Pan-Nordic Regulation of Electricity Distribution System Operators
(2005) published
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- Abstract
- The Nordic countries share a long tradition of business development, institutional reforms and common values in both private and public enterprises. Starting from national and introvert electricity sectors, the Nordic countries can now also share the pride over one of the most successful deregulations of the electricity sector. Yet, there remains a regulated vertical segment displaying a wide range of solutions, both institutional and instrumental. In a European context of increased mobility, standardization and transparency, the Nordic countries usually lead the way in terms of solutions. The NEMESYS project investigates the possibility of a harmonized approach to DSO regulation. As the governments separately prepare to revamp their national regulation for the new EU directive, the NEMESYS project presents a new harmonized regulatory approach, that respects and clarifies the roles and particularities of grid operators, regulators, owners and clients. The proposal has been carefully analyzed from all stakeholder perspectives to assure feasibility and incentives for action. The lead issues that have been addressed are investment incentive provision, output focus and quality of service. The distribution business is facing large investment needs and the new regulation must create an attractive environment for investors and managers to run, maintain and develop the operations. The new regulation must also break with the “micro-management” tendency and concentrate on the issues related to the value for money that clients desire. Quality is to be promoted using monetary incentives related to customer value wherever possible, not detailed restrictions. The NEMESYS proposal is based on two strong components: a revenue yardstick model and a quality incentive scheme. The yardstick regime is a modern implementation of an intuitively attractive principle. In a bold stroke, it cuts the Gordian knot of efficiency and investment provision, asset valuation, and capital cost estimation. Rather than basing the efficient revenue on historic cost, it uses the actual revenues charged for the actual services, including capital costs, provision for future investments and competitive managerial incentives. It is shown that the integration of benchmarking based on flexible frontier models in the yardstick provides incentives for tariff reductions, efficiency improvements and investments. The quality incentive scheme complements the yardstick by creating a simple and customer-oriented compensation system for quality service. In the Nordic spirit of modernism and simplicity, the NEMESYS approach is perhaps the answer to the question that is waiting to be asked.
- Affiliations
Louvain School of Management Operations and Information Louvain School of Management Operations and Information
Citations
Agrell, P. J. (2005). Pan-Nordic Regulation of Electricity Distribution System Operators. Sumicsid AB. https://hdl.handle.net/2078.5/211288