Target Incentive

Development of KPIs for the Electricity Sector in the Kingdom of Saudi Arabia Targets & Incentives Report
Submitted to: Electricity & Co-generation Regulatory Authority of the Kingdom of Saudi Arabia Submitted by: KEMA International B.V., The Netherlands
Arnhem 22 May 2009
TABLE OF CONTENTS
INTRODUCTION ....................................................................................................................................... 4 1.1 1.2 BACKGROUND ........................................................................................................................................... 4 REPORT OUTLINE ....................................................................................................................................... 4
DEVELOPMENT KPI FRAMEWORK............................................................................................................ 6 2.1 2.2 2.3 IDENTIFICATION OF KPI TARGETS .................................................................................................................. 7 REGULATORY INCENTIVE MECHANISMS .......................................................................................................... 9 SELECTION OF INCENTIVE MECHANISMS ....................................................................................................... 12
GENERATION ......................................................................................................................................... 15 3.1 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.3 3.4 KPI OVERVIEW ........................................................................................................................................ 15 DEVELOPMENT OF TARGETS ....................................................................................................................... 16 International Comparisons.............................................................................................................. 16 Comparisons of power generation in Saudi Arabia versus International ........................................ 21 Power Generation of SEC ................................................................................................................ 22 Power Generation of Marafiq ......................................................................................................... 29 Power Generation of Saudi Aramco and SWCC .............................................................................. 32 Summary of KPI Targets .................................................................................................................. 34 INCENTIVE MECHANISMS ........................................................................................................................... 35 RECOMMENDATIONS GENERATION .............................................................................................................. 37
TRANSMISSION ..................................................................................................................................... 39 4.1 4.2 4.2.1 4.2.2 4.2.3 4.3 4.3.1 4.3.2 4.4 KPI OVERVIEW ........................................................................................................................................ 39 DEVELOPMENT OF TARGETS ....................................................................................................................... 41 International Comparisons.............................................................................................................. 41 Comparisons Saudi versus International ......................................................................................... 42 Conclusions ..................................................................................................................................... 44 INCENTIVE MECHANISMS ........................................................................................................................... 45 Selection of Incentive Mechanism ................................................................................................... 45 Incentive Mechanism Conclusions .................................................................................................. 49 RECOMMENDATIONS TRANSMISSION ........................................................................................................... 50
DISTRIBUTION ....................................................................................................................................... 51 5.1 5.2 5.2.1 KPI OVERVIEW ........................................................................................................................................ 51 DEVELOPMENT OF TARGETS ....................................................................................................................... 52 International Comparisons.............................................................................................................. 52
Development of KPIs for the Saudi Electricity Sector
Targets & Incentives Report 22 May 2009 2
5.2.2 5.2.3 5.3 5.3.1 5.3.2 5.4 6
Comparisons Saudi versus International ......................................................................................... 53 Conclusions ..................................................................................................................................... 54 INCENTIVE MECHANISMS ........................................................................................................................... 55 Selection of Incentive Mechanism ................................................................................................... 55 Incentive Mechanism Conclusions .................................................................................................. 59 RECOMMENDATIONS DISTRIBUTION ............................................................................................................ 61
CUSTOMER SERVICE .............................................................................................................................. 63 6.1 6.2 6.3 6.4 KPI OVERVIEW ........................................................................................................................................ 63 DEVELOPMENT OF TARGETS ....................................................................................................................... 64 INCENTIVE MECHANISMS ........................................................................................................................... 66 RECOMMENDATIONS CUSTOMER SERVICE..................................................................................................... 67
ANNEXES
ANNEX 1: DATA FOR TRANSMISSION KPIs ANNEX 2: DATA FOR DISTRIBUTION KPIs ANNEX 3: DATA FOR CUSTOMER SERVICE KPIs ANNEX 4: PROCESS FOR SETTING LOCAL TARGETS ANNEX 5: DETERMINATION OF THE COST OF INTERRUPTIONS
INTRODUCTION
1.1
BACKGROUND
The Electricity & Co-generation Regulatory Authority of the Kingdom of Saudi Arabia (hereafter ECRA) has initiated a project to develop Key Performance Indicators (KPIs) for the Saudi power sector. KEMA has been asked to assist ECRA in the implementation of the KPI project. The main objectives of this project are to develop KPIs for generation, transmission, distribution, and customer service. As part of this project, a KPI Report has been produced setting out the recommendations for the KPIs to be implemented. This Targets & Incentives Report builds further on the KPI Report and assesses the desired level for these KPIs in terms of performance targets. In doing so, use is made of internationally available datasets and comparable performance statistics. A distinction has been made between long-term (to be achieved in 6 years) and short-term targets (to be achieved in 3 years). The long-term target reflects the desired level of the KPI. However, one also needs to take into account the time frame required to improve performance and therefore, for the short-run at least, it will not be practical to apply longterm targets. To bridge this gap, this report also makes recommendations on short-term targets, which act as an intermediate between the existing performance level and the future desired performance level. Once targets have been determined, the next step is to identify how deviations in performance relative to the target should be treated. A number of options exist for implementing such incentives. In this report we develop recommendations on the type of incentive approach which would best fit a given type of KPI. Also, where incentives are found to be applicable, we provide recommendations on the size and limitations of such incentives.
1.2
REPORT OUTLINE
This Report is structured as follows: Chapter 2 presents a general overview of the conceptual background of deriving the targets for the different KPIs. Also, this chapter sets out the options for designing regulatory incentive mechanisms and the factors that would drive the choice for a particular approach.
Chapters 3, 4, 5, and 6 respectively deal with the development of targets for the KPIs related to generation, transmission, distribution, and customer service. Each chapter starts with an overview of the KPIs that were selected and present the results of the international comparisons that have been performed in order to arrive at suitable targets. Further, each chapter assesses the preferred regulatory incentive mechanism to be used for inducing target performance.
DEVELOPMENT KPI FRAMEWORK
In developing a KPI framework there are three key issues that need to be considered. First, a selection of the performance areas to be included in the framework need to be identified and the performance indicators to be used for quantifying the utilitys performance should be selected. This issue has been the central theme for the KPI Report that has previously been produced and in which the final set of KPIs were recommended. An overview of the selected KPIs is provided in the following table.
Table 2.1. Overview of KPIs to be included in the KPI Framework. Generation G1 G2 G3 G4 G5 G6 G7 Availability Factor (AF) Forced Outage Factor (FOF) Scheduled Outage Factor (SOF) Equivalent Forced Outage Rate (EFOR) Starting Reliability (SR) Gross Capacity Factor (GCF) Net Capacity Factor (NCF) Transmission T1 T2 T3 T4 T5 T6 T7 ENS SAIDI-T SAIFI-T MAIFI-T Out100 km Voltage Dips Network Losses
Distribution D1 D2 D3 D4 SAIDI SAIFI MAIFI Network Losses
Customer Service C1 C2 C3 C4 C5 C5 C7 C8 Average Time to Supply Existing Connections (ATSE) Average Time to Supply New Connections (ATSN) Average Time to Reconnect After Payment (ATRAP) Notification of Interruption of Supply (NIS) Frequency of Complaints (FC) Frequency of Billing Complaints (FBC) Average Time to Resolve Billing Complaints (ATRBC) Average Waiting Time Call Center (AWTCC)
The second issue is the identification of a proper target level performance for the selected KPIs. Thirdly and finally, there is the issue of choosing an appropriate regulatory incentive mechanism to induce the utility to reach the target performance level.
This chapter deals with the two latter issues and approaches these from a conceptual point of view. The subsequent chapters 3 till 6 will deal with each of the four respective performance areas (generation, transmission, distribution, and customer service) and detail the issues in the context of the specific set of KPIs.
2.1
IDENTIFICATION OF KPI TARGETS
Once the KPIs have been identified the next step is to formulate the desirable level of performance. This is expressed in terms of the targeted performance level for the KPI. Typically, for setting the target, regulators consider the historical performance of the utility and an assessment of this performance in, for example, a regional or international context. The general idea is that historical performance should be something that the utility is expected to achieve, however historic performance is not always necessarily the optimal performance level. Comparisons with (international) counterparts can provide useful information for the regulator in order to identify the potential for improvement and to formulate long-term targets which the utility should achieve. Starting from the historical situation, the utility is expected to gradually increase its performance towards this long-term target. Acknowledging the fact that performance improvement is difficult to achieve overnight, a distinction can be made between long-term and short-term targets. We recommend to apply 6 years for the long-term target and 3 years for the short-term target. The short-term target acts as an intermediate performance target for the utility which should be achieved in 3 years. After this, the utility can improve further aiming towards the level of the long-term target in the next 3 years. The short-term target can thus be interpreted as the period of time considered reasonable for the utility to improve up to the final target. The expected performance level can be gradually increased each year over the duration of the time-period in which the long-term target should be achieved. For identifying the KPI target we have selected the following approach based on the central limit theorem. This states that the distribution of a sum of many independent, identically distributed random variables tends towards the normal distribution theory of normal distributions. This is illustrated in Figure 2.1. The mean value is equal to the median value in a normal distribution and about 68% of the values are within 1 standard deviation of the mean (mathematically, , where is the arithmetic mean and is the standard deviation), about 95% of the values are within two standard deviations ( 2), and about
99.7% lie within 3 standard deviations ( 3). This is known as the 68-95-99.7 rule or the empirical rule. The standard deviation () is defined as: = 1/N (x I - )
Figure 2.1 Overview of normal distributions
It is common to define the following quartiles:

first quartile (designated Q1) = lower quartile = cuts off lowest 25% of data = 25th percentile ( 0.6745) second quartile (designated Q2) = median= cuts data set in half = 50th percentile third quartile (designated Q3) = upper quartile = cuts off highest 25% of data, or lowest 75% = 75th percentile ( + 0.6745 )
For deriving the benchmark target, international data samples have been used. Information about performance of the sample is used as a reference to set the target. Even though one could opt for the best performing utility in the sample, this is generally problematic as sometimes this can be driven by data issues or the best utility simply being an outlier. On the other hand, the mean generally provides a more realistic indication of the target but at the same time, performance better than the mean should also be considered. A pragmatic approach is to focus on the so-called peer group which is defined as the companies that are located two quartiles around the mean outside the standard deviation () as basis for setting the target. The principle is given in the following figure. This approach provides more robust information about the range where the target should be located. We should note however that the process of setting the target is not a mechanic one and will involve utilization of the consultants experience and knowledge.
median Standard Methodology

Peer Group
Quartile (25%) Quartile (25%)
Performance Indicator Data Base Statistical Analysis
Figure 3.2 Flow scheme of statistical analysis of Key Performance Indicators
2.2
REGULATORY INCENTIVE MECHANISMS
Once the KPI targets have been identified, the next step is to consider the methods that can be used to encourage the utility to achieve these targets. There are three main methods which such incentives can be provided namely; (1) performance publication, (2) minimum standards, and (3) penalty/reward schemes. These three methods are now described in more detail. Performance Publication
Performance publication is when the regulator requires the company to disclose information about (trends in) its performance to the regulator and/or the general public. Overviews of the companys performance are reported to the regulator and published, for example, in the companys annual reports, in dedicated regulatory publications, or on the companys or regulators website. Performance publication is relatively simple to implement and does not require the regulator to develop a view on what should be an appropriate performance target. Such an approach can be useful in the case where the formulation of a meaningful target is difficult. Even through there are no financial incentives, the fact that the company is exposed by making public its performance already creates incentives to maintain a high level of performance. Overall Standards An overall standard relates to the performance of the utility averaged over all customers being served. Here, a minimum target level to be achieved is specified for a certain performance indicator. However, the utility is generally not exposed to any financial penalties in case of not meeting the targets. The idea of the overall standard is that the specification of a target level provides the utility with a tangible objective to achieve that is in line with regulatory expectations. Guaranteed Standards A guaranteed standard relates to the level of performance as experienced by the individual customer. Here, a minimum target level is specified by the regulator and consequently each customer is expected to be served according to this target. In the case that a particular customer is served at a sub-standard level, that customer becomes entitled to a financial compensation. Penalty/Reward Schemes Under a penalty/reward scheme, a more continuous relation is imposed between price and performance. Each performance level results in a financial incentive, which varies with the gap between actual performance level and some predefined target level. In case the company performs below the target, the incentive is a financial penalty, while if the company exceeds the target the incentive comes in the form of a financial reward. This financial incentive is proportional to the gap between the actual and targeted performance.
Different types of penalty/reward schemes exist. Price and performance can be mapped continuously or in a discrete fashion, the level of the penalty or reward can be capped, dead bands may be applied, etc. Some examples are provided in Figure 2.2.
Financial Incentive ( )
Reward
2. Continuous 3. Capped 4. Dead Band
Quality Level (q) Low High
Penalty
1. Minimum Standard
Figure 2.2: Examples of penalty/reward schemes. The horizontal axis represents the actual performance, the vertical axis the financial incentive.
Under the first scheme (minimum standard), after reaching a certain performance level, a fixed penalty is imposed. This is essentially an ordinary minimum standard. In the second example the continuous scheme there is a continuous relation between price and performance. For each level of performance, there is a corresponding penalty or reward which is proportional to the gap between actual and target performance. The third scheme is similar to the second but now with a cap on the level of penalty and reward. Essentially then, the scheme is only linear within a predefined band; outside this band, the scheme is similar to a minimum standard and has similar problems. If performance decreases beyond some minimum level, the penalty paid by the company does not increase further. Similarly, performance levels exceeding the maximum level would not generate any additional rewards to the firm. The fourth scheme has a dead band; performance variations within this band do not lead to financial consequences. The reason for this is to prevent shocks in the level
of the financial incentive due to stochastic variations in performance. Stochastic effects can lead to performance fluctuations and consequently also a fluctuation in the level of penalties and rewards.
2.3
SELECTION OF INCENTIVE MECHANISMS
When comparing the different incentive mechanisms, we can note that the strength of the incentive is progressively increased when moving from performance publication to overall standards, then minimum standards, and finally penalty/reward schemes. At the same time however, the degree of complexity involved and the implementation costs and risks also increase. In the implementation of performance incentive mechanism a trade-off should thus be made between the effectiveness of the mechanism and its costs and risks.
Table 2.2: Comparisons of the design and risks and costs of the different incentive mechanisms
Performance Publication Scheme characteristics Performance Scope Target involved Penalty Involved Reward Involved Incentives and Risks Incentives Financial Risks Implement. Costs Weak None Low Average No No No
Overall Standard
Guaranteed Standard
Penalty/Reward Scheme
Average Yes No No
Individual Customer Yes Yes No
Average Yes Yes Yes
Moderate None Low
Strong Yes High
Very Strong Yes High
Performance publication is the least complex option and in the context of this project, can be considered the default mechanism that will be applied to all KPIs. It is envisaged that once the KPI system has been implemented, ECRA will collect performance data of the companies on a regular basis and make this information available to the general public. An important limitation of performance publication is that there are no regulatory targets defined. Thus, even though information about performance is available, it is unclear as to
Targets & Incentives Report 22 May 2009 12 Development of KPIs for the Saudi Electricity Sector
which target performance this should be compared with. To overcome this limitation, the overall standard can be applied which does clearly promulgate the desired target level. In case of not meeting that target, no penalties are however involved in general and thus the utility is not financially exposed. Guaranteed standards are one step further and do expose the utility financially as they involve penalties to be paid to customers in the form of compensation payments. An important characteristic of guaranteed standards thus is that they provide direct benefits to customers who experience low performance levels. This however also involves higher administrative costs. Finally, the penalty/reward scheme imposes a more direct link between performance and financial outcome as well as the possibility of symmetric incentives. That is both inferior as superior performance lead to financial incentives in the form of penalties or rewards respectively. An important question is the type of incentive mechanism ECRA should adopt for each of the selected KPIs. As mentioned, performance publication can be considered the default approach and where targets can be clearly specified, this can be extended into overall standards. The question however is whether it is desirable to move further into the direction of guaranteed standards and then further to penalty/reward schemes. Doing so would introduce an element of risk to the utility and also lead to a higher regulatory burden. If, for some reason, the company is not able to meet the target levels, this can trigger high penalties and could cause financial trouble. Such a situation may occur if the standard level is set at too high a level or if performance levels have a stochastic nature with large fluctuations around the average performance over time. Clearly, the introduction of financial risks would need to be justified by the expected benefits from implementing more intrusive schemes as opposed to only performance publication or overall standards. If the latter two mechanisms would be expected to provide sufficient assurance on their own in that performance will be high, it is probably not worth opting for more complex schemes, as these are more difficult to implement and administer and also they introduce an element of financial risk for the utility. In particular if the existing pricecontrol regime is not very focused on cost reductions, regulators generally have no real concern that performance will be low. For example, under rate-of-return systems where the utility is assured of a sufficiently high remuneration, there is no natural incentive to cut costs on performance. In contrast, under so-called cap regulation there are very strong incentives to cut costs and some of this can come at the expense of performance degradation. In such circumstances, the use of stricter
effective means of regulatory incentive mechanisms can then be justified. Simply stated, regulators are more willing to take the risks of introducing more complex and intrusive mechanisms if there are sufficient concerns that the utility will not improve performance on its own or that performance may even be reduced. In this report, in the following respective chapters, recommendations have been developed on the most appropriate incentive mechanism to be applied for each of the selected KPIs. In doing so, we have taken into consideration the existing and future state of affairs regarding the regulation of the Saudi power sector. This information has been combined with our experience from other countries and is used to formulate what we believe is an appropriate and balanced choice of incentive mechanisms for the different KPIs under consideration.
GENERATION
3.1
KPI OVERVIEW
Based on discussions with the different stakeholders of the electricity sector in Saudi Arabia a list of KPIs for the generation sub-sector was selected. We believe these are relevant for ECRA to include in its KPI measurement framework. In developing our recommendations, we have taken into account the fact that the generation market in Saudi Arabia is currently not liberalized. It therefore becomes more important and relevant to include certain indicators that would not be considered so important in liberalized markets. The following table provides an overview of our recommended KPIs. All KPIs are to be measured on an annual basis and reported, by each relevant utility, on an aggregated basis per technology (Simple Cycle (SC), Steam Cycle, Combined Cycle (CCGT), Diesel Generator (DG) and Cogeneration) and for each administrative region. Note however that at this point in time, the data received from the utilities is not available at administrative region level but only by operational area.
Table 3.1 Recommended KPIs for Generation.
Generation KPI G1 Availability Factor (AF)
Unit %
Target Yes
Level
Freq.
G2 Forced Outage Factor (FOF)

G3 Scheduled Outage Factor (SOF)
%
%
Yes
No
Per Admin Region and

Annual
G4 Equivalent Forced Outage Rate (EFOR) %

G5 Starting Reliability (SR) %
Yes
Yes
per Technology
G6 Gross Capacity Factor (GCF)

G7 Net Capacity Factor (NCF)
%
%
No
No
In the table it is also indicated for which KPIs it will be practical to apply a target and for which it is not. It should also be noted that the targets are not projected to be applied for cogeneration plants where steam and water production rather than electricity production is leading. For instance the design capacity, location and operation of Saudi Aramco and SWCC plants are determined based on the steam requirements for hydrocarbon facilities
and desalination facilities. Thus power generation and dispatching criteria for these cogeneration units will not be subject to any form of dispatching and scheduling instructions by the system operator. In addition to the above KPI list, there is some supporting information that would need to be collected for the purpose of cross-checking. These are shown in the following table.
Table 3.2 Supporting information to be collected for Generation.
Data Service Factor (SF)
Unit %
Target No No
No
Level
Freq.
Gross Maximum Capacity (GMC) MW

Net Maximum Capacity (NMC) MW
Per Admin Region and

per Annual
Gross Actual Generation (GAG) Net Actual Generation (NAG) Gross Annual Heat Rate (GAHR)
MWh MWh
No No
Technology
BTU/kWh No
3.2
3.2.1
DEVELOPMENT OF TARGETS
International Comparisons
The KPIs for which a target is projected will be based on the comparison with international peer groups. In order to assure comparability, the peer group was selected for different subgroups, consisting of units of similar technologies, similar capacity ranges and similar fuel types as in Saudi Arabia. The following KPIs was investigated and compared with international values of peer groups: Availability Factor (AF); Forced Outage Factor (FOF); Starting Reliability (SR); Equivalent Forced Outage Rate (EFOR).
Targets of these KPIs will be derived for the long term and short term based on comparisons with the values of the peer groups and utilization of the consultants experience and knowledge. The data base of NERC-GADS (Generation Availability Data System) was used to carry out the statistical analysis of key performance indicators of the different peer groups. This NERCGADS reporting system, initiated by the electric utility industry in 1982, maintains complete operating histories on more than 5000 generating units representing 72% of the installed generating capacity in the United States supplemented by other units in Canada and in other parts of the world. The NERC-GADS system is using clearly defined indicators according to the IEEE-762 definitions and is fully in line with the definitions used in the KPI-Report. Before selecting the different peer groups it is important to compare the dispatch of different units of the peer group of the NERC-GADS and the units in Saudi Arabia. Peaking units will have other operational characteristics and requirements than base load units. A comparison is made in the following table.
Table 3.3 Characteristics of peaking, cycling and base load units
Peaking Starting reliability Running reliability Thermal efficiency O&M costs High Low Low High
Cycling High Medium Medium Medium
Base load Low Very High Very high Low
Base load units require low O&M costs, high efficiency (low fuel costs) and a high operating reliability. This implies a high availability factor and low forced outages. Peaking units will have low operational hours, which implies that the efficiency of these units is less important. Peaking units require a high starting reliability because these units must ramp-up very quickly. Peaking units will have a low capacity factor. Simple cycles are normally used as peaking units.
It should be noted that the NERC-GADS sample for simple cycle units represents low service factors and low net capacity factors and this implies that the NERC-GADS data base for simple cycle units is a group of peaking units. For this reason the service factor and the net capacity factor was investigated from the NERC-GADS data base and this was compared with the units of SEC. The capacity factor is related to the dispatch of the unit; in very simple terms it shows the extent to which the generator is used. A high capacity factor implies that the unit is used as base load unit while a low capacity factor indicates that a unit is used as peak load unit.
Table 3.4 Net Capacity Factor (NCF) and weighted Service Factor (SF) of different technologies in Saudi Arabia compared to peer group
Technology
NCF of SEC units in 2007
NCF (median of peer group
Weighted SF of SEC units in 2007 58 78 71 35
SF (median peer group)
Simple cycle Steam cycle Combined cycle Diesel Generator
38 72 57 17
2 19 24 6
2 50 35 9
From this table it can be concluded that the simple cycle units of SEC in Saudi Arabia are used as base load units and probably also as peaking units. According to General Electric1 it turns out that using FOR (Forced Outage Rate) and EFOR (Equivalent Forced Outage Rate) creates an unrealistic, optically poor, misleading measurement for simple cycle units used as peak load units. The main reason is that there is no credit for available standby reserve time; and worse, all forced outage hours (nights, weekends, holidays, unapplied time etc.) are counted. The gas turbine industry is focused on the FOF (Forced Outage Factor) instead of EFOR. The simple cycle units of SEC have a service factor and a capacity factor that is comparable with base load units and this means that EFOR and FOR data of the simple cycle units in the NERC-GADS data base (peaking
GE Power Systems, Predicted Reliability, Availability, Maintainability for the General Electric 7H gas turbine,
units) cannot be compared with the data of simple cycle units (base load units) in Saudi Arabia. Unfortunately, NERC separates simple cycle plants from combined cycle plants and does not separate out the gas turbine portion of the combined cycle plants. As a first conservative approach we propose to use the equivalent forced outage rate of the peer group of combined cycles for simple cycle units that are used as base load and cycling units. For instance 2/3 of the capacity of combined cycles is contributed by gas turbines. Combined cycles in the range of (50-125 MW) are corresponding to gas turbines in the range of 30-90 MW. It is well known that gas turbines contribute significantly to forced outages in combined cycles due to the complicated technology that is sensitive to forced outages. The results of the statistical analysis of the different peer groups are given in next tables
Table 3.5 Overview of quartile spread of weighted availability factor of different peer groups
Weighted Availability factor (%) Technology-Peer group Simple cycle (10-125 MW) Steam plant (100-700 MW Combined cycle (100-500 MW) Diesel generator (2-35 MW) Q1 83.6 79.4 86.2 93.4 Median 91.2 86.4 90.5 98.9 Q3 95.4 90.9 95.0 99.8
Table 3.6 Overview of quartile spread of weighted forced outage factor of different peer groups
Weighted Forced Outage Factor (%) Technology-Peer group Simple cycle (10-125 MW) Steam plant (100-700 MW Combined MW) cycle Q1 5.4 4.4 Median 2.0 2.2 1.6 Q3 0.8 1.2 0.5
(100-500 4.3
Diesel generator (2-35 MW)
0.5
0.1
0.01
The starting reliability is much more important for peaking units than for base load units because peak load have to ramp up very quickly in case of forced outages of the units. If a unit has many starting problems this may also lead to frequency and voltage changes in the system. Simple cycle units are often used as peaking units and therefore the statistical analysis of starting reliability will be only carried out for simple cycle units.
Table 3.7 Overview of quartile spread of starting reliability of different peer groups
Starting Reliability (%) Technology-Peer group Simple cycle (10-125 MW) Q1 93.5 Median 98.4 Q3 100
Units can be derated due to forced or planned outage. It is very common for a unit to be partially derated due to technical problems. The equivalent outage factor refers to the conversion of partial outages including capacity constraints to equivalent full outages. For this reason the equivalent forced outage rate is defined. The disadvantage is that the equivalent forced outage rate is more difficult to calculate and this may lead to misunderstandings if the definitions are not correctly applied or if some data are not available. The next table presents the median value of the equivalent forced outage rate of different peer groups.
Table 3.8 Overview of quartile spread of weighted equivalent forced outage rate of different peer groups
Weighted Equivalent Forced Outage Rate Technology-Peer group Q1 Median Q3
Simple cycle (10-125 MW) Peer group of NERC-GADS Combined cycle (50-125 MW) Steam plant (100-700 MW Combined cycle (100-500 MW) Diesel generator (2-35 MW) 14.0 15.4 12.0 6.9 6.5 5.1 3.4 2.0 1.4 9.5 4.0 1.8
The presented equivalent forced outage rate of the peer group for simple cycles (4.0) is in line with the weighted EFOR as reported by ISO New England for gas turbines23. From the statistical analysis it can be concluded that the availability factors and forced outage factors of simple cycles and combined cycles do not differ substantially. The main reason is that the gas turbine in combined cycles is the most advanced and complicated equipment and therefore sensitive to forced outages.
3.2.2
Comparisons of power generation in Saudi Arabia versus International
The key performance indicators were investigated based the information received from SEC, Marafiq, Saudi Aramco and SWCC. Key performance indicators per unit and per group of units were received from the different companies were compared with the statistical values of the KPIs of the different peer groups Simple Cycle (SC), Steam Cycle (ST), Combined Cycle (CCGT), Diesel Generator (DG) and Cogeneration (COGEN). Data of SEC were obtained per operating area: Central Operational Area (COA) Eastern Operational Area (EOA) Southern Operational Area (SOA) Western Operational Area (WOA)
Note that in future, data will need to be reported per administrative region.
22
Interim Review of Resource Adequacy, ISO New England, 2005
3.2.3 3.2.3.1
Power Generation of SEC Availability factor
The weighted availability factors of the generation units in different areas of SEC were compared with the median values of the peer group. The weighted availability factors of the simple cycle units in WOA and COA were lower than the median value of the peer group. The weighted availability factor of simple cycle units in EOA and in SOA were almost equal to median value of the peer group.
Weighted Availability Factor- SC

median value of peer group
100.0 90.0
WAF (%)
WOA COA EOA SOA
80.0 70.0 60.0 50.0 2005 2006 Year 2007 2008
Figure 3.1 Weighted availability factor of simple cycle units of SEC compared to a peer group
The weighted availability factor of steam cycles in WOA was lower than the median value of the peer group and the weighted availability factor in EOA was equal to the median value (See Figure 3.2).
Weighted Availability Factor- Steam Cycle

100.0 90.0
WAF (%)
80.0 70.0 60.0 50.0 2005 2006 Year 2007 2008
WOA EOA
Figure 3.2 Weighted availability factor of steam cycle units of SEC compared to a peer group
The weighted availability factors of the combined cycles operating in COA and WOA were low compared to the median value of the peer group (see Figure 3.3).
Weighted Availability Factor- CCGT

100.0 90.0
WAF (%)
80.0 70.0 60.0 50.0 2005 2006 Year 2007 2008
WOA COA
Figure 3.3 Weighted availability factor of combined cycle units of SEC compared to a peer group
Weighted Availability Factor- DG

100.0 90.0
WAF (%)
80.0 70.0 60.0 50.0 2005 2006 Year 2007 2008
EOA SOA
Figure 3.4 Weighted availability factor of diesel generators of SEC compared to a peer group
From Figure 3.4 it can be concluded that the weighted availability factor of diesel generators in SOA was lower than the median value of the peer group and in EOA equal to the median value of the peer group. 3.2.3.2 Forced outage factor
The weighted forced outage factors of the generation units of SEC were compared with the median values of the peer group. (See Figures 3.5-3.8)
Weighted Forced Outage Factor- SC

10.0 8.0
WFOF (%)
WOA COA EOA SOA
6.0 4.0 2.0 0.0 2005 2006

Year
2007
2008
Figure 3.5 Weighted forced outage factor of simple cycle units of SEC compared to a peer group
Weighted Forced Outage Factor- Steam Cycle

5.0 4.0
WFOF (%)
3.0 2.0 1.0 0.0 2005 2006 Year 2007 2008
WOA EOA
Figure 3.6 Weighted forced outage factor of steam cycle units of SEC compared to a peer group
Weighted Forced Outage Factor- CCGT

6.0 5.0
WFOF (%)
4.0 3.0 2.0 1.0 0.0 2005 2006

Year
WOA COA
2007
2008
Figure 3.7 Weighted forced outage factor of combined cycle units of SEC compared to a peer group
Weighted Forced Outage Factor- DG

5.0 4.0
WFOF (%)
3.0 2.0 1.0 0.0 2005 2006 Year 2007 2008
EOA SOA
Figure 3.8 Weighted forced outage factor of diesel generators of SEC compared to a peer group
From these figures it can be concluded that: The weighted forced outage factors for simple cycles and combined cycles in COA were higher than the median value of the peer group; The weighted forced outage factor for simple cycles and combined cycles in WOA were lower than the median values of the peer group; Steam cycles in all relevant operating areas have a lower weighted forced outage factor than the median value of the peer group; Diesel generators in EOA and SOA have a higher weighted forced outage factor than median value of the peer group. Starting reliability
3.2.3.3
The starting reliability of peaking units was compared to the values of the peer group. From Figure 3.9 it can be concluded that the starting reliability of the simple cycle units in SOA is substantially lower than in other regions. The starting reliability of all other units is close to the median value of the peer group.
Starting Reliability- SC
100.0 90.0 WOA COA EOA SOA
SR (%)
80.0 70.0 60.0 50.0 2005 2006 Year 2007 2008
Figure 3.9 Starting reliability of simple cycle units of SEC compared to a peer group
3.2.3.4
Equivalent forced outage rate
Equivalent forced outage rates were recently implemented by SEC and for that reason SEC could only provide data of each quarter of the year 2008. It should be noted that the south operating area (SOA) was not able to submit data on equivalent forced outage rate on simple cycles and diesel generators at this moment. The equivalent forced outage rate of the peer group was compared for the different technologies in the year 2008.
Weighted Equivalent Forced Outage Rate- SC

25.0 20.0
WEFOR (%)
15.0 10.0 5.0 0.0 1Q-2008 2Q-2008 3Q-2008 4Q-2008 Quarter of Year 2008
WOA COA EOA
Figure 3.10 Weighted equivalent forced outage rate of simple cycle units of SEC compared to a peer group
Weighted Equivalent Forced Outage Rate- Steam Cycle

mean value of peer group
10.0 8.0
WEFOR (%)
6.0 4.0 2.0 0.0 1Q-2008 2Q-2008 3Q-2008 4Q-2008 Quarter of year 2008
WOA EOA
Figure 3.11 Weighted equivalent forced outage rate of steam cycle units of SEC compared to a peer group
Weighted Equivalent Forced Outage Rate-CCGT

10.0 8.0
WEFOR (%)
6.0 4.0 2.0 0.0 1Q-2008 2Q-2008 3Q-2008 4Q-2008 Quarter of year 2008
WOA COA
Figure 3.12 Weighted equivalent forced outage rate of combined cycle units of SEC compared to a peer group
Weighted Equivalent Forced Outage Rate- DG

mean value of peer group
50.0
WEFOR (%)
40.0 30.0 20.0 10.0 0.0 1Q-2008 2Q-2008 3Q-2008 4Q-2008 Quarter of year 2008 EOA
Figure 3.13 Weighted equivalent forced outage rate of diesel generator units of SEC compared to a peer group
From these figures it can be concluded that the weighted equivalent forced outage rates of simple cycles of SEC in COA and EOA and diesel generators of SEC in EOA were higher than the median vales of the peer group. The weighted equivalent forced outage rates of simple cycles of SEC in WOA were considerable lower than the median values of the peer group. For combined cycles and steam cycles, the weighted equivalent forced outage rates were much lower than the median values of the peer group.
3.2.4
Power Generation of Marafiq
Marafiqs core business is the operation, maintenance, management, expansion and construction of power and water systems to provide essential utility services to industrial, commercial and residential customers in the industrial cities of Jubail and Yanbu. The power generation units are consisting of steam cycles fuelled with HFO and of gas turbines provided with heat recovery steam generators to produce steam for desalination plants. Each heat recovery steam generator can receive exhaust gases from only one gas turbine while the other gas turbine is either operating in simple cycle mode or on standby. It was agreed that the gas turbines have to be considered as simple cycles and not as cogeneration units.
3.2.4.1
Availability factor
Gas turbines were considered as simple cycle units and the weighted availability factor of the gas turbines units were compared with the median value of the peer group. From figure
3.14 it can be seen that the weighted availability factor of simple cycle units is equal to median value of the peer group.
Weighted Availability factor-SC

median value of peer group 100.0 90.0
WAF (%)
80.0 Marafiq 70.0 60.0 50.0 2005 2006 Year 2007
Figure 3.14
Weighted availability factor of simple cycle units of Marafiq compared to a peer group
The weighted availability factor of steam cycles of Marafiq is lower than the median value of the peer group.
Weighted Availability Factor-Steam Cycle

WAF (%)
80.0 Marafiq 70.0 60.0 50.0 2005 2006 Year 2007
Figure 3.15
Weighted availability factor of steam cycle units of Marafiq compared to a peer group
3.2.4.2
Forced outage factor
The forced outage factor of the units of Marafiq was compared to the median value of the peer group. (See Figure 3.16 and Figure 3.17)
Weighted Forced Outage Factor-SC

WFOF (%)
3.0 Marafiq 2.0 1.0 2005 2006 Year 2007
Figure 3.16
Weighted forced outage factor of simple cycles of Marafiq compared to a peer group.
Weighted Forced Outage Factor-Steam Cycle

WFOF (%)
3.0 Marafiq 2.0 1.0 2005 2006 Year 2007
Figure 3.17
Weighted forced outage factor of steam cycle units of Marafiq compared a peer group.
From these figures it can be concluded that the forced outage factors of simple cycles and of steam cycles are lower than the median value of the peer group.
3.2.4.3
Starting reliability
The starting reliability is important for the simple cycle units because these units are acting as peaking units. The starting reliability of the simple cycles is lower than the median value of the peer group. The reason for this low starting reliability is the decreasing quality of the fuel and the fluctuating quality of the fuel.
Starting Reliability-SC
SR (%)
80.0 Marafiq 70.0 60.0 50.0 2005 2006 Year 2007
Figure 3.18
Starting reliability of simple cycle units of Marafiq compared to a peer group.
3.2.5
Power Generation of Saudi Aramco and SWCC
The power generation units of Saudi Aramco and SWCC are cogeneration units producing besides steam for the hydrocarbon facilities and desalination facilities also electricity. In these types of units the production of steam and water is leading and electricity is considered as by-product. The design capacity, location and operation of these plants are based on the steam requirements. The dispatching criteria for these cogeneration units are not subject to any form of dispatching and scheduling instructions by the system operator. Data were received from Saudi Aramco and SWCC. It should be noted that a complete set of data was only available of the year 2007. Data of previous years were not complete. Moreover, data of Yanbu and Riyadh refinery of Saudi Aramco were not available and were not incorporated in the figures below.
The availability factor and forced outage factor was investigated based on the data received and the results are plotted in next figures.
Weighted Availability Factor

100.0 95.0
WAF (%)
90.0 85.0 80.0 75.0
Saudi Aramco SWCC
Figure 3.19
Weighted availability factors of cogeneration units of Saudi Aramco and SWCC in Saudi Arabia
Weighted Forced Outage Factor

12.0 10.0
WFOF (%)
8.0 6.0 4.0 2.0 Saudi Aramco SWCC
Figure 3.20
Weighted forced outage factor of cogeneration units of Saudi Aramco and SWCC in Saudi Arabia
3.2.6
Summary of KPI Targets
Targets for cogeneration units (Saudi Aramco, SWCC) cannot be applied because steam production for hydrocarbon facilities and desalination facilities are business driving factors instead of electricity. For this reason we will focus the targets on those units where electricity is the main product. Based on the results the following targets for the short term can be determined for the different technologies.
Table 3.9 Short term targets for KPIs in generation.
KPI (Weighted)
Simple Steam Combined Diesel cycle cycle cycle generator (SC) (ST) (CCGT) (DG) > 85% < 4% >90% <6% > 85% <3% <6% > 85% <3% <6% >93% < 3% <6%
Weighted Availability Factor (WAF) Weighted Forced Outage Factor (WFOF) Starting Reliability (SR) Weighted Equivalent Forced Outage Rate (WEFOR)
In fully liberalized markets there are no targets for availability, forced outages and starting reliability. The present short term targets are somewhat below the realized values on availabilities, forced outages in other countries such as Texas, California, and Australia4. Countries like Malaysia and Jordan5 which also apply a single buyer model have applied some targets for availability factor, forced outage factor and starting reliability. These targets are similar to the short term targets presented in above table but the simple cycle units have a target of > 90% for the availability factor.6 It appeared that the simple cycle units and diesel generators in Saudi Arabia are aged and therefore have a lower availability and higher forced outage factor than peer groups. This must be increased for the long term and this would require investments.
Confidential KEMA Report, Electricity Supply Industry in Malaysia, 2006 Performance and Statistical Information, Energy Commission, Government of South Australia, Annual Report of Technical Regulator, 20042005 and Office of the Tasmanian Regulator, Tasmanian Energy Supply Industry Performance Report, 20052006
5 6
Electricity Regulatory Commission of Jordan , Generation Performance Code , 2007 VGB, Analysis of unavailability of thermal power plants 1997-2006
Long term targets which are based on the median values of the different peer groups. It should be noted that the peer groups will also improve the operational aspects such as availability and forced outages in the coming years as a result of investments in efficient technologies and reducing operational & maintenance costs. This implies that long term targets have to change as a result of a continuous improvement of the availability and decrease of the forced outage of power generation plants.
Table 3.10 Long term targets for KPI's in generation.
KPI (Weighted)
Weighted Availability Factor (WAF) Weighted Forced Outage Factor (WFOF) Starting Reliability (SR) Weighted Equivalent Forced Outage Rate (WEFOR)
Simple Steam Combined Diesel cycle cycle cycle generator (SC) (ST) (CCGT) (DG) > 90% <3 % >95% <4% > 85% <2 % <5% > 90% <2% <5% >95% < 2% <5%
3.3
INCENTIVE MECHANISMS
The KPIs for generation are mainly related to the availability and reliability of generating units. Connected to this is the issue of reserve capacity (generation adequacy). Generally speaking, a sufficient level of reserve capacity combined with a proper availability performance will result in a reliable power supply from generation point of view. Generation adequacy is typically a long term aspect and is determined as LOLE (Loss of Load Expectation). The LOLE is a measure of how long on average the available capacity is likely to fall short of the demand. LOLE is a statistical measure of the likelihood of failure and does not quantify the extent to which supply fails to meet demand. The use of LOLE to assess generation adequacy is internationally accepted. Adequacy levels are compared to a standard to assess the adequacy of the system. A vey small LOLE value is indicative of a system with excess capacity in terms of meeting the adequacy standard. Normally the LOLE is determined in energy planning studies and forecasting studies.7 Under normal circumstances there is sufficient reserve margin to overcome the problems of forced outages and non-perfect availability of the generation units. Therefore, regulators will
See for example: Updated generation planning for SEC, Centre for Engineering Research, Safar 1427H, March 2006, www.ecra.gov.sa
not apply penalties or awards in fully liberalized markets for generators. Rather, the incentives for high performance are inherently present and/or are contained in Power Purchasing Agreements (PPAs). In Saudi Arabia, a Single Buyer system is envisaged to be implemented in the near future which will also be accompanied by a (updated) set of PPAs. The basic information contained in a Power Purchase Agreement includes the following items: Definitions Purchase and Sale of Contracted Capacity and Energy (such as steam, hot water and/or chilled water in the case of cogeneration and trigeneration plants Operation of the Power Plant Guarantees of Performance Penalties Payments Force Majeure Default and Early Termination Liquidated damages Miscellaneous
The PPAs also prescribe the performance targets to be met by the generator and the penalties applicable in case of under-performance. In this light, the application of regulatory penalties will be less desirable. Nevertheless, the targets for the various KPIs formulated here can act as a useful reference. Furthermore there is often performance standards (unit availability) tied to rewards or penalties for meeting the availability criteria. In PPAs sometimes penalties are applied for de-rating due to the difference, if any, between the dependable capacity, as measured by a test (being either an acceptance test or a dependable capacity test, as the case may be), and contract capacity, such difference is defined as deficit capacity. The penalty mechanism in PPAs is typically used as tools to safeguard the availability of power plants. Penalties are depending on the requirements of buyer of the electricity. The buyer may require a high availability and low forced outages. High requirements of the buyer regarding availability and forced outages will result in the higher operational and maintenance costs and thus in higher tariffs.
As an example the Power and Water Purchase Agreement for a 2,600 MW and 55 MIGD in Ras Laffan C in Qatar is given. In this PPA, there are stringent values for forced outages and availability. For instance penalties will be applied if capacity is reduced in a given period with be more than 4%. These penalties will depend on the period of a year. Penalties in summer time will be higher than in winter time in the Middle East. In conclusion, for generation, our recommendation is not to apply any penalty regimes but rather limit regulatory incentives to the publication of performance as compared to the targets. These targets can be formulated in terms of overall standards that indicate the desired minimum level of performance however without imposing any penalties in case of sub-standard performance.
3.4
RECOMMENDATIONS GENERATION
We summarize the recommendations with respect to the targets and incentive mechanisms for generation in the following table.
Table 3.11. Summary of recommendations regarding targets and incentive mechanisms for Generation. SC=Simple Cycle, ST=Steam Cycle, CCGT=Combined Cycle, DG= Diesel Generator. KPI (Weighted) SC G1: Weighted Availability Factor (WAF) Short-Term Targets ST CCGT DG SC Long-Term Targets ST CCGT DG Overall Standard, No penalty Incentive Mechanism
> 85%
> 85%
> 85%
>93%
> 90%
> 85%
> 90%
>95%
G2: Weighted Forced Outage Factor (WFOF) G3: Weighted Scheduled Outage Factor (WSOF) G4: Weighted Equivalent Forced Outage Rate (WEFOR)
< 4%
<3%
<3%
< 3%
<3%
<2%
<2%
< 2%
Overall Standard, No penalty
<6%
<6%
<6%
<6%
<4%
<5%
<5%
<5%
G5: Starting Reliability (SR) G6: Gross Capacity Factor (GCF) G7: Net Capacity Factor (NCF)
>90 %
>95%
None
None
TRANSMISSION
4.1
KPI OVERVIEW
Based on discussions with the different stakeholders of the electricity sector in Saudi Arabia a list of KPIs for the Transmission sub-sector was selected that we believe is relevant for ECRA to include in its KPI measurement framework. The following table provides an overview of the recommended KPIs for transmission. All KPIs are measured on an annual basis and reported, by each relevant utility. Since SEC Transmission supplies at voltage levels down to 13.8 kV and the peer group consist of transmission utilities (voltages above 50 kV), the KPIs related to interruptions are limited to the voltage levels above 50 kV, namely 69 kV, 110 kV, 115 kV, 230kV, 380 kV.
Table 4.1 Recommended KPIs for Transmission.
Transmission KPI T1 T2 T3 T4 T5 Energy Not Supplied (ENS)
Unit
Target Yes No No Unplanned, No Generation, Force Majeure Total, Affecting load Voltage Level:
Freq.
% Min/year
Int/year
SAIDI-T
SAIFI-T
69 kV, < 69 kV
Type: Planned,
MAIFI-T Out100km
Int/year
Outages/ye No ar per 100 km No Nr/year
Annual
T6 Voltage Dips
T7
Network Losses
No
System
The KPIs related to interruptions and voltage dips should also be broken down into four types: Planned, Unplanned, Generation, Force Majeure8. In case of tie-lines between two utilities, the Consultant suggests that the contribution to the KPI (that is the duration, frequency and energy lost) related to the tie-line to be divided by two and share among the companies. In addition to the above KPI list, there is some supporting information that would need to be collected for the purpose of cross-checking or for calculation of other indices. These are shown in the following table.
Table 4.2 Supporting information to be collected for Transmission
Data Energy Injected Energy Supplied Peak Power
Unit GWh GWh MW
Level
Frequency
Two classes of voltage levels: Annual 69380 kV and < 69 kV Two classes of voltage levels: Annual 69380 kV and < 69 kV Global (delivered to transmission network) Global the Annual Annual
Date and time of the Date, time peak power Length of networks km
Two classes of voltage levels: Annual 380 kV and below 380 kV Two classes of voltage levels: Annual 69380 kV and < 69 kV Two classes of voltage levels: Annual 69380 kV and < 69 kV
Number of Delivery Nr Points Nb of Voltage Dips Nr That Reduced Load
For SEC T, if a fault occurs at distribution, it may be the case that the distribution operator closes the
breaker that tripped while the fault is still there and as a consequence, the main breaker in transmission trips, causing a large interruption to many customers (this consist in a human error). In that case, the behaviour has been out of control of the transmission company and should be classified as Force Majeure.
4.2
4.2.1
The regulatory request for monitoring the continuity performance is relatively recent for both transmission and distribution activities. This regulatory process started out by using the data collected by the utilities with their own criteria and rules for measurement and calculation. Consequently there is remains little harmony in the monitoring of continuity performance around the world. Some efforts for progressive harmonization are however ongoing, notably in Europe with the Council of European Energy Regulators (CEER) and European Regulators' Group for Electricity and Gas (ERGEG). When comparing globally all countries, the diversity of the transmission contexts and their supply continuity results makes the drafting of a conclusion a delicate process. On the opposite, when focusing on those countries having set up a regulatory process for improving the continuity performance, there is more ground for launching a comparison process. Comparing does not mean that all values are expected to be equal: this is why even a long term target is not proposed to be at the level of the best continuity performance but rather at the level of an average continuity performance. Also, depending on the societal cost of the non-continuity (often expressed by the value of the Energy Not Supplied, in currency per kWh), a target can be set higher or lower. The following tables consist of data from the most recent years of availability9.
Table 4.3 Overview of quartile spread of Transmission KPIS of different countries (for later comparison with Saudi Arabia values). Note that only ENS will be provided a target.
KPI T1: ENS T2: SAIDI-T (min) T3: SAIFI-T T4: MAIFI-T (values for T&D)
Q1 0.00015% 0.8 0.04 0.07
Median 0.0005% 2.1 0.06 0.85
Q3 0.0012% 2.6 0.09 6.0
As a consequence, some data may refer to different years.

T5: Outages100km T6: Nr Voltage Dips T7: Network losses (%) n.a.: not available
n.a. 77 2.9%
n.a. 146 4.8%
n.a. 257 6.85%
Targets for transmission KPIs will only apply to ENS. The international statistics on this KPI come from a set of statistics issued by the CEER 3rd Benchmarking report dealing with transmission only for 9 countries. The list of other KPIs (without target) has been prepared from a set of 7 countries (for SAIFI-T and MAIFI-T) and 11 countries (for SAIDI-T). The annexes contain the raw data and their country of origin.10 Since the data availability is increasing during the years and the number of countries participating in benchmarking studies is increasing as well, it is recommended that the above statistics are to be revised at regular time intervals (say, every two to four years).
4.2.2
Comparisons Saudi versus International
The following table compares the values from SAUDI ARABIA to those found for the international peer group.
Table 4.4 Comparison of continuity performance for the Energy not Supplied (ENS)
KPI
SEC Trans
Marafiq Trans n.a. n.a. n.a. n.a.
Q1
Median
Q3
T1: ENS T2: SAIDI-T (min) T3: SAIFI-T T4: MAIFI-T (T&D)
0.00081% 3.67 0.068 n.a.
0.00015% 0.8 0.04 0.07
0.0005% 2.1 0.06 0.85
0.0012% 2.6 0.09 6.0
10
The countries included in the sample are: Finland, Hungary, United Kingdom, France, Spain, Italy, Portugal, Norway, Australia, Lithuania, Denmark, Canada, Netherlands.
T5: Outages100km T6: Nr Voltage Dips T7: Losses (%)
n.a. n.a. 2.66%
n.a. n.a. n.a.
n.a. 77 2.9%
n.a. 146 4.8%
n.a. 257 6.85%
The ENS value of SEC for 2007 has been derived from the SIMLI (Total energy lost divided by system peak, reaching 2.57 minutes in 2007) and the peak of 2007 (34,953 MW) for the whole country: an ENS value of 1,497 MWh is then found for the SEC Transmission System. Then, considering the Energy Supplied by the Transmission network (185,471 GWh in 2007) a figure of 0.00081% can be derived for the ENS of SEC Transmission in 2007. This figure is higher than the international median (0.0005%) but less than the international Q3 (0.0012 %). The SAIDI-T of SEC-Transmission (3.67minutes) appears to be above the median and the Q3 of international values (2.6 minutes). The SAIFI-T value of SEC-Transmission (0.068) and of Marafiq (0.81) are also above the international median found (0.06) but SEC-Transmission is below the international Q3 (0.09). The number of voltage dips is reported by seven countries11 out of the data collected and the diversity of the values is higher than for the others KPIs values collected (see Annex). From Saudi Arabia no value has been submitted (yet) by the companies. Comparisons would only make sense at a later stage of the benchmarking process. The transmission losses (2.66%) seem to be a good performance when compared to international data. This is probably linked to the fact that in Saudi Arabia generators are relatively close to consumption centers. The comparisons provided here indicate possible improvements of the performance in Saudi Arabia since: exceptional events (i.e. Force Majeure and Generation failures) have been excluded from all above statistics,
11
Namely Norway, the Netherlands, Australia Queensland, Italy, Portugal, Hungary, France
the TSO of the compared countries are supposed to adapt their network to the context they face in terms of non-exceptional events.
As a consequence, the above set of continuity data presents some homogeneity and presents a reasonable basis for a regulatory authority to set targets for continuity of supply. For long term target, the median value of the ENS parameters is proposed.
4.2.3
Conclusions
The median of the international ENS performance (0.0005%) is proposed as a long term target, which represents an improvement expectation of 0.00031%. Long-term here can be interpreted as a period of 10 years, which takes into account the high capital intensity of the transmission business and the long lead times necessary to implement structural improvements. On the short run, while progressing towards the long-run target, the intermediate target is based on half this improvement (0.00015%) is deemed to be a reasonable milestone for setting a short term target of 0.00065%. To much extent, the time scope for defining the short term can be negotiated taking into account the implementation delays of the actions that are felt necessary to reach the short term target. The continuity KPIs that are without targets like SAIDI-T and SAIFI-T confirm the position of the Transmission continuity of supply relatively in Saudi Arabia to the international median, indicating that some improvements are needed if the international median level is to be met. Other KPIs like voltage dips are more difficult to compare since this is not measured by most countries, and therefore no comparison will be presented here on this issue. Losses of SEC Transmission appear to indicate a good performance for a country as large as Saudi Arabia. The only transmission KPI to be subject to a target scheme in Transmission is the Energy Not Supplied (ENS). The long term target is proposed to be the median value of the peer group, which is 0.0005% of the Energy Supplied. Note that the target for ENS only applies to the unplanned interruptions category. Events associated with planned, generation, and force majeure are not subject to a target. The short term target is a value well above the long term target. This allows sufficient time for the transmission companies of Saudi Arabia to adapt their means in order to meet the long term target: The short term target is proposed here at 0.00065%.
Table 4.5 Short and long term targets for KPIs in Transmission
KPI T1: ENS
Present 0.00081%
Short Term 0.00065%
Long Term 0.0005%
The targets are set here for the ENS computed from unplanned interruptions of the voltage range 69 to 380 kV so that the performance can be compared to transmission networks consisting HV and EHV levels. For the ENS computed from interruptions originating below 69 kV (hence concerning HV/MV transformers of SEC Transmission), the target should be set at the historical average of SEC Transmission (3 last years), international data not being available on this specific component and voltage levels.
4.3
4.3.1
Selection of Incentive Mechanism
As discussed in Chapter 2, in the context of a cost plus regulation, which is the context of Saudi Arabia in 2009, there is usually no immediate need for incentives scheme on quality of service because the companies are not limited in their investments by a cap on their revenues and consequently on their costs. On the contrary, in context of a pr ice-cap regulation, some control of the quality supply is to be implemented. In this light, the use of an overall standard seems to be the most appropriate approach at this point in time. Nevertheless, in the future ECRA may wish to adopt stricter incentive mechanisms if a change towards a stricter form of price control is adopted. Anticipating such a transition in future, it may however be worthwhile to investigate here the specifications of a penalty/reward scheme to be applied at that point in time. In terms of setting a penalty/incentive scheme for ENS, two main schemes are usually considered: the minimum standard and the penalty/reward system. The drawbacks and advantages of both are summarized in the table below:
Advantages Minimum Standard Scheme All customers benefit from a same Guaranteed Service Level (GSL)
Disadvantages The verification that the GSL is met at each customer location implies a the
presence of a meter able to count the interruptions Penalty/Reward Scheme Is compatible with the classic Customers are treated as type of meters the average customer Tends to avoid that the utility enjoying an average continuity of supply profits from too low investment in reliability
Since the two schemes do not counter each other out, they can be implemented to complement each other. However, as may be observed, the penalty/reward scheme is in principle more desirable. International experience has been gained in this field in several 12 countries. The penalty/reward schemes are all based on the following principle: the allowed revenues of the TSO are modified upwards or downwards depending on the continuity performance achieved. The experience of countries having set a penalty/reward system suggests two additional criteria: in order to avoid every year a computation of financial transfers and their realization for performances that are in fact close to the target, a dead-band should be considered around the target: in that way, no penalty and no reward is applied if the performance observed is within the dead-band. In order to limit the financial exposure of both the TSO and the public financing the scheme, a cap is applied to the penalty and to the reward for the reporting period (the year, normally). This cap is usually between 1% and 2% of the turnover.
Based on the above concepts, the following characteristics are proposed for the scheme to be implemented in Saudi Arabia: 1. The dead-band is proposed to be at levels 95 % and 105% of the target. 2. The cap on the reward and on the penalty to be at 1% of the company turnover 3. Smoothing the performance by using the average performance on 3 years for the incentive scheme
12
Great Britain, Hungary, Italy, Estonia

With respect to the level of the financial penalty/reward, economic theory suggests that this should be set equal to the societal costs of the average interruption CENS expressed by the value of the ENS (in Riyals per kWh not supplied). At country level, this value is usually between 1 USD/kWh and 10 USD/kWh and varies from one country to another. Within a country and from one type of customer to another, the cost of interruptions CENS varies even more. For this reason it should preferably be set on the basis of a customer survey. For specific customers with a high sensitivity to the electricity supply13, this value can be very high particularly if no back-up supply is implemented. An initial estimate is often proposed as the GDP divided by the gross electricity demand. For 2007, the energy sold to the customers in 2007 has been 169,750 GWh and the GDP has been 1 401.3 billion SR14 or 374.2 billion USD. Hence, for Saudi Arabia in 2007, the value CENS has been 8.255 SR/kWh, equivalent to 2.203 USD/kWh. However, we should point out that this estimate is only indicative because by essence it includes the economic product of activities that are almost independent from the electricity consumption (in many countries, the agriculture does not depend on electricity but only on some types of fuel for the transportation). Also, it hides the diversity of the consumers and their willingness to pay for an improved continuity. The CENS concept also ignores the difference between short and long interruptions, while in fact the incurred costs vary a lot with the interruption duration. Basically, the CENS concept assumes that all economic activities depend on the availability of electricity: the idea is that every kWh represents a fraction of the electricity consumption and makes possible the creation of economic activities on average up to the same fraction of the GDP. As a whole and although imperfect, the above estimate of CENS is the most practical value to start with in the frame of this project. The annex 5 proposes a basic questionnaire for a customer survey to assess the willingness to pay for avoiding interruptions, so that estimates of the CENS can be developed. The financial transaction can then be represented as a function of the continuity performance (the average ENS on 3 years, as indicated above, expressed in percent of the energy supplied to the delivery points), where ENSt is the target level and TO is the turnover of the utility. This function is represented by the graphic below. As can be observed, the incentive scheme only translates into monetary terms the actual level of performance when it is outside the dead band of +/- 5% around the target level. Furthermore, the level of the penalty or reward is capped at 1% of the turnover.
13 14
hospitals, airports, banks, industries that may lose the daily batch production in case of an interruption http://www.economist.com/Countries/SaudiArabia/profile.cfm?folder=Profile-Economic%20Structure
Reward
0.01*TO High Performance 0 0.95*ENSt ENSt 1.05*ENSt ENS (% of ES) 0.01*TO Low Performance
Penalty
Figure 4.1:
Proposed incentive scheme for ENS in Saudi Arabia
Having defined the cap and the dead band by Cap and db, and a base revenue allowance Ro independent from the quality performance, the revenue allowance R of each transmission company would then typically be adjusted by its quality performance by the following expression: If ENS < ENSS*(1- db) a reward G= (ENSs-ENS)* CENS > 0 is given, so that the total revenue of the utility becomes
R max( Ro * (1 Cap); Ro ( ENSs ENS ) * CENS )

If ENS > ENSS*(1+ db) a penalty P= (ENS-ENSs)* CENS > 0
is applied, so that the total revenue of the utility becomes
R max( Ro * (1 Cap); Ro ( ENS ENSs ) * CENS )
4.3.2
Incentive Mechanism Conclusions
In Saudi Arabia, the regulation in place in 2009 is cost plus regulation. Under cost plus regulation, companies may introduce in their eligible costs for tariff setting all their investments costs plus an agreed rate of return: in such a context, there is no factor encouraging the utility to under invest for preserving the quality of supply. Therefore, there is no real need for an incentive scheme as far as the regulation regime remains as cost plus: A proposed incentive scheme is only recommended when another regulation regime (for example price-cap) is put in place. The incentive scheme described above will however only become important if price-cap regulation is introduced and where companies tend to be investing in too low amounts in the quality of supply. This scheme is configured such that around the target, i.e. beyond a certain dead-band, a reward proportional to the excess of quality is awarded to the company, while a penalty proportional to the deficit of quality is imposed to the company for any such deficit of quality. These rewards and penalties are also limited by a cap, and the whole scheme can be summarized by the following three characteristics: Smoothing by using the average performance on 3 years for the incentive scheme (but the yearly performance is to be reported) The dead-band is proposed to be at levels 95 % and 105% of the target. The cap on the reward and on the penalty is set at 1% of the turnover of the regulated company The slope of the reward and of the penalty should be equal to the value attributed to the ENS namely 8.255 SRD/kWh
In terms of implementation, the scheme can consider the filling of a so-called account where companies can record the financial sums i.e. penalties/reward as a result of the incentive scheme over a certain period. This could be done for example every three or four years. In this way, the low quality in one year and its related penalty can be compensated by high quality of the next year and its related reward, and the difference would be subject to the financial transaction as the end of the period.
As per the experience gained in countries that applied the scheme, these characteristics proved to be successful and has to lead to the continuity of improvements while limiting the financial exposure of the company to the scheme. As already stated above, this scheme could be applied from the moment when the regulation in place changes from the existing cost plus to a possible price-cap regulation regime.
4.4
RECOMMENDATIONS TRANSMISSION
We can now summary the recommendations with respect to the targets and incentive mechanisms for transmission in the following Table.
Table 4.6 Summary of recommendations regarding targets and incentive mechanisms for Transmission. KPI ShortTerm Target LongTerm Target Incentive Mechanism Overall Standard (now) Penalty/Reward (in future)
Unit
Energy Not Supplied (ENS) T1 T2 T3 T4 SAIDI-T SAIFI-T MAIFI-T Out100km Voltage Dips Network Losses
MWh/year
0.00065%
0.0005%
Min/Year Int/Year Int/Year Outages/year per 100 km Nr/year %
T5 T6 T7
DISTRIBUTION
5.1
KPI OVERVIEW
Based on discussions with the different stakeholders of the electricity sector in Saudi Arabia a list of KPIs for the distribution sub-sector was selected. This list has been complied based on its relevancy for ECRA to include in its KPI measurement framework. The following table provides an overview of the recommended KPIs for distribution. All KPIs are measured on an annual basis and reported, by each relevant utility.
Table 5.1 Recommended KPIs for Distribution.
Distribution KPI D1 SAIDI
Unit Min/year
Target Yes
Level MV only
Per Department
Freq.
Type: Planned,
D2
SAIFI
Int/year
Yes
Unplanned, Generation/Transmissi
Annual
D3 D4
MAIFI
Int/year
No No
on, Force Majeure System
Network Losses %
In addition to the above KPI list, there is some supporting information that would need to be collected for the purpose of cross-checking or for calculation of other indices. These are:
Table 5.2 Supporting information to be collected for Distribution
Data Energy Supplied to the area Peak Power delivered to the distribution network Date and time of the peak power Nr of Delivery Points (customers)
Unit GWh MW Date, time Nr
Level Per SEC Distr. department Global Global Per SEC Distr. department
Frequency Annual Annual Annual Annual
5.2
5.2.1
The same methodology as the one applied for generation and transmission is applied here for finding the quartiles. When listing the various data available per company to form a peer group, some statistics can be drawn, like the identification of the quartiles Q1, Q2, Q3, where: Q1 is the value for which 25 % of the DSOs have a KPI below Q1 and 75 % above Q1 Q2 is the value for which 50 % of the DSOs have a KPI below Q2 and 50 % above Q2 Q3 is the value for which 75 % of the DSOs have a KPI below Q3 and 25 % above Q3
From these definitions, Q2 is the median. For normal distributions, the median is equal to the average. Provided that KPIs in the electricity distribution sector follows normal distributions, this set of values indicates both the average and the dispersion of data around the average. See in annex the values for each country and related list of countries that are compared.
Table 5.3 Overview of quartile spread of Distribution KPIS of different countries (for later comparison with Saudi Arabia values)
Distribution KPIs KPI D1: SAIDI (minutes) D2: SAIFI (#/yr) D3: MAIFI (#/yr) D4: Network losses (%) Q1 96 1.49 0.78 4.65% Median 153 1.90 2.01 5.3% Q3 198 2.43 5.40 6.25%
As per the values presented in Annex (see further), the dispersion of distribution data is high but still much less than for transmission. When looking closer at the data, there is a slight trend for large countries (like Australia and Canada) to have higher values for SAIDI and a lesser extent for SAIFI. This is possibly linked to a higher proportion of customers supplied
by aerial lines while other countries of the peer group may supply relatively more by underground cables.
5.2.2
Comparisons Saudi versus International
The following table summarizes the comparison that can be made from the data collected for distribution KPIs. Based on the historical data and on international median data, it proposes both a long term target (6 years) and a short term target (3 years).
Table 5.4 Comparison of the 2007 situation in SAUDI ARABIA with median performance abroad- proposal for a national average target
KPI
SEC
SEC
SEC
SEC
Marafiq
ST
LT
Median Internl
West East Centre South D1: SAIDI (min.) D2: SAIFI (#/yr) D3: MAIFI (#/yr) D4: Losses (%) 38.4 1.13 65.4 1.71 80.2 2.09 8.48% 214.8 5.19 67 0.9 4.38%
Target Target 150 2 120 2 153 1.9 2.01 5.3%
The term region will be used here for distinguishing the five gr oups of distribution systems in Saudi Arabia for which data are presently available: West, East, Centre, South, and Marafiq. The regulation of SAIDI and SAIFI will be performed in two ways: publication of the local values of the KPIs: values related to the departments computation of a company-wide average to be compared with the targets
In terms of SAIDI, only the South region had a performance in 2007 below the median international performance: putting a long term target at the median international level will therefore not be very constraining, except possibly for areas of that region. In terms of SAIFI, the South and the Centre regions did not reach in 2007 the median international level.
For both SAIDI and SAIFI, a target set near the median international level seems to be a realistic objective for the long term for the national level: these targets can serve to develop local targets based on the local characteristics of each department in order to contribute to the identification of zones where there is a potential for improvements (see annex 4). The loss performance15 is also globally better abroad when comparing international values to those of SEC Distribution.
5.2.3
Conclusions
Setting a target at the level of median for each KPI brings the above comparison to indicate improvements to be made for SAIDI, SAIFI and distribution losses indices, at least for some regions. The MAIFI being not yet collected, no conclusion can be drawn for the moment regarding momentary interruptions. When compared to available data from other countries, the results presented by companies active in the Distribution sector in Saudi Arabia indicate a pretty good performance on average. For the SAIFI indicator, the areas of the south and centre regions will have to improve their performance (at least on average, hence probably most of them). For the SAIDI indicator, the areas of the South region will have to improve their performance (also probably most of them). However, this does not exclude the fact that some areas of other regions at present might not match the targets while the region to which they belong does. These areas would then also have to improve their performance. For distribution, two KPIs have been proposed for being subject to a target and (as will be discussed) in future possibly to a penalty/reward scheme: these being SAIDI and SAIFI. The short term target is proposed to be at half distance between the present worst performance and the long term target.
15
Distribution losses have been evaluated for 2007 from the energy demanded to transmission networks
(185 471 GWh) minus the energy sold (169 750 GWh). Therefore, the difference (15 721 GWh) being called distribution losses includes both technical and non-technical losses. This is the case of the international data
Table 5.5
Short and long term targets for KPI's in Distribution
KPI
Present worst KPI region(*) 214.8 5.19
Short Term
Long Term
D1: SAIDI D2: SAIFI
150 2
120 2
(*) The worst served region is SEC Distribution South In the future the regulated KPIs for Distribution (SAIDI and SAIFI) will be monitored by a rea, the following issues concern each area individually.
5.3
5.3.1
Selection of Incentive Mechanism
As for Transmission, the existing regulation is cost plus and therefore does not require a penalty/incentive scheme. For now, the use of an Overall Standard seems to be the most appropriate approach. Nevertheless, in the future it may be necessary to adopt stricter incentive mechanisms. Therefore, we now consider the possible configuration of such schemes for the future. As discussed in Chapter 2, at an international level, there is a diversity of schemes applied, ranging from overall and guaranteed standards to penalty/reward schemes, these also being of various types. Penalty/incentive regimes are in place in eight countries16 out of the 19 countries surveyed by the CEER, six others are considering implementing the scheme. These countries have all transitioned towards stricter forms of price-controls and therefore have found it necessary to also adopt stricter performance incentive mechanisms. There is however a diversity in the schemes that are applied in the various countries having penalty/reward schemes. The diversity of the schemes reflects specific industrial and
16
Estonia, Great-Britain, Hungary, Ireland, Italy, Norway, Portugal, Sweden

institutional factors of the respective countries and appears to contribute to the effectiveness of the scheme. A feature common to all schemes is the presence of both penalties and rewards so that the company can make autonomous decisions about the quality level delivered to its customers. As indicated for the case of transmission, a dead-band around the target is usually set in order to avoid each year a process of corrections for a small financial amount: this is to limit the administrative work of the regulator and reduce the intrusiveness of the regulation. Also, because all schemes are not perfect (at least because of intrinsic limited accuracy of the data, including the knowledge of the customer willingness to pay), the process has to be limited in its financial impacts: this is why both penalties and rewards are usually limited by a cap value. In most countries, apart of the dead-band and the cap, the relation between the reward and the excess of quality and the relation between the penalty and the lack of quality are both linear. In terms of statistical treatment of the yearly KPI values, some countries apply a smoothing on the quality performance to limit the volatility due to the (highly) variable weather conditions. Some examples are summarized below:
Table 5.5 Brief summary of reward/penalty schemes for Distribution in Europe Country Norway(NO) KPI ENS Description For each company, an expectation of the ENS is calculated in kWh by a regression model that takes into account various parameters of the system (length of lines, nr. of customers, weather that took place during the year) and is based in historical data. A total cost of interruptions is also calculated per company (in Euros), differentiating categories of customers and planned/unplanned interruptions. At the end of the year the regulator calculates the difference between the expected and the actual interruption costs. If positive (excess Cap No any Smoothed No need
because weather taken into account in the target
Country
KPI
Description of quality), the revenue cap for tariff setting in increased for the coming year, and conversely if negative. As a result the customers themselves at the end pay a tariff that varies (with a one year delay) with the experienced quality of supply. Norway is the only country in Europe to apply neither a dead band nor a cap to the rewards and penalties.
Cap
Smoothed
The Netherlands (NL)
SAIDI
The standard (or target) SAIDI value is the average SAIDI of all regulated companies on a three years period. The difference for each company between its 3-years av. and the standard is then introduced with the SAIFI in a cost function separately for domestic and non domestic customers. Two features: The total revenue depend on the change in quality performance between two periods For interruptions longer than 4 hours compensation is paid by the DSO to the customers. Part of it can be recovered by the compensation allowance that determined by the actual number is of
5%
years
regulatory periods
domestic and non-domestic customers. Portugal (PT) ENS/ES The target for ENS/ES is set every year (ex: at 0.04% in 2005). The ENS is valued at 1.5 Eur/kWh. With a dead band of 0.12 times the target Italy (IT) Hungary SAIDI SAIDI, SAIFI, losses by a=0.5% if any of the three indicators is between 5% and 10% worse than the
12%
Similar to the Portuguese scheme For penalties, the distribution tariff is reduced:
5% 3% On 3 years Rolling average
Country
KPI
Description target by a=1% if any of the three indicators is more than 10% worse than the target by a+b+c % if more than one indicator is more than 5% or 10% worse than the target: the penalties are added (a, b, c refer to the three indicators respectively). Rewards are gained if at least one indicator is more than 10% better than the target without any of the other being worse than the target.
Cap
Smoothed
Reward
High performance
Low Performance KPI
Portugal Penalty Hungary Italy
Figure 5.1 Typical relations between the incentive and the distribution performance
The financial transaction can then be represented as a function of the continuity as reported yearly to the regulator.
In many countries, every few years, the scheme and the values of the target, dead-band and caps are reviewed, often at the same time as the review of the distribution tariffs.
5.3.2
Incentive Mechanism Conclusions
As already mentioned above, the incentive scheme is only recommended if the regulation in the Saudi electricity distribution sector changes from the existing cost plus regulation to a price-cap regulation. The following scheme is therefore not to be applied immediately. As far as SAIDI and SAIFI have been selected for a scheme for a target, this target is without any real effectiveness without setting rewards and/or penalties. Therefore some cost functions have to be associated to deviations from the target. The scheme proposed for the future includes the following features: (a) a dead band of 5% around the target (b) a cap for rewards and penalties set at 1% of the company turnover (c) a smoothing on three years (rolling smoothing so that every year the KPI is calculated on the performance of the three last years) (d) a cost function for residential customers based on SAIDI and SAIFI and a cost function for industrial customers. In the long term, a thorough customer survey should be carried out in order to accurately tune the whole process to the cost of interruptions the customers face in Saudi Arabia. In the short term some simplification is inevitably necessary: o The best guess for the cost of interruptions is to set a scheme imitating the ENS estimates but without the evaluation of the true power that was effectively interrupted for each customer (since this value is not available because it is not metered). Therefore, an assumed Power Interrupted (PI) will be used for each class of customers. A list of electricity consumption sectors should be defined by an agreement between ECRA and the stakeholders and should preferably define classes of customers likely to share similar consumption patterns, installed power and costs of interruptions. From this list of say n sectors, an assumed average power interrupted is to be set for each sector i: PIi where i= 1 to n. From customer surveys about the inconvenience caused related to one interruption, a value CENS can be found or assumed for each sector i:
CENSi1 . The cost associated to one kilowatt-hour not supplied to an average customer of the sector i can be expressed as a function of SAIFI: CENSi (SAIFI). This function has a positive slope with SAIFI (many short interruptions are more disturbing than one long interruption of the same total duration). The coefficient is however lower than 1: on an average basis and for a given SAIDI (that is for a given total duration of the interruptions per customer), two short interruptions of duration d can not lead to a total inconvenience higher than twice the inconvenience of a longer interruption of duration 2 x d. For a given total duration of interruption, the inconvenience suffered by a customer can be assumed to be linear with respect to the frequency of interruptions (SAIFI). In case SAIFI is equal to one, one single interruption is supposed to have affected the considered average customer and the inconvenience he/she suffered is expressed by the cost of the Energy Not Supplied related to his sector. A coefficient of a= 0.6 is proposed as a first assumption for starting the regulatory process (this is before the results of a customer survey are available):
CENS i ( SAIFI ) CENS i1 * ((1 a) a. * SAIFI )

o If nci is the number of the customers of sector i and, the yearly inconvenience suffered by all customers can then be approximated by :
CI nci * PI i * CENS i ( SAIFI ) *

i
SAIDI 60
For each regulated company, the expected or target value of SAIDI and SAIFI lead then to a target value of CI: CIS.
CI S nci * PI i * CENS i ( SAIFI S ) *

i
SAIDIS S 60
A proposal can be applied for an incentive function as per figure 5.1 to the SAIDI and correspondingly a reward can be applied on the condition that SAIFI is better than the target and penalty applied to any SAIFI value. This puts an incentive to the companies to keep a SAIFI always at least just better than the SAIFI target so that they become eligible to the SAIDI reward function. Due to its simplicity, the Consultant recommends to start the regulation by this system.
Having defined the cap and the dead band by Cap and db (see features (a) and (b) above), and a base revenue allowance Ro independent from the quality performance, the revenue allowance R of each distribution company would then typically be adjusted by its quality performance by the following expression, where CI and CIS are applied to the customers and sectors of the regulated company: If SAIDI < SAIDIS*(1- db) a reward is given, and CI<CIS
R max( Ro * (1 Cap); Ro CIs CI )

If SAIDI > SAIDIS*(1+ db) a penalty is applied, and CI > CIS
R max( Ro * (1 Cap); Ro CIs CI )

The proposed scheme combines the advantages: a regulation based on both SAIDI (the average total duration of all interruptions faced by the average customer) and SAIFI (the average number of interruptions per customer per year) a smoothing on three years (rolling smoothing so that every year the KPI is calculated on the performance of the three last years) a dead-band for avoiding excessive administrative burden a cap of rewards and penalties for avoiding excessive intrusion in the tariff setting with a scheme still at its very beginning using parameters that are not yet accurate rewards and penalties set by using the cost of the Energy Not Supplied as expressed either from assumptions, or from customer surveys
As a whole, the proposed scheme introduces a clear incentive towards continuity improvements where needed, as per the targets set by the regulator.
5.4
RECOMMENDATIONS DISTRIBUTION
A summary of the recommendations with respect to the targets and incentive mechanisms for distribution are presented in the following table:
Table 5.6 Summary of recommendations regarding targets and incentive mechanisms for Distribution. KPI
Unit
ShortTerm Target
LongTerm Target
Incentive Mechanism Overall Standard (now) Penalty/Reward (in future) Overall Standard (now)
D1
SAIDI
Min/Year
150
120
D2
SAIFI
Int/Year
Penalty/Reward (in future)
D3 D4
MAIFI Network Losses
Int/Year %
CUSTOMER SERVICE
6.1
KPI OVERVIEW
Based on discussions with the different stakeholders of the electricity sector in Saudi Arabia a list of KPIs for the Customer Service sub-sector was selected. This list has been compiled based on the information and we believe the proposed KPIs are relevant for ECRA to include in its KPI measurement framework. The following table provides an overview of the recommended KPIs for Customer Service. All KPIs are measured on an annual basis and reported, by each relevant utility. Certain KPIs are to be reported per department while others are to be reported per operating area.
Table 6.1 Recommended KPIs for Distribution.
Customer Service KPI C1 C2 C3 C4 C5 Average Time to Supply Existing Connections (ATSE) Average Time to Supply New Connections (ATSN) Average Time to Reconnect After Payment (ATRAP)
Unit Days Days Hours Days
Target Level Yes Yes Yes Depart ment
Freq.
Notification of Interruption of Supply (NIS)

Frequency of (FC) Frequency of Complaints (FC) Complaints Billing
No Annual
No Yes Yes Operati ng Area
#
# Days
C6
C7 C8
Average Time to Resolve Billing Complaints (ATRBC) Average Waiting Time Call Center (AWTCC)
Seconds Yes
6.2
For customer service the same methodology as the one applied for the other power sector areas has been used. The comparisons have been done on the basis of the four quartiles and comparisons against the median where: Q1 is the value for which 25 % of the DSOs have a KPI below Q1 and 75 % above Q1 Q2 is the value for which 50 % of the DSOs have a KPI below Q2 and 50 % above Q2 Q3 is the value for which 75 % of the DSOs have a KPI below Q3 and 25 % above Q3
International data for the comparisons have been obtained from regulatory publications from the following countries: Australia, Austria, Belgium, Cyprus, Czech Republic, Estonia, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Poland, Portugal, Romania, Singapore, Slovenia, Spain, UK, and USA. Details of the data that has been used is contained in the Annexes. The following Table shows the summary of the results for the international comparisons and the existing internal performance targets insofar adopted by SEC and Marafiq.
Table 6.2 Comparison of existing performance or targets for SEC and Marafiq as compared to international median performance
Unit
C1 C2 C3 C4 C5 C6 C7 C8 Average Time to Supply Existing Connections (ATSE) Average Time to Supply New Connections (ATSN) Average Time to Reconnect After Payment (ATRAP) Notification of Interruption of Supply (NIS) Frequency of Complaints (FC) Frequency of Billing Complaints (FBC) Average Time to Resolve Billing Complaints (ATRBC) Average Waiting Time Call Center (AWTCC)
SEC
Marafiq
Q1 9
Median 6 15
Q3 3 8
Days 55 Days Hours Days /100 cust /100 cust Days Seconds 30 30 5 5.2 2 5
20
54 2 1.42 0.60 21 38
36 4 0.33 0.15 15 30
24 9 0.19 0.07 8 18
A number of observations can be made when comparing the international results with the existing standards applied by SEC and Marafiq. We should note in general that the comparisons made here are limited only to the indicators that are currently being measured by the Saudi utilities. C1: Average Time to Supply Existing Connections (ATSE) and C2: Average Time to Supply New Connections (ATSN) These KPIs measure the time required for the utility to connect the customer once that customer has fulfilled all its obligations including obtaining necessary permits and making payments to the utility. Currently, no distinction is made by the Saudi utilities between existing and new connections. Nevertheless, the target of 5 days by Marafiq seems to be preliminary applicable to existing connections, which are more easily realized than new ones. This standard is lower than the international median of 6 days. For SEC, the adopted 55 days seems to be very long compared to international practice of 15 days. We should stress that these 15 days apply to the time required to realize the connection after the customer has fulfilled all obligations and made required payments. C3: Average Time to Reconnect After Payment (ATRAP) The international performance for reconnecting after payment is 36 hours. SEC currently applied a standard of 2 hours which is significantly shorter. This suggests that the standard applied in Saudi Arabia is much more stringent than what would normally be expected. This can be explained by the specific expectations and conditions in Saudi Arabia and in particular the high dependency on air-conditioning due to the relatively high temperature. C4:Notification of Interruption of Supply (NIS) The Distribution Code currently specifies a period of 5 days for advance notification of planned interruptions to customers. Internationally. In this regard the target of 5 days can be considered appropriate. C5:Frequency of Complaints (FC) Internationally the frequency of complaints is 0.33 complaints per 100 customers. This number is significantly lower than the reported figure of 5.2 by Marafiq. For SEC, no data was available. C6:Frequency of Billing Complaints (FBC)
Complaints related to billing form half of the total complaints and is clearly an important aspect to customers. Internationally the target of 0.15 complaints per 100 customers is applicable. For Saudi Arabia, no data is currently available. C7:Average Time to Resolve Billing Complaints (ATRBC) Connected to the previous KPI is the time required to solve billing related complaints. Internationally a period of 15 days is used. This is shorter than the 30 days applied by SEC but longer than the 5 days that Marafiq applies. C8:Average Waiting Time Call Center (AWTCC) Both international practice and the standard used by SEC are 30 seconds. The target currently applied by SEC is thus fully in line with international practices.
6.3
In developing recommendations for the incentive mechanisms to be applied by ECRA for customer service KPIs it is important to take into account the fact that currently no division is made between distribution and supply activities in terms of unbundling. Anticipating unbundling in future it will be more appropriate to implement penalty schemes at that stage as these can then be more easily integrated into the price control schemes. In the meantime however, ECRA could apply overall standards (i.e. targets but no penalties) which specify the expected performance level and monitor closely the performance of the utilities as compared to the targets. An option to consider is the introduction of guaranteed standards that would involve a compensation payment to the customer in case that particular customer does not receive a performance level in line with the target. Such an approach is particularly relevant in the case where utilities are regulated on the basis of for example a price-cap approach. Under this form of price regulation, the regulator sets in place strong incentives to improve productivity and ultimately reduce its costs. This can however cause side-effects rather than increasing productivity, as the utility can reduce its costs by reducing quality instead. To avoid such effects, guaranteed standards or penalty/reward schemes can be put in place to protect customers against undesired performance deteriorations. Generally however, if no strict price control is applied, the risks of performance degradations are also considerably lower and less intrusive forms of performance incentives can be applied. This also limits the regulatory costs and lowers the financial exposure of the utilities.
Given the existing price control approach and absence of unbundling in Saudi Arabia it seems that for now at least overall standards are the most suitable incentive mechanism. There does not seem to be any strong need for stricter mechanisms in the absence of strong price control pressure. Through the KPI system, ECRA will nevertheless be able to closely monitor the performance of the utilities and assess whether performance is satisfactorily. In the future, when a move to stricter price control forms is made, the implementation of guaranteed standards and possibly penalty/reward schemes can be considered.
6.4
RECOMMENDATIONS CUSTOMER SERVICE
We can now summarize the recommendations with respect to the targets and incentive mechanisms for customer service in the following table.
Table 6.3 Summary of recommendations regarding targets and incentive mechanisms for Customer Service. KPI Average Time to Supply Existing Connections (ATSE) Average Time to Supply New Connections (ATSN) Average Time to Reconnect C3 After Payment (ATRAP) Notification of Interruption of Supply (NIS) Frequency of Complaints (FC) C5 Frequency of Billing Complaints (FBC) Average Time to Resolve C7 Billing Complaints (ATRBC) Average Waiting Time Call Center (AWTCC) ShortTerm Target LongTerm Target Incentive Mechanism Overall Standard No Penalty Overall Standard No Penalty Overall Standard
Unit Days Days
C1
3 20
2 15
C2
Hours
No Penalty Overall Standard No Penalty Overall Standard
C4
Days
/100cust
1.40
0.35
No Penalty Overall Standard No Penalty Overall Standard
C6
/100cust
0.60
0.15
Days
21
15
No Penalty Overall Standard No Penalty
C8
Seconds
30
30
REFERENCES 1. Service Quality Regulation in Electricity Distribution and Retail E. Fumagalli, L. Lo Schavio, F. Delestre Springer 2007, Berlin 2. CEER 3rd benchmarking report on Quality of Supply, 2005 3. CEER 4th benchmarking report on Quality of Supply, 2009
ANNEXES
ANNEX 1: DATA FOR TRANSMISSION KPIs

The data collected is summarized in the table below. To get an idea of the dispersion of the values around the average, two indicators are evaluated in last lines: Min/Max : the maximum value divided by the minimum value. Except for the SAIFI-T where this ratio is 3.0, the dispersion expressed by this indicator is very high (values from 146 to 227). StdDeviation/Average: this ratio ranges from 0.41 for SAIFI-T to 2.37 for SAIDI-T
ENS/ES (%) Australia - NWS Finland Hungary UK France Estonia Italy Portugal Norway 0.00000% 0.00010% 0.00020% 0.00025% 0.00050% 0.00060% 0.00120% 0.00120% 0.01460% Hungary Australia - NSW Australia - Victoria Italy Lithuania France Denmark UK Estonia EE except NSW : Max/Min StdDev/Av MAIFI-T&D (int/year) Canada Alberta Denmark Iceland UK Norway Italy Poland 0.04 0.07 0.2 1.5 2 6 6 Norway Netherlands Australia Queensland Italy Portugal Hungary France 146 2.1 Canada - Alberta SAIDI-T (min/year) 0.37 0.68 0.89 1.57 2.08 2.1 3.5 3.93 6.6 7.47 82.08 222 2.37 Nb Voltage Dips 40 114 146 156.7 358 1708 9089 Hungary UK Australia - NSW France Canada - Alberta India Russsia New Zealand US Oman Brasil Max/Min StdDev/Av 150 1.18 227.2 2.01 3 0.41 Losses (%) 1.60% 1.80% 2.80% 3.00% 4.70% 4.80% 5.20% 6.50% 7.20% 8.30% 12.00% 7.5 0.59 Hungary Lithuania Canada - Alberta Spain France Italy UK SAIFI-T (int/year) 0.03 0.04 0.04 0.07 0.08 0.09 0.09
ANNEX 2: DATA FOR DISTRIBUTION KPIs

The data collected is summarised in the table below. As for transmission data, to get an idea of the dispersion of the values around the average, two indicators are evaluated in the last lines of the table: Min/Max: the maximum value divided by the minimum value. Except for the SAIFI-T where this ratio is 3.0, the dispersion expressed by this indicator is between 4.3 and 19.8, that are values much less than for transmission (where values were from 146 to 227). StdDeviation/Average: this ratio ranges from 0.73 to 1.93 which is also somewhat smaller than those of transmission (0.41 to 2.37)
SAIDI SAIFI MAIFI
Min/Year
France Oman UK Italy USA Estonia Hungary Portugal Irelans Australia - Victoria Norway Australia - South Australia - NWS Australia Queensland Australia - Tasmania Canada Max/Min StdDev/Av 51 56 61 76 117 118 128 149 157 165 180 184 211 233 256 471 9.2 1.93 UK Oman USA France Ireland Australia - South HU Australia - NWS Australia - Victoria Norway Australia - Queensland Italy Estonia Canada Australia - Tasmania Portugal
Int/Cust
0.69 1.02 1.26 1.3 1.68 1.75 1.79 1.9 1.94 2.2 2.2 2.39 2.47 2.53 2.57 2.95 4.3 0.73 Lithuania UK Australia Victoria France Finland Italy Hungary
Int/Cust
0.52 1.03 1.42 2.6 4.978 5.83 10.31
19.8 0.92
Distribution losses (%) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 UK EDFE EPN UK CN East UK CN West AU CitiPower AU United Energy UK Electricity North West AU Alinta UK CE NEDL UK WPD S Wales UK CE YEDL UK EDFE LPN UK EDFE SPN UK SP Distribution UK SEE Southern UK WPD S West UK SP Manweb AU PowerCor AU SP AusNet UK SEE Hydro
2007 3.7% 3.9% 4.3% 4.5% 4.7% 4.8% 4.9% 5.0% 5.1% 5.5% 5.5% 5.6% 5.9% 6.2% 6.3% 6.6% 6.9% 7.9% 8.1%
2006 4.2% 4.9% 3.8% 3.9% 4.8% 4.5% 3.7% 4.3% 5.0% 3.7% 5.0% 5.3% 5.5% 6.2% 5.4% 5.2% 7.5% 8.0% 8.0%
2005 4.4% 4.7% 4.7% 4.3% 4.7% 4.4% 5.1% 4.6% 4.7% 3.5% 5.3% 5.6% 5.6% 6.1% 5.4% 5.8% 6.6% 7.9% 8.1%
For the losses, the dispersion of the 2007 values shows a Max/Min ratio of 2.19 and a StdDev/Av ratio of 0.22: these indicate a dispersion much smaller than the other KPIs.
ANNEX 3: DATA FOR CUSTOMER SERVICE KPIs
C1 Average Time to Supply Existing Connect ions (ATSE)
C2 Average Time to Supply New Connectio ns (ATSN)
C3
C4
C5
C5
C7 Average Time to Resolve Billing Complai nts (ATRBC)
C8
Average Time to Reconnec t After Payment (ATRAP)
Notifica tion of Interrup tion of Supply (NIS)
Frequen cy of Complai nts (FC)
Frequen cy of Billing Complai nts (FBC)
Average Waiting Time Call Center (AWTCC)
days Singapore Austria Belgium Czech Republic Cyprus Estonia France Greece Hungary Ireland Italy Latvia Lithuania Luxemburg Poland Portugal Spain Slovenia UK Romania Australia USA 3 14 3
days 10 14 15
hours 24
days 2 5 15 20 2
#/100 cust
#/100 cust
days 7
sec 30
0.135 6.152 0.16 15 21 14 15 3 28 15 30 40
5 2 8 3 5 10
6 5 11
5 15 15 30
24 24 168 24 24 24 48 24 72 48 72 24 24 72 48
15 2 2 5 10 5
0.27 0.69 0.2 0.38 3.6
3.6 0.05 0.12
17 27 100 8
11 2.8 21 8 5 30 5 10 104 24 30
2 5 8
20 8
1 2 2
0.007
ANNEX 4: PROCESS FOR SETTING LOCAL TARGETS

Local targets can be developed using the characteristics of the various zones considered in a KPI evaluation process (a zone is generic term used to mean either departments or regions like South, West, Centre, East). A4.1 Definitions Suppose the following i: an indice designating the zone i among the z zones of the system. NbCusti: the number of customers of zone i OHnetwlengthi: the total length (in km) of overhead MV lines of zone i UGnetwlengthi: the total length (in km) of underground MV circuits of zone i C : coefficient for incorporating the underground network as an equivalent of overhead network in terms of exposure to interruptions (C depends from one system to another, a first guess is proposed to be C= 0.2) EQnetwlength: the equivalent length (in km) of overhead lines where both the overhead lines and the underground cables are represented CustDensity : the equivalent density of customer per km of circuit
A4.2 Density of Customers and Length Per Customer We define for each zone i (i = 1 to z):
EQnetwleng thi OHnetwlengthi C *UGnetwlengthi
CustDensity i
NbCusti EQnetwleng th i
And the average circuit length per 1000 customers is the 1000th of the inverse of it:
LengthCusti
EQnetwleng thi ( NbCusti / 1000)
At national level, there is a global (or national target) Tk for each KPI k, an average customer density and an average length per customer, defined by :
AvCustDensity
i 1.. z
CustDensity
z
i
AvLengthCust
i 1.. z
LengthCust
z
A4.3 Linear Regression using the density of customers From all the z zones, a linear regression is to be done for each KPI. The regression function leads to an estimate of the KPIk named EstKPIk function of the CustDensity variable:
EstKPI k (CustDensity ) ak * CustDensity bk

For each KPI k, whose average target is Tk, the slope of the KPI with respect to CustDensity is the value ak . Usually, the higher the density, the lower the KPI result and conversely, hence ak is negative. If another variable like the average length per customer was used instead of the customer density, the ak coefficient would be positive. Then the local targets are defined from the national target T by using a DTi (or target deviation) defined using the local value of CustDensity as follow:
Tki Tk (CustDensityi AvCustDensity ) * ak

Where ak is the coefficient observed in the linear regression. In this project, we can define zones as being departments (there are z=17 departments): KPI1 = SAIDI with long term target T1 = 150 KPI2= SAIFI with long term target T2 = 2 And find the 17 local targets T1i and the 17 local target T2i as per the above formula once the ak are found by the regression (a1 being for SAIDI and a2 for SAIFI). In Excel, the linear regression is provided by the function TREND (see the help if needed).
A4.4 Linear Regression using the circuit length per customer In a similar way as above, a regression can be made with the length of MV circuit per customer as variable.
EstKPI k ( LengthCust ) ck * LengthCust d k

For example, the CEER has published the results of a regression for SAIDI made in Great Britain in 2005 based on data of 2004, that led to the following graphic and formula.
SAIDI
SAIFI
Tki Tk ( LengthCusti AvLengthCust) * ck

Here, C1= 2.3722 (for SAIDI) C2 = 0.0228 (for SAIFI)
ANNEX 5: DETERMINATION OF THE COST OF INTERRUPTIONS17

Overview of methodologies
The literature presents a large number of techniques to measure interruption costs; some common techniques are discussed in this section. A distinction is made between indirect methods and direct or survey methods. Survey methods acquire interruption cost information directly from consumers while indirect methods use other information sources for this purpose. Surveys are again divided into ex post and ex ante surveys, which refer to requesting consumer information about actual and hypothetical interruptions, respectively. Indirect - Proxies Proxy methods use indirect data to derive information on interruption costs. In recent decades a couple of proxies have been developed. The ratio of Gross National Product (GNP) to the electricity consumed forms roughly the upper bound for the interruption costs (Shipley et al. 1972, Telson 1975). The ratio of the electricity bill and the energy consumption then provides the lower bound. For residential consumers, the wage rate has been used as a measure of the foregone leisure in case of an interruption (Munasinghe 1980) or the value of lost production for a firm during an interruption (Munasinghe 1981). Loss of production has also been applied to households (Gilmer and Mack 1983). Indirect - Consumer Surplus Methods Consumer surplus methods derive interruption costs information from electricity demand curves. The idea is that the willingness-to-pay for electricity depends on the degree to which the consumption of each unit can be deferred to another hour. When elasticity is low, the consumer surplus losses which are equivalent to the households willingness-to-pay to avoid a total interruption in that hour are larger. The consumer surplus losses minus the bill savings provide a measure of the interruption costs (Sanghvi 1982). Indirect - Costs of Backup Power Consumers may take preparatory actions to prevent the costs that arise from interruptions by installing backup power. Bental and Ravid (1982) suggest that a profit maximising firm will invest in backup power until the expected gain from the marginal self-generated kWh is also
17
This annex is taken from: Ajodhia, V.S. (2005), Regulation beyond price. Integrated price -quality regulation for electricity distribution networks, Delft University of Technology, Delft.
the expected loss of the marginal kWh that is not supplied to that firm. The marginal cost of generating its own power may then serve as an estimate for the marginal interruption costs. Ex post Surveys - Blackout Studies Blackout studies collect information about interruption costs from actual interruptions. This method is usually applied in case of large-scale interruptions. Next to quantifying costs, blackout studies often also study the societal impact and preparedness for large interruptions such as police and fire responsiveness, environmental damage etc. Examples of blackout studies include SCI (1978), Steetskamp and Van Wijk (1994) and CEC (1997). Ex ante Surveys - Direct Costs Direct cost surveys request interruption costs directly from consumers. Firstly, consumers are requested to identify the different costs categories in case of an interruption. For industrial and commercial consumers these may be lost sales or production, spoilage, damage, etc. The second step is to attach an economic value to each cost category. Interruption costs are then obtained by summing up all the individual costs. Optionally, a list of possible measures and associated costs can be provided and consumers are asked to indicate which measure they would employ for different interruption scenarios. Ex ante Surveys - Econometric Two main econometric methods exist. Under the contingency ranking method, consumers are asked to value reliability as if there were a market for it. Thus, a hypothetical market is created where consumers are asked to indicate their willingness-to-pay (WTP) for higher reliability, or willingness-to-accept (WTA) lower reliability levels. Conjoint analysis is similar to contingency valuation with the difference that the WTA and WTP figures are derived indirectly. Here consumers are requested to rank in order of preference different mutually exclusive combinations of price and reliability levels the price range is determined ex ante by the researcher.
Interruption Cost Measurement Indirect Proxies Direct (Survey) Ex Post: Blackout Studies Ex Ante: Direct Cost Ex Ante: Econometric Contingency Ranking
GNP, Electricity Bill
Backup Power
Household Income Consumer Surplus
Conjoint Analysis
Figure 6-1. Overview of interruption cost measurement techniques.
Evaluation To compare the different interruption cost measurement techniques, the following criteria can be used: (1) Costs, (2) accuracy of results, and (3) the amount of information that can be acquired. With respect to costs, indirect methods score better. Especially proxy methods require very little and easily obtainable data and thus form an excellent tool to estimate the upper and lower bounds of interruption costs. However, the results are not likely to be very accurate and only give highly aggregated information. Consumer surplus methods require substantial more data than proxy methods although the results may not be proportionally more accurate. There are two fundamental reasons for this: Firstly, the observed willingnessto-pay for planned electricity consumption is not an accurate indicator of what one would be willing-to-pay to avoid an unplanned interruption. Secondly, when measuring system interruption costs, this method assumes that load shedding takes place according to some predetermined order. In practice, this is hardly ever the case (Munasinghe 1981). The cost of backup power method seems to provide a good balance between costs and accuracy. The advantage of this method is that information is revealed from actual consumer behaviour. A disadvantage of this approach is that it is based on the assumptions that firms install generators for backup purposes only and that the installed capacity is below normal peak demand. These assumptions do not always hold in practice. Installed generators often have joint applications while it may well be that installed backup power is equal or higher than peak load due to indivisibility of capacity or low prices of backup power (e.g. UPS technology has improved significantly over the years). Furthermore, this method is primarily relevant for larger consumers as only these are likely to install backup power.
With respect to information, indirect measures score poorly compared to survey methods. Surveys are more expensive to carry out but can deliver quite detailed information about the different factors that influence interruption costs. Blackout studies for example can be used to evaluate the vulnerability of society with regard to an interruption and identify preparatory actions. The problem with blackout studies is that they can only be applied in case of an actual interruption. Ex ante surveys on the other hand, can be planned well ahead in time and can provide substantial amounts of information. The advantage is that the different aspects that impact interruption costs can be studied such as interruption or consumer characteristics. The main problem of ex ante surveys is their hypothetical character. In theory, the WTP and WTA values that are derived should be the same (Willig 1976). In practice however, it is found that obtained WTP figures are usually equal to zero or otherwise orders-of-magnitudes smaller than WTA figures. Beenstock et al. (1998) argue that the explanation for this can be found in status quo and asymmetry effects. Under the former, the consumer has a resistance to prospective change per se irrespective whether the service is improved or deteriorated. The asymmetry effect (or loss aversion) leads to a difference between WTP and WTA as consumers value prospective service improvements by some fraction of their value of deterioration. This effect can lead to some bias in the survey results.
Table 6-4. Evaluation of different interruption cost methods.
Costs of the Method Proxies Consumer surplus Blackout Direct Costing Ex surveys ante Cheap Costly Costly Costly Costly
Accuracy Results Very low Low
of
Information Acquired None None Reasonable High High
Reasonable Some bias may exist Some bias may exist
Cost Influence Factors The costs of an interruption are driven by a number of factors. These factors have been extensively studied in the interruption costs literature most notably with the use of survey methods. A brief summary now follows. Duration
As an interruption prolongs, interruption costs increase. Caves et al. (1990) analyse the rate at which these costs increase by comparing results from different studies. For the industrial sector, they find that normalised costs (i.e. per hour of interruption) decrease with duration. This suggests that there is a large initial fixed cost component and a variable component that decreases with duration. Similar comparisons were made for residential, retail, office building, government and farm consumers, which show large inconsistencies between different studies. Perceived Reliability Level Another factor that influences the level of costs of an interruption is the reliability level at which the consumer is being supplied. Generally, the higher the reliability level, the more severe the impact of an interruption will be. A study in Nepal showed that 38 percent of residential consumers considered the number of interruptions to be low or very low although the average number of interruptions was four per week (Pandey and Billinton 1999). Similar results were found in a Brazilian study where more than half of the residential consumers interviewed valued the quality of service provided as good although half of these consumers had experienced at least one interruption per month (Gastaldo et al. 2001). In most Western countries, such interruption frequencies would most likely not have produced such high consumer satisfaction ratings. A possible explanation for this is that as the frequency of interruptions increases, consumers can make a better trade-off between expected interruption costs and the adaptive response costs thus minimising total interruption costs. Also, dependency on electricity may not be as high as in Western countries thus leading the relative impact of interruptions to be limited. Timing Interruption costs vary with the time of the year, day of the week and time of the day. For residential consumers, winter interruptions lead to higher costs than in the summer while morning or afternoon interruptions are less costly than evening ones (Woo and Pupps 1992). For non-residential consumers, the amount of costs is closely related to the level of firm output. For example, Billinton et al. (1982) find that for retail consumers in Canada the interruption costs during the Christmas season and on Saturdays are significantly higher. An interesting result reported is that for retail and commercial consumers, least costs are incurred during lunchtime (Pandey and Billinton 1999, Gates et al. 1999). For large industrial consumers, the timing of interruptions tends to have little effect; this reflects the constant output delivered in these industries (Dialynas et al. 2001, Gates et al. 1999). Advance Notice
If an interruption is planned e.g. in case of energy shortages or maintenance activities, advanced notice may be provided to consumers about the occurrence or duration of the interruption. Such actions tend to decrease interruption costs as consumers may take preventive actions or reschedule their original planning. Note that this is in line with the previous observation that consumers experiencing frequent interruptions exhibit lower costs due to increased preparedness. A Scandinavian study reports that planned interruptions can significantly reduce instantaneous interruption costs (Lehtonen and Lehstrom 1995). Similar results have been reported in other countries including the US, Canada and Nepal with reductions varying between 20 and 50 percent (Billinton et al. 1982, Gates et al. 1999, Dialynas et al. 2001). Consumer Dependency The degree of consumer dependence on a reliable electricity supply also influences the level of interruption costs. Some consumers may be more dependent than others e.g. hospitals are much more vulnerable for an interruption than a residential consumer. Doane et al. (1988) find perhaps not unexpectedly a strong correlation between the presence of electric equipment in a household and the level of interruption costs. Consumers dependency also increases over time: Sullivan and Sheehan (2000) report a doubling in the real economic quantification of reliability by households in the US over a period of 10 years. Similarly, Andersson and Taylor (1986) report an increase in the real interruption costs from 1969 till 1980 in Sweden. Cross-Comparison of Interruption Cost Studies As has been discussed, there are different techniques available to measure interruption costs. Furthermore, the level of these costs tends to vary as a function of different factors. Ideally, these factors should not be considered in isolation as it is more likely a combination of factors that determine the costs that a certain consumer experiences during an interruption. This observation complicates a cross-comparison of interruption cost studies. No interruption is the same; it may differ with respect to its scale, the time it occurs, its duration, etc. Similarly, the type of consumers affected by the interruption will influence the level of costs. These factors may not all be captured (uniformly) by the different interruption cost studies. Interruption costs themselves may also be presented in different forms. For practical purposes, it is helpful to normalise costs; normalisation can take place in different ways. Some studies normalise interruption costs by the peak load of consumers while others define costs as a function of frequency and duration of the interruption and make a distinction between the fixed and variable costs of the interruption. Most common is to
express interruption costs per kWh of non-delivered energy. This approach has also been followed in Table 4-4, which shows the result of a cross-comparison of a number of interruption cost studies. As may be observed there are substantial variations in the results obtained by different studies. There are different explanations for these large differences. Firstly, the comparison may not be fully compatible due to the fact that numbers had to be converted into a common denominator. Another explanation is the fact that costs may differ by level of economic development, which may differ both by country or region as well as over time. Furthermore, there are differences in the interruption cost studies themselves in terms of the technique that is being used and the scope of the study i.e. the cost-driving factors that have been considered. The wide variation in results suggests that care should be taken in using the results of interruption cost studies for designing the quality incentive. Ideally, the quality incentive should capture as much as possible the different factors that drive interruption costs and distinguish between different types of consumers. In the theoretical best case, the quality incentive (and therefore the quality scheme) would need to be set for each consumer individually on the basis of the costs incurred by this specific consumer. In practice, however, the regulator should recognise that the quality incentive would need to be set on some average notion of interruption costs. Capturing all possible interruption cost drivers and doing so for each individual consumer is likely to be a too costly undertaking. It would be more practical for the regulator to set the incentive level based on some average measure, possibly differentiated by consumer group. Although such simplifications would possibly distort the incentives, they have the advantage of being relatively simple to apply and easy to comprehend by the firm as well as consumers.
Table 6-5. Cross-comparison of interruption cost studies. All costs are normalised per kWh non-delivered energy and are expressed in 2004 US dollars. Methodology Residential Upadhyay (1996) Sarkar and Shreshta (1996) Tavanir (1995) De Nooij et al. (2003) KEMA (2003) Young (1987) Turner (1977) Survey Survey Survey GDP Survey Survey Proxy 1996 1988 1995 2003 2003 1987 1977 India India Iran The Netherlands The Netherlands New Zealand New Zealand 0.23 0.26 2.60 19.35 22.99 5.25 1.83 Year Country
i
USD / kWh
Methodology Trengereid (2003) Shalaan (1989) Andersson and Taylor (1986) Lolander (1948) Swedish Joint Commission (1969) UNIPEDE (1972) Sheppard (1967) UNIPEDE (1972) Burns and Gross (1990) Krohm (1978) Faucett et al. (1979) Sanghvi (1982) Commercial Sarkar and Shreshta (1996) Tavanir (1995) De Nooij et al. (2003) Young (1987) Trengereid (2003) Shalaan (1989) Andersson and Taylor (1986) Burns and Gross (1990) Industrial Sarkar and Shreshta (1996) Tavanir (1995) Young (1987) Turner (1977) Andersson and Taylor (1986) Lolander (1948) Swedish Joint Committee (1969) UNIPEDE (1972) Hsu et al. (1994) Hsu et al. (1994) Taiwan Power Co (1980) Sheppard (1967) UNIPEDE (1972) Jackson and Salvage (1974) Burns and Gross (1990) Survey Survey Survey Proxy Survey N/A Survey Survey GDP Survey Proxy Proxy Proxy Survey Survey Survey Survey GDP Survey Survey Survey Survey Survey Survey Survey Survey N/A Direct Survey Proxy Proxy Survey Black Out Black Out Survey
Year 2003 1988 1980 1948 1969 1970 1965 1970 1988 1978 1979 1980 1988 1995 2003 1987 2003 1991 1980 1988 1988 1995 1987 1977 1980 1948 1969 1970 1991 1991 1975 1965 1970 1970 1988
Country Norway Saudi Arabia Sweden Sweden Sweden Sweden UK UK USA USA USA USA India Iran The Netherlands New Zealand Norway Saudi Arabia Sweden USA India Iran New Zealand New Zealand Sweden Sweden Sweden Sweden Taiwan Taiwan Taiwan UK UK UK USA
USD / kWh 0.48 1.29 4.18 2.25 4.91 4.30 2.81 8.34 6.70 2.88 0.13 0.56 10.12 3.98 9.38 31.15 5.57 58.10 48.10 65.67 9.19 5.25 5.25 5.04 18.25 6.48 7.75 10.33 1.79 3.37 1.22 8.38 9.99 4.15 11.22
Methodology Grosfeld-Nir and Tishler (1993) Modern Manufacturing (1969) SCI (1978) Agricultural De Nooij et al. (2003) Kahn (1997) Andersson and Taylor (1986) Burns and Gross (1990) Whole Economy De Nooij et al. (2003) Wijayatunga and Jayalath (2004) Hsu et al. (1994) Aiyar (1995) Parikh et al. (1995) GDP GDP GDP Proxy Proxy GDP Survey Survey Survey Proxy Survey Black Out
Year 1987 1969 1977 2003 1997 1980 1988 2003 2001 1991 1995 1994
Country USA USA USA The Netherlands Australia Sweden USA The Netherlands Sri Lanka Taiwan India India
USD / kWh 17.19 5.80 13.30 4.61 0.04 7.20 5.84 10.11 1.21 0.07 0.20 0.09
Example of survey questions

The following is an example of a questionnaire that could be used in future for the determination of interruption costs. The example is taken from: Lawton et al (2003), A Framework and Review of Customer Outage Costs: Integration and Analysis ofElectric Utility Outage Cost Surveys, Berkely National Laboratory. http://certs.lbl.gov/pdf/54365.pdf We should note that a survey applied to the Saudi situation would need to be customized taking into account the specific environment and conditions.
With the direct measurement approach, the survey describes hypothetical outage scenarios that have different characteristics. Each outage scenario describes a specific combination of characteristics making up one outage event. Characteristics that are varied include: The season in which it occurs (summer and winter). The day of the week (weekend versus a week day). Start time. Duration. Complete or partial loss of service (voltage sag or black-out). Voluntary or mandatory. Amount of advance warning, if any.
Respondents will usually receive several scenarios. However, because the utility often wants to explore more scenarios that respondents can reasonably expect to have time or patience to answer, there are typically several versions with a questionnaire, each having three to five scenarios. An example of such a scenario is: At 1:00 PM on a summer weekday, the electric power serving your business stops without warning. You dont know how long this power outage will last when it occurs. After one hour your power comes back on. Then the commercial and industrial customers are asked to estimate the costs, damages, and if relevant, savings accrued from each outage. They are given a worksheet to fill out which would look something like this: For this outage, estimate costs from: Damage to equipment: Damage to materials: Other costs: Lost sales (or production): Total sales lost: Less: Wages saved: Energy costs saved: Other savings: Total Costs: $________ $________ $________ $________ $________ $________ $________ $________ $________
Wages paid without production: $________
Percentage of sales to be recouped: % x Sales lost $ _______
Willingness to pay and willingness to accept credit (WTP and WTA) approaches instead ask the customer what they would pay to avoid the outage occurrence, or how much the customer would have to be compensated to be indifferent to the outage. As with the direct cost approach, the survey describes hypothetical outage scenarios that have different characteristics. The imputed approaches are especially useful in situations where intangible costs are present that are difficult to estimate using the direct worth approach, which is typically the case for residential customers. Because not all surveys used the WTA measure, the meta-analysis employed only WTP.
The example below is from a mail survey. Case #1: On a summer weekday, a power outage occurs at 3:00 PM without any warning. You do not know how long the power outage will last, but after 1 hour your households electricity is fully restored. Willingness to Accept Credit Imputation: Suppose your Utility could provide you with a credit on your bill each time your home experienced this outage, whether or not you were home (LL!?). What would be the least amount that you would consider a fair payment for each time this outage occurred in your home? (Circle or enter a number) $0 $.10 $.25 $.50 $1 $2 $3 $4 $5 $6 $8 $10 $12 $15 $20 $25 $30 $40 $50 Other: $_____ Willingness to Pay Imputation: Suppose a back-up service was available to handle all of your households electrical needs during this power outage. You would be billed by the supplier only for when and for how long the back-up service provided you with electricity. If you were charged a fee for this service only when you decided to use it (by using an on-off switch in your home), what is the most you would be willing to pay for this service each time you used it to avoid this power outage? (Circle or enter number) $0 $.10 $.25 $.50 $1 $2 $3 $4 $5 $6 $8 $10 $12 $15 $20 $25 $30 $40 $50 Other: $_____ An alternate version of a WTP question when fielded by telephone is: Suppose an electrical service was available to you during the power outage. With this service, you would not have to make any adjustments to the outage since your electricity would not go off. Would you pay $10.00 for this service to avoid the outage? (YES or NO) [IF YES]: Would you pay $20.00 for this service? [IF NO]: Would you pay $5.00 for this service?
References
Andersson, I. and L. Taylor (1986), The social cost of unsupplied energy, Energy Economics, 8:139-46. Burns, G. and G. Gross (1990), Value of service reliability, IEEE Transactions on Power Systems, 5:825-34. De Nooij, M., Bijvoer, C. and C. Koopmans (2003), The demand for supply security, Research Symposium European Electricity Markets, The Hague, September. Grosfeld-Nir, A. and A. Tishler (1993), A stochastic model for the measurement of electricity outage costs, Energy Journal, 14:157-174. Hsu, G., Chang, P. and T. Chen (1994), Various methods for estimating power outage costs: Some implications and results in Taiwan, Energy Policy, 22:69-74. Jackson, A.F. and B. Salvage (1974), Costs of electricity supply interruptions to industrial consumers (summary), Proceedings of the IEEE, 121:1575-1576. Kahn, E. (1997), Determination of worth of reliability for better system planning and uses of system resources, Final report, ESAA/RSDC Project No. PN2420/95008, February. KEMA (2003), Wensstromen, Rapport aan het Ministerie van Economische Zaken in het kader van PREGO, Arnhem, Netherlands. Korhonen, P. and M. Syrjnen (2002). Evaluation of cost efficiency in Finnish Electricity Distribution. Working paper, Helsinki School of Economics. Krohm, G.C. (1978), A survey of disruption and consumer costs resulting from major residential power outage, Argonne National Laboratory, Report no. ANL/EES-TM-29 and 30, Argonne, IL, USA, June. Lolander, D. (1948), Memorandum concerning estimation of the cost of the national economy in the event of a loss of supply, Vattenfall. Modern Manufacturing (1969), Manufacturing, July 1969. Power survey problems and progress, Modern
Sanghvi, A. (1982), Economic Costs of Electricity Supply Interruptions. US and Foreign Experience, Energy Economics, 4:18098. Sarkar, A. and R.M. Shrestha (1996), Integrated analysis of customer value of generation system reliability in India, Energy Sources, 18:56983. SCI (1978), Impact assessment of the 1977 New York City Blackout, System Control Inc (SCI), Arlington VA, July. Shalaan, A.M. (1989), Electric service interruptions impact and cost estimation, Electr Cigre 127, December. Swedish Joint Commission (1969), Cost of the interruption in Electricity Supply, Stockholm, September. Tavanir (1995), Electricity interruption cost in Iran, Power Planning Bureau, Tavanir company, Ministry of Energy, Volume 2-6. Telson, M. (1975). The Economics of Alternative Levels of Reliability for Electric Power Generation Systems, Bell Journal of Economics 6 : 679-94. Turner, A.J. (1977), The costs to consumers of interruptions to the electricity supply, mimeo, New Zealand Electricity, May. UNIPEDE (1972), Quality of service from the consumer's point of view, UNIPEDE report No 60/D1, Paris. Upadhyay, A.K. (1996), Power at any price, The Economic Times, 1 January.
Wijayatunga, P. and M. Jayalath (2004), Assessment of economic impact of electricity supply interruptions in the Sri Lanka industrial sector, Energy Conversion and Management, 45:23547. Young, A. (1987), The value of electricity reliability, Report to electricity distribution division, New Zealand Ministry of Energy, January.
Amounts in local currency have first been inflated to 2004 levels, and then converted to US Dollars using the average exchange rate for 2004. Exchange rates were obtained from the CIA World Factbook, inflation data were obtained from the IMF. These are available at respectively www.cia.gov and www.imf.org. In case the year of the study was not available, the year of the publication has been assumed to be the year of the study.

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Development of KPIs for the Electricity Sector in the Kingdom of Saudi Arabia Targets & Incentives Report

Arnhem 22 May 2009

Targets & Incentives Report 22 May 2009 2

5.2.2 5.2.3 5.3 5.3.1 5.3.2 5.4 6

Targets & Incentives Report 22 May 2009 3

Development of KPIs for the Saudi Electricity Sector

Targets & Incentives Report 22 May 2009 4

Development of KPIs for the Saudi Electricity Sector

Targets & Incentives Report 22 May 2009 5

Development of KPIs for the Saudi Electricity Sector

DEVELOPMENT KPI FRAMEWORK

Distribution D1 D2 D3 D4 SAIDI SAIFI MAIFI Network Losses

Targets & Incentives Report 22 May 2009 6

Development of KPIs for the Saudi Electricity Sector

IDENTIFICATION OF KPI TARGETS

Targets & Incentives Report 22 May 2009 7

Development of KPIs for the Saudi Electricity Sector

Figure 2.1 Overview of normal distributions

It is common to define the following quartiles:

Targets & Incentives Report 22 May 2009 8

Development of KPIs for the Saudi Electricity Sector

median Standard Methodology

Performance Indicator Data Base Statistical Analysis

Figure 3.2 Flow scheme of statistical analysis of Key Performance Indicators

REGULATORY INCENTIVE MECHANISMS

Targets & Incentives Report 22 May 2009 9

Development of KPIs for the Saudi Electricity Sector

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Development of KPIs for the Saudi Electricity Sector

2. Continuous 3. Capped 4. Dead Band

Quality Level (q) Low High

Targets & Incentives Report 22 May 2009 11

SELECTION OF INCENTIVE MECHANISMS

Individual Customer Yes Yes No

Average Yes Yes Yes

Moderate None Low

Strong Yes High

Very Strong Yes High

Targets & Incentives Report 22 May 2009 14

Development of KPIs for the Saudi Electricity Sector

Generation KPI G1 Availability Factor (AF)

G2 Forced Outage Factor (FOF)

Per Admin Region and

G4 Equivalent Forced Outage Rate (EFOR) %

G6 Gross Capacity Factor (GCF)

Data Service Factor (SF)

Gross Maximum Capacity (GMC) MW

Per Admin Region and

Targets & Incentives Report 22 May 2009 16

Development of KPIs for the Saudi Electricity Sector

Cycling High Medium Medium Medium

Base load Low Very High Very high Low

Targets & Incentives Report 22 May 2009 17

Development of KPIs for the Saudi Electricity Sector

NCF of SEC units in 2007

NCF (median of peer group

Weighted SF of SEC units in 2007 58 78 71 35

SF (median peer group)

Simple cycle Steam cycle Combined cycle Diesel Generator

Targets & Incentives Report 22 May 2009 18

Development of KPIs for the Saudi Electricity Sector

Targets & Incentives Report 22 May 2009 19

Development of KPIs for the Saudi Electricity Sector

Diesel generator (2-35 MW)