szörényi Page 4

- Preparing and continuously developing the supply quality regulation system, the regulator should be familiar with the importance, expectation and satisfaction of consumers regarding the different dimension/elements of supply/service quality. - Several EU regulators measure the consumers’ expectation

and satisfaction having a good basis for selecting the most important quality indicators and determining the required quality levels.

- Best solution, when the regulator and the involved licensees (DSOs and suppliers) harmonise their expectation and activity related to the survey (type of questions, conditions of representative and comparable results, cost covering)

Consumers’ expectation and satisfaction measurement


- Having reliable (representative) results of the subjective opinion of consumers well-designed number and distribution of samples (determined by statistical methods) is needed.

- Focus on households and small customers - The questioners should focus on different activities and

performances of the network and supply activities:

Distribution activity: the quality of supply (continuity of supply, voltage quality, restoration of supply) and the contact with customers (commercial quality),

Supply activity: billing, the performance of the Customer centres and Call centres, handling of complaints, communication with the customers (commercial quality)

Consumers’ expectation and satisfaction measurement

Assessment of Consumers’ Satisfaction; Distribution/Supply (1996 – 2004), from 2005: Distribution and Supply

· Quality of Supply· Quality of product and service· Restoring faults, interruptions (planned, non-planned)

· Operational relations· Meter reading, billing· Tools for paying bills, non-payment handling· Handling of complaints

· Communication with the consumers· Assessment of employees · Provision of information,· External relations

· Prices (subjective evaluation of cost-benefit and fairness)· Tariffs· Discounts· Tariff zones

· Comparison with other public services· Environmental protection activity

Dr. Gábor Szörényi – Service Quality Regulation Page 6

Consumer satisfaction measures in Hungary


-ANRE should undertake (directly or together with the license holders) consumer satisfaction surveys to be familiar with the expectation and satisfaction of the end-users regarding service and supply quality elements. The results of the surveys should support the enhancement of the quality regulation system and the set of indicators together with required levels.

Some important conditions of the reliable and comparable result of the consumer satisfaction surveys (if ordered by the licensees):

- common questioner for all involved energy companies,

- individual measures performed and evaluated (based on common methodologies) by gallup-poll/survey institutes (pollsters) ordered and paid by the energy companies,

- audit of the survey and benchmark ordered by the regulator,

- common evaluation together with the involved energy companies, consumer representatives and pollsters.

Consumers’ expectation and satisfaction measurement - suggestion


-Are the DSOs/suppliers ready working together with ANRE, consumer representatives and survey institutes on the preparation of common survey conditions and procedures?- Could the already implemented surveys of the

DSO/suppliers serve as basis for the future common/harmonised Consumers’ Expectation and Satisfaction measurement system?

- Could ANRE alone finance such annual surveys and the evaluation of them?

- Does ANRE has the legal authorisation to require harmonised surveys from the licensees?

- Is the separate questioner for distribution and supply activities rational (half year before DSO unbundling)?

Consumers’ expectation and satisfaction measurement – consultation 1


-Do you have university faculty dealing with methodologies of statistical calculation of adequate sampling and gallup-poll/survey methods?- Do the licensees want to use some supplementary special

questions for they own purposes? (the ratio of the special questions should be limited)

- What is the best timing of the annual measurement (not close to the price adjustment!)?

- When the first common survey could be scheduled?- Are the results of the DSO/suppliers own surveys (full or

partially) available for ANRE?- Any other issue, comment or proposal?

Consumers’ expectation and satisfaction measurement – consultation 2

Agenda of Report












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−ANRE staff should continuously develop ideas of supply quality measurement based on the changing consumer’ expectation, on readiness to pay for higher standards and on reality (data collection, predictability, technical conditions of network system, additional cost requirements, timing of implementation)

− ANRE should take into consideration, that the investors/licensed companies require time to implement new data-collection practice and increase service level (ANRE could ask detailed time-schedule for implementation and periodic reports on implementation)


Enhancing/developing the Quality Regulation of ANRE – suggestions 1.

−ANRE should prepare new requirements very carefully, with

some stability, based on continuous consultation with

distributors, suppliers and consumer representatives

−ANRE should prepare new supply activity related quality

requirements (Are the any legal conditions of it?)

−ANRE should classify the short interruptions (in one or two

categories), require data collection and reporting from the

DSOs. Based on reliable data supply and on the measured

consumer expectation in this field ANRE could set

requirement for short interruptions.



−The interruptions related data are collected and the general

indicators are calculated per distribution units and separately

per every district (rayon) as well. This is a very good basis for

ANRE to consider setting different requirements for the

different DSOs (based on the different topology, different ratio

of underground cables, different ages of networks,…). (Is it

realistic proposal?)− ANRE should consider reducing the number of single-

customer continuity indicators as basis of compensation system to those, which satisfy the conditions of efficient incentive regimes (measurable, simple, understandable for customers and short term reaction)! (Is it realistic proposal?)



− ANRE should establish a permanent team of experts inviting the involved TSO, DSOs and consumer representative groups assisting the regulatory staff setting new goals/targets of continuity indicators and penalty/reward system for the next 3-4-5 years. The standards/thresholds should force the TSO and DSOs to continuously enhance the continuity of supply level with a realistic pressure.

− Similar team could be established with the invitation of suppliers and consumer representative groups;− Preparing new - supply related – data gathering system and

requirements as well− Separating the DSO and supply related quality indicators



Agenda of Report






• Correlation between network related expenditures and service quality (Spanish and Hungarian practice)






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One of the biggest dilemmas of the regulators when setting tariff (and especially network/ system use tariff) is to find close connection between the expenditures (Operation & Maintenance and Development) of the network companies and the supply/service quality. The general question is how to evaluate the proposal of the network companies which calculate increasing O&M+D cost, if the regulator requires enhanced supply/service quality in the future. How the different cost elements of the justified expenditures correlate the different supply/service quality indicators.

Correlation between network related expenditures and supply/service quality

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To demonstrate strong correlation between the network-related expenditures (O&M+D) and supply/service quality is not easy and not common, because of the complex nature of the supply/service quality indicators and the complexity of the operation, maintenance and development of the different network-system elements:− reduced O&M cost could increase the number and duration

of system/network outages, but with well managed system operation the TSOs and DSOs could postpone the problem (increasing number and duration of outages) for years,

− the consequences of the reduced M+D expenditures could be realised after 3-4-5 years and the cumulative effect (necessary additional investment needed) could be detected later on.


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To find the connection (correlation) between the different elements of network-related expenditures and the different supply/service quality measures (indicators) the regulator should be very familiar with the details of TSO’, DSOs’ expenditures (e.g.: What are the average (or lowest) cost elements (investment, operation and maintenance) of all typical elements of the system [e.g.: transformer stations of different Voltage levels and in different topological conditions]). Very limited regulators have this type of data base, which allow them to identify the necessary O&M+D cost elements).


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One good example is the common database building practice of the Spanish regulator (CNE) and the network companies. Based on the long experience of reliable cost database and its analysis the Spanish regulator is able to identify the sensitivity of network costs in relation to the continuity of supply indicators. The experts of the CNE and the Universidad Pontifica de Comillas, Mardrid, Spain reported on the proposed approach available for the regulator creating incentives for DSOs on supply quality developments (“An approach to calibrate incentives for continuity of supply in the Spanish electricity distribution system” published in the Electric Power Systems Research in 2011).


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Calibrating incentives for continuity of supply received by Spanish electricity distribution companies the described method providing opportunities for CNE. The proposed approach combines the use of an engineering tool that designs distribution networks (reference network model [RNM] – as optimal network) and computes distribution costs with an econometrics analysis that estimates the sensitivity of these costs in relation to continuity of supply improvements. Once this sensitivity is calculated, incentives for continuity of supply in electricity distribution can be properly calibrated. The methodology is applied to three different types of areas of service in Spain: urban, semi-urban and rural.


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The application of the Spanish regulatory method and practice has an important pre-requisite; very detailed technical and cost database with several years of reliable data! In case ANRE would like to move to this direction, identifying the elasticity of distribution costs with respect to the continuity of supply indicators;− detailed data reporting obligation should be set on the DSOs,− data collection and analysis should be practiced for years to

have reliable and robust database,− a RNM should be developed or purchased and after then used

for designing the reference network models,− the parameters of the distribution cost function should be

determined.


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These results of the CNE calculations demonstrate that distribution costs are more sensitive to frequency of interruptions’ reduction than duration of interruptions’ reduction.

This could be explained by the fact that ASIDI/TIEPI (duration

of interruptions) could be reduced by simply installing protective devices and/or improving operation and maintenance planning, while a reduction in ASIFI/NIEPI (number of

interruptions) values could require higher efforts, such as an increase in the number of substations, kilometres of lines, etc. Apart from that, results also demonstrate that distribution costs are more sensitive to continuity of supply improvements in rural service areas compared to urban and semi-urban areas of service.


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The Spanish results show, that incentive for continuity of supply should not be the same for urban and rural areas of service. It was also observed that reducing the frequency of interruptions is more costly than reducing the duration of interruptions; therefore different incentives should also be applied to these different indices!


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Before deciding on the potential implementation of a new methodology determining financial incentives for continuity of supply ANRE could consult with the representatives of the Spanish investor (Red Union Fenosa) owning electricity DSO in the Rep. of Moldova to be familiar with all the necessary conditions of the introduction and use of such methodology.


Agenda of Report






• Correlation between network related expenditures and service quality (Spanish and Hungarian practice)






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ANRE should issue different regulation for the network operators and for the suppliers (both regulated and free market based suppliers) on commercial quality regulation measures related to the different type of relations with consumers.

The new regulation should be based on;− the tested present indicators − the results of the consumer expectation and satisfaction surveys,

and− the general European practice of commercial quality regulation.

The new commercial quality measures should be more focused on the relations of the licensees with the end-users, such as communication (e.g. Call Centre requirements) and personal contacts.

Commercial Quality Regulation - suggestion

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The draft Report prepared for ANRE contains detailed information on the Hungarian Call Centre service level indicators and requirements, which is based on the international tendencies – this could be good bases for ANRE considering the implementation of such measures.

ANRE should consult with special service providers, who prepare and operate Call centre service for different facilities (e.g. banks, insurance companies, telecom companies). The consultation could give general understanding of potential local and international requirements of Call centre quality indicators and expected service levels. ANRE should set Call centers’ service level indicators and requirements giving the energy companies enough time to prepare their systems for being able to comply with these new challenges.

Commercial Quality Regulation - Call Cenre requirements - suggestion

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- Do you have the same feeling that the customers are favouring Call centres compared to sending letters to DSOs and queuing in Consumer centres (customer questions, complaints, meter reading data dictation, billing problems,…)?- Are you happy, when you have to wait several minutes for

the operator of the Telephone companies?- Is the common requirement assists you to establish and

develop your Call centres?- How long time do you need to establish or to hire Call

centre services, which fulfil the general European standards? What is on the critical path?

- Any other concerns or proposal?

Commercial Quality Regulation - Call Cenre requirements - consultation

Agenda of Report












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Reliability of Supply – Reporting obligations – Immediate, monthly and annual reports

- After the introduction of supply quality related requirements and incentives the aim of the data management (from the previous goal: assisting the optimisation of O&M + Development of networks) turned to understand how the interruptions cause disturbances to the end-users (e.g.: outages/customer).

- That means all the data collection, aggregation, calculation and reporting system were forced to change.

- Generally there are prompt and yearly summarized reports to the regulator.

- The regulators are “interested” in mayor outages immediately, because they have to inform the government and sometimes the media as well in such cases (In Hungary prompt reporting obligation occurs, when breakdowns resulting more than 50,000 kWh loss of consumption).

Regarding the yearly reporting obligations the regulators sometimes ask – in case of some data – for monthly/ quarterly preliminary data delivery realizing the tendencies in time and identifying potential manipulation of annual aggregated quality indicators.

Page 30Dr. Gábor Szörényi – Service Quality Regulation

Reliability of Supply – Yearly Audits – Inspection of reliability and credibility of the yearly reports

• Frequency: once a year • Method of inspection:

• Using a random sampling• 5-5 events shall be picked (planned and unplanned interruptions)• Classify according to the appropriateness

• Aspects of inspection:• Completeness and accuracy of data collection• Application of internal and external rules and the compliance with the

provisions on data collection• Accuracy of number of affected customers• Proper calculation of non-supplied energy (kWh)

• Documentation: findings and the classification of the selected events shall be written in the minutes


Commercial Quality regulation in Hungary –On-site audits

• Normally on-site audits are carried out on annual basis, but in case two inspections per year are performed, than - in accordance with the order of procedure, which was issued on the inspection of reliability of continuity of supply data - the subject of the two audits is different:

• the aim of the first audit is to check the credibility of data reported by the licensees for the previous year,

• the second audit has a preventive nature, as it is carried out prior to the data reporting becomes due, and therefore it aims at discovering the potential problems and incentivizing the licensee to implement the necessary changes or improvements.

• Similar to the audits performed in field of continuity of supply, a random sampling method is used, by which 5-5 cases are picked randomly for the inspected indicators.

• If the sample contains any incorrect data, the sampling shall be repeated by selecting other five cases. In case the second sample also includes any incorrect data, the reliability of data reporting is classified as inadequate. In this case the licensee may be obliged to provide a corrected data report and in addition a penalty may be imposed on the company depending on the degree of the deviation from the requirements.Dr. Gábor Szörényi – Service Quality Regulation Page 32

Quality regulation in Hungary –Reported data validation and enforcement

Correction/modification of data reported: The licensees are fully responsible for the correctness of

data reported The regulator may examine data for up to 5 years If the licensee discovers significant data inaccuracy (above

0.5%) during its self-checking after the annual data provision, it shall notify the regulator.

The regulator may impose penalty in case the licensee would like to correct or modify the reported data after the deadline for annual data reporting (cca. 1700 EUR/incorrect

data). The amount of penalty may be much higher (cca.

8000 EUR/incorrect data) in case the error is revealed by the regulator instead of the licensee.


Reported data validation, monitoring and enforcement - suggestion

ANRE should enhance – in consultation with the energy industry and independent auditors or in team-work with the experts of the license holders and auditors – the data management system of those data which are involved in the quality indicators and incentive schemes (penalty and compensation).

The updated and developed system should cover the data collection, the calculation of different indicators, and the audit and inspection process of the data management procedure and the validity/accuracy of reported data as well.

The introduced European practice (described in the written report to ANRE) could be a good basis for preparing new guidance and common, binding requirements.


Reported data validation, monitoring and enforcement - consultation

What do you prefer? Who should prepare the detailed data collection, aggregation and delivery guideline?- ANRE in consultation with the energy industry and independent

auditors? or - Expert team should work on it (experts of the license holders,

auditors and ANRE)

Which are those reported data, in which the deermination of the data could be based on mis-interpretation of definitions? Which data, which indicator require more detailed guidence for common understanding?

Do you understand the aim of penelising inaccurate data delivery?


Agenda of Report












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Reliability of Supply – Quality incentive/Penalty regime

• In 2006: the deviation from the requirement was less than 5 % → no penalty• In 2007, 2009 and 2010: the 3-year average performance levels exceeded the first

penalty level → 1% reduction in distribution network charges for half a year (cca. 500.000 €)

• In 2008: the deviation from the requirement was more than 17 % → 2% reduction in distribution network charges for half a year (cca. 1.000.000 €) Page 37Dr. Gábor Szörényi – Service Quality Regulation

Reliability of Supply : effects of exceptional events

• Some interruptions are considered to be due to exceptional events and are

either not considered in the statistics or are treated separately. Different

countries use different criteria to decide if an interruption should be treated as

an exceptional event. Exceptional weather or other circumstances, like

vandalism can result in component failure even if the components are designed

correctly, using reasonable safety margins, as it is not possible (and would be

very costly) to design a power system that can cope with any situation. Such

outages are considered to be outside of the control of the system operator.

• There is no harmonised definition of exceptional event in Europe. It is

considered exceptional when a large number of network components fail in a

short period of time due to external circumstances. In such cases the

exceptional weather conditions, like snow storms, high winds, floods can make

it very difficult for the repair crews to repair the components, especially when it

is almost impossible to access the affected areas, e.g. when the soil is soaked

due to heavy rains. Interruptions due to exceptional events can be very long.


Reliability of Supply: effects of exceptional events - International Practice

In Hungary the definition of exceptional event included in the regulatory resolution covers the followings:• system breakdown;• acts of terrorism;• any event classified by the regulator as “other

event”(e.g. strain exceeding the design requirements).

These events shall be included in the annual reports of the DSOs, but can be excluded from the calculation of the quality indicators.

The concept of the 3 years average calculation as a basis for financial penalties and incentives reduces the effects of the annual exceptional events!


Reliability of Supply: effects of exceptional events - International Practice

Based on the findings of studies made by independent bodies a few years ago, the Hungarian Regulator accepted that wind load over 100 km/h itself means a strain exceeding the design requirements.

If there is another type of load besides the wind load, e.g. frost load, than the cumulative impact of these loads is even more significant, and in this case a lower wind speed (60-80 km/h) combined with frost depth of 50-80 mm may result in the damage of the network elements.

In these cases it is at the regulator’s discretion whether to accept the event due to these weather conditions as an “other event” or not.

There is no standardised method in Hungary for the classification of “other events”, therefore the regulator makes a decision on each case individually taking into account all specific circumstances.


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Reliability of Supply – Incentive regulation of reliability: effects of extreme weather conditions and „other events”

Unplanned long interruptions due to „other events” and all events excluding the „other events”

The Figure shows the impact of “other events” on the actual value of SAIDI indicator. The dark purple columns represent the average duration of long interruptions per year excluding all events, the light purple ones show the minutes lost per year due to “other events”. In 2008 11,6%, in 2009 21,6% and in 2010 22,72% of long interruptions was caused by “other events”, while in the last two years their effect decreased significantly thanks to the more favourable weather conditions.Dr. Gábor Szörényi – Service Quality Regulation

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Commercial Quality regulation in Hungary – Guaranteed Standards (4) – Restoration of Supply with relative detailed conditions

GS II. Time for the restoration of supply in case of failures affecting more than one consumers (cont.):

In Extreme weather conditions:• if the number of MV interruptions caused by a weather event reaches

or exceeds a value predefined for the different DSOs• Four weather categories: depending on the number of breakdowns in

a 24-hour period and the number of affected consumers• time for restoration differentiates for these categories → if it is

exceeded → compensation to the consumers• in case of weather category 4. there is no determined restoration

time and the DSO is automatically exempted from the obligation to pay a compensation to the affected customers


Commercial Quality regulation in Hungary – Guaranteed Standards (5) – Restoration of Supply under exceptional weather conditions

• After a heavy snowstorm in the western part of Hungary in 2009 the Regulator recognized that the problem of handling exceptional events should be addressed not only on system level but also on the individual customer level.

• Regulatory Guideline on the classification and management of the exceptional weather events.

• In the 3rd Benchmarking Report CEER recommended that NRAs define a set of rules regarding the events which are outside of the control of the DSOs. In Hungary the Regulator reviewed the practises applied by European countries for identifying and classifying exceptional events and decided to create a regulation on the basis of the method used in The United Kingdom.

• After a consultation process with the representatives of the DSOs and the consumer organisations, this new method was included in the regulatory resolution.

• According to this renewed resolution the extreme weather conditions are classified into four groups according to the number of medium-voltage interruptions in a 24-hour period and the number of affected customers as presented in the following Table.


Commercial Quality regulation in Hungary – Guaranteed Standards (6) – Restoration of Supply under exceptional weather conditions


Classification of extreme weather events

Agenda of Report












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Commercial Quality regulation in Hungary – Guaranteed Standards (8) - Compensation

• Between 2003 and 2008 compensation due to non-compliance with the requirements was usually paid if the customer made a claim in which he/she requested for the compensation.

• The DSOs were also allowed to make voluntary and proactive payments to customers, who have not received the required level of service. In this case the amount of compensation was lower compared to the ones which were paid on the customers’ request.

• This mechanism provided incentives for the licensees to pay compensation automatically.



• The customers were not aware of;• the existence of such Guaranteed Standards, and• the possibility and the method of getting compensation if those

standards are not met, • only a very few compensations were paid by the licensees.

• After 6 years of operating the voluntary and claim-based compensation system the Regulator aimed at increasing the public awareness and the efficiency of Guaranteed Standards - system;• imposed obligations on licensees to send a brief summary of

these services attached to the invoice once a year, • make it available on leaflets and on a poster were included in

the regulatory resolution, and• requiring automatic payment of compensation.



• In order to give the licensees sufficient time to prepare the necessary actions, the automatic payment system have been gradually introduced by the regulator starting from 2009.

• Automatic means that the compensation is automatically paid by the licensee in case of non-fulfilment of level of service required without any request of the customer.

• From 1 January 2011 each of the Guaranteed Standards involves automatic compensation to the affected customers in case the company failed to provide the required quality levels. It has resulted in a large increase in the number of compensations paid by the licensees as it can be observed in the following figure.



The number of compensations exceeded the number of cases in which the

company failed to fulfil the required quality levels with almost 20%. The reason

behind this is that in case of GS 9. Voltage quality on a low-voltage connection

point those customers, who are supplied with non-standard voltage for a long time,

e.g. over one and a half-year period get compensations on a monthly basis.


2008 2009 2010 2011 20120

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Number of cases in which the requirement was not fulfilled

Number of compensation paid

In 2009 compensations were paid only in 1.43% of the cases in which the DSOs did not comply with the requirements, while in 2012 all compensation were paid automatically.


Automatic compensation• for domestic customers : 17 EUR• for non-domestic customers : LV - 33 EUR, MV - 100

EUR• Deadline for payment: 30 days• Exemptions:

• vandalism (destruction or theft of equipment)

• 4th category of extreme weather


Guaranteed Standards – Rate of automatic payment for Guaranteed standards in Hungary between 2008-2011

2008 2009 2010 20110.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

110.00%

Automatic payment rate for GSZ I. Automatic payment rate for GSZ II. Automatic payment rate for GSZ III.

Automatic payment rate for GSZ IV. Automatic payment rate for GSZ V. Automatic payment rate for GSZ VI.

Automatic payment rate for GSZ VII. Automatic payment rate for GSZ VIII. Automatic payment rate for GSZ IX.

Automatic payment rate for GSZ X. Automatic payment rate for GSZ XI. Automatic payment rate for GSZ XII.

Automatic payment rate for GSZ XIII.

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In 2011 the total amount of compensation paid: by the DSOs: 823.712 €

by the USPs: 1.307.133 €

by the SPs: 118.700 €

total: 2.249.545 €

Dr. Gábor Szörényi – Service Quality Regulation

Agenda of Report












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Documents

Selected Elements of Service Quality Regulation Advice to ANRE based on the EU members’ practice and on the present regulation and local circumstances