The network performance assessment model : a new framework of regulating the electricity network companies

Abstract: When the Swedish electricity market was re-regulated in 1996 the trading with electricity was exposed to competition and the net service henceforth should be comprised by a monopoly comprised by a regulation. The regulation was based on a review of the costs of the network companies. No attention were paid to if the network was efficient. The following years many of the networks were sold from the municipalities to power companies, to increasing merger prices. The increasing prices in the mergers were followed by increasing prices to the subscribers of the network services. The regulator tried to stop the fast increasing prices, but didn’t succeed. The regulation paradigm couldn’t face the new realities and had to be revised. In 1998 the author of this thesis was commissioned by the Swedish Regulator to propose a new regulation model for the Swedish grid companies. Existing models were reviewed but none of them fulfilled the requirements from the regulator; to be self-regulating and give incentives to improved efficiency and distribution reliability. Therefore a new approach was launched. The new approach was to change perspective from a company focus to a consumer focus – a performance-based regulation. The solution was to base the regulation of the creation of a standard asset, a Reference Network. From this a new model – the Network Performance Assessment Model (NPAM) – was defined. The Reference Network is defined by four definitions, concerning the elements and topology of a Reference Network, the Subscriber Requirements and the Objective Prerequisites. These definitions grants the transparency of the model. The model is sharp and is run into operation in 2004. The final test of the model indicated that the Swedish network companies are overcharging their subscribers with approximately 20%. This thesis is an explanation of the model and the definitions, and a review of the thoughts and research which formed the model. Moreover there is a discussion of some topics reported by others in articles about the model. Finally in the conclusion there are topics of simplicity and transparency.