Critical analysis of Spanish power quality regulation design

Abstract

The regulation of distribution utilities is evolving from the traditional approach based on a cost of service or rate of return remuneration, to a more competitive way of regulation based on incentives for improving efficiency, known as performance-based regulation or ratemaking (PBR). This type of regulation provides strong incentives to costs reduction. Most utility regulators have addressed the importance of retaining sufficient control on quality service levels provided by utilities in this new regulation framework. On the other hand, as society is becoming more sensitive to technical power quality problems, regulators try to introduce new concepts about electricity. The European Union (EU) Commission published a directive were electricity was explicitly considered as a “product”, with the same legal rights and duties than any other. The final aim of power quality regulation should be to control that distribution companies supply each customer the “electricity product” with the expected quality levels in relation with their global remuneration. In previous regulations, power quality was associated with planning practices. Networks were planned taking into account certain levels of expected power quality, and distribution companies were remunerated according with this criteria. In the same way that remuneration is changing to performance-based schemes, power quality regulation should too be based on real power quality provided by distribution companies. That is, power quality has to be measured, and distribution companies remuneration be affected by the results obtained. Spain has followed a similar evolution in its regulation framework and has design a power quality regulation published in 2000. This paper presents this regulation design and analyses how well it complies with the theoretical objectives. This will be done trying to understand the underlying concepts of the different regulatory mechanisms that have been implemented.

The regulation of distribution utilities is evolving from the traditional approach based on a cost of service or rate of return remuneration, to a more competitive way of regulation based on incentives for improving efficiency, known as performance-based regulation or ratemaking (PBR). This type of regulation provides strong incentives to costs reduction. Most utility regulators have addressed the importance of retaining sufficient control on quality service levels provided by utilities in this new regulation framework. On the other hand, as society is becoming more sensitive to technical power quality problems, regulators try to introduce new concepts about electricity. The European Union (EU) Commission published a directive were electricity was explicitly considered as a “product”, with the same legal rights and duties than any other. The final aim of power quality regulation should be to control that distribution companies supply each customer the “electricity product” with the expected quality levels in relation with their global remuneration. In previous regulations, power quality was associated with planning practices. Networks were planned taking into account certain levels of expected power quality, and distribution companies were remunerated according with this criteria. In the same way that remuneration is changing to performance-based schemes, power quality regulation should too be based on real power quality provided by distribution companies. That is, power quality has to be measured, and distribution companies remuneration be affected by the results obtained. Spain has followed a similar evolution in its regulation framework and has design a power quality regulation published in 2000. This paper presents this regulation design and analyses how well it complies with the theoretical objectives. This will be done trying to understand the underlying concepts of the different regulatory mechanisms that have been implemented.