Martin T. Bishop
Chris A. McCarthy
Cooper Power Systems
Virgil G. Rose
In the era of electric utility deregulation and competition, reliability of service to the customer is a critical issue. Cost control is also an important element in the competitive mix. In addition to customers demanding better service at lower cost, regulators are entering the picture in some situations with rate decisions tied to service reliability. The challenge for utility engineers and managers is deciding how resources should be spent on reliability to provide the service customers demand at a price they are willing to pay.
Historically, electric utilities defined service reliability based upon recorded system data. The feasibility of new expenditures on the system was based on the measured service reliability data, ignoring momentary outages and other short duration events. The values for reliability were reported as system average values, which may say nothing about an individual customer`s experiences. Some short-term events, which may be very important to the performance of loads in the customer`s facilities, were not even counted in the measurement index.
Customers have a variety of needs and demand different levels of service; therefore, perception of adequate reliability varies. As a result, some electric utilities are trying to develop a more customer-focused definition of reliability. System reliability economics can be explored through three viewpoints-the electric utility`s, the customer`s, and the regulator`s-each yielding different conclusions.
Returns for the electric utility
From the electric utility`s point of view, the economic analysis includes expenditure of resources to improve reliability and generate increased kWh sales or customer loyalty, which translate into increased profits. However, there may or may not be a difference in the rate paid by the customer for service with higher reliability. Besides the quantitative measures, there are additional benefits such as decreased customer complaints, better public relations, and decreased pressure from the local regulators.
The problem with the economic analysis considering the added revenue from improved reliability is the fact that the benefit is small. For a typical customer consuming an average 1 kW of power, the utility gets less than $1 of extra revenues from each customer by increasing the availability of electrical service from 0.999 to 1.000. To make matters worse, increased revenue does not equal increased profit. A generous estimate of additional profit would be about 10 percent of increased revenues. Thus, the additional capital available to improve the system from 0.999 availability to 1.000 without reducing profits is only about 10 cents per customer each year. The task of increasing the service availability to 1.000, even if possible, would certainly require a large expenditure for little return-hardly a formula for keeping a business healthy.
Another utility point of view might include analysis of reliability improvement expense versus the total revenue stream to the utility from an important customer. This could be justified if the reliability improvement expenditures are needed to keep the customer from purchasing power from a competitor. Although one could make the argument that the competitor would continue to use the same electric transmission and distribution system, customers will still be persuaded to switch energy suppliers when reliability is poor.
Customer and regulator views
From a customer`s point of view, the cost of an outage may be far greater than the utility`s cost. Service interruptions, either momentary or sustained, can disturb industrial client processes, resulting in lost production, scrapped material, and perhaps additional equipment cleanup and repairs. A recent Institute of Electrical and Electronic Engineers paper summarized costs in Table 1 based on a survey of 210 large commercial and industrial customers.
The table shows significant costs to industrial customers when power is disturbed or interrupted. Although a momentary outage shows less cost per incident, momentary outages may occur 10 to 20 times in a year. Similar cost estimates can be developed for smaller commercial and even residential classes of customers.
Performance-based ratemaking (PBR) stimulates the monopoly service provider to improve efficiency and keep prices in line with inflation, or less. Unfortunately, this can create an environment where maintenance and other costs may be slashed to make money. For distribution service, customers are captive-they cannot leave the supplier and connect to another provider.
An alternative is to include measurements of reliability in a service quality index (SQI) for a distribution company subject to a PBR. The SQI will impose significant penalties on revenues if service quality deteriorates from a preset baseline performance level. The idea is to mimic the loss of revenue to the company that happens in a free market if customers leave a poor service provider to go to one with better performance.
To create an SQI, definitions must be created for evaluation of ongoing performance. Performance levels can be utility-specific to allow for different situations. If multiple items are included in the measurement process, an SQI specific for a utility and its history can be developed. One suggested approach requires all utilities to measure certain SQIs and report data annually. With this data, a utility-specific SQI can be part of the rate plan that compares annual performance to baseline performance standards. The typical reliability measurements are system average interruption frequency index (SAIFI), system average interruption duration index (SAIDI), and momentary average interruption frequency index (MAIFI)-already adopted by Pennsylvania, New York and California.
Penalties are included as part of the PBR for reliability reviews to discourage deterioration in service with cuts in the budget. California and New York will be incorporating penalties in their rate plans. Rewards (higher rates) are not generally part of the plans since it is not fair to assign higher costs to customers that receive better reliability than they want. Rewards and penalties might create a situation where poor performance in one area is balanced by good performance in another area. This might remove the incentive to improve the service to the poorly performing part of the system.
Reliability improvement initiatives
An unplanned customer outage is generally caused by a fault on the utility system. Although the number of faults that occur on the system directly affects the resulting reliability indices, the response of the overcurrent protection system can also have a large impact on the number of customers out of service and the total outage time. Many utilities are focusing reliability improvement initiatives around prevention aimed at reducing the number of faults. Investments in response initiatives, such as the design of overcurrent protection systems that sectionalize the system after a fault event, also have a major impact on reliability results. Especially when considering the value of service to the customer, expenditures in the overcurrent protection system for reliability improvement can generate reasonable payback periods and rates of return. One reliability improvement study for an oil production company resulted in economic justification for installing reclosers on the primary distribution circuits serving the pump loads. Table 2 displays the recloser placement and economic summaries for the 19 circuits investigated in the study.
The results in the table demonstrate that for the majority of the circuits studied, reliability expenditures generated a favorable rate of return, an average of more than 50 percent annual return over a 15-year period. The only dilemma for the utility with this approach is that it bears the expense, and the customer reaps the benefits. However, the competitive market may force electric utilities to make the system investments to maintain their present customer base.
What is the motivation for improving distribution system reliability, even if it cannot be economically justified by increased kWh sales? One possibility is that the regulatory commissions will establish a minimum value for various performance indices, such as SAIDI, SAIFI and MAIFI. Penalties will be based on comparison to the performance indices. Avoiding penalty costs is one incentive to improve service reliability.
Another motivation is the avoidance of negative public relations. A utility with a reputation for unreliable service cannot attract major industrial customers to its service area.
Customer satisfaction may become even more critical in the future. If customers can pick their electric energy supplier, a utility with a poor reliability record will lose customers to its competitors. If a utility fails to provide highly reliable service, it risks losing customers, lack of growth in kWh sold, and increasing political pressure from state regulatory agencies.
Martin T. Bishop and Chris A. McCarthy are with Cooper Power Systems. Bishop is supervisor of Reliability Improvement Studies, and McCarthy is a power systems engineer. Virgil G. Rose, Rose Consulting, is a former senior vice president with Pacific Gas and Electric.