Paper No.

311

Methods and Procedures Requirements for Monitoring and Improvement of Supply Quality in Hungary
Tibor TERSZTYANSZKY
Hungarian Energy Office Budapest, Hungary tersztyanszkyt@eh.gov.hu

AbstractThe paper begins with presenting the development of the electric power industry regulation towards the market liberalization in Hungary. Then the paper presents principles of the quality regulation both when the unbundling and privatization of the industry was taking place during the years 1995-2002 and when the liberalization of electric power industry began in 2003. The paper covers the methods and procedures elaborated in Hungary for monitoring and supervising the supply quality. Detailed description of the following applied methods is presented: a) Supply security of high and medium voltage network; b) Consumers' satisfaction survey; c) Guaranteed standards; d) Continuity of supply; e) Consumer service monitoring. Based on the experiences learned until 2002 a new supply quality regulation regime is introduced in the year 2003 for the liberalized electricity market. Detailed description of applied methods and procedures are presented. This includes setting performance standards for expected level and minimum standards of quality of supply. Improvement targets for continuity of supply are prescribed. The report outlines the quality incentive/penalty system for distribution introduced from 2003 in Hungary via link between quality performance standards and distribution fee. It means that after Italy, Norway and United Kingdom Hungary was that introduced the quality incentive regulation in Europe. Keywords quality regulation, quality of supply; continuity of supply; performance standards, consumer satisfaction, distribution

1995 the distribution and several generating companies were privatized. It means that an entirely new environment have been existing since then in Hungary [1] till 2002. In accordance with the regulation of electric power industry in marked-based economy, among others, the regulation of supply quality has become an important issue in Hungary [2]. In accordance with the international tendency and Hungarys intention to join the EU an act introducing the liberalized market came into force in 2003 in order to introduce the competition in the industry. It prescribes the unbundling of distribution and supply business and authorizes the Office to set minimum standards. This creates new environment also for regulation of supply quality and a need for new methods and procedures for control. II. PRINCIPLES FOR QUALITY REGULATION BETWEEN 1995-2002
IN HUNGARY

I. INTRODUCTION The public service sector has undergone widespread changes in Central and Eastern Europe. Privatization and reorganization of the electricity industry from traditionally centrally owned and operated system towards a market-based decentralized system were realized in the beginning of 90s. In year 1994 a market oriented new electricity law came into force with the requirement of unbundling the generation, transmission and distribution and establishing an independent regulatory agency the so-called Hungarian Energy Office. In

Before the introduction of free market in Hungary the state owned electric power industry monitored the security of supply by reporting the breakdown records of medium and high voltage network. After the privatization of distribution companies the first principle of quality of supply regulation was to continue breakdown records of medium and high voltage network as they had historical data in order to use them as comparison to the performances of the new circumstances. The second principle was to learn the supply quality monitoring methods in developed countries. Studying the practice of developed industrial countries [3], [4] it became obvious that several methods are used to monitor the supply quality. The third task was to choose and determine those methods, which could be useful in long-term and to make agreement with utilities on introducing them if necessary with compromise. The fourth principle was to allow time to collect reliable data for the different quality measuring method and in the case of necessity to agree in an improved procedure.

III. THE SUPPLY QUALITY MONITORING METHODS AND EXPERIENCES LEARNED BEFORE LIBERALIZATION BETWEEN 1995-2002 IN HUNGARY The electric power (and gas) regulator has the obligation to protect consumers. One of the means is the monitoring of supply quality. The monitoring the quality of supply began in 1995 and in the following years we introduced other methods. Before the introduction of liberalized market, that is till 2002 we applied methods as follows (in the order of application): a) Supply security of high and medium voltage network (Introduced in 1995); b) Consumers' satisfaction Survey (introduced in 1996); c) Guaranteed standards (introduced in 1998); d) Continuity of supply (1998); e) Consumer service monitoring (since 1999). The procedure was that each utility prepared yearly report on performances and the Office evaluated the supply quality and compiled an annual report. It made it possible to monitor the security and reliability of network and realize the emerging trends. Experiences with data collection and evaluation of these supply quality methods are presented in the following sections with the conclusion drawn for future work. A. Supply Security of High and Medium Voltage Network Before introduction of free market in Hungary the state owned electric power industry monitored the supply security and reliability by breakdown records of medium and high voltage network so the breakdown record system has historical database. Therefore the Energy Office continued this type of monitoring of supply quality with contemporary modifications. This monitoring included several indices e.g. the number of interruption occurred in HV and MV network and experienced by any consumer connected even to low voltage network. The yearly evaluation makes it possible to monitor security and reliability of HV and MV network. E.g. the outage rate of medium and high voltage network is shown on Table I. (the outage rate is defined as the ratio of nonsupplied power to the available power for consumers). In 1999 a decrease in supply quality can be observed.
TABLE I. OUTAGE RATE OF HUNGARIAN DISTRIBUTION NETWORK, IN 1996 1997 1998 0,123 1999 0,149 2000 0,128 2001 0,123 2002 0,108

experiences that is the network operator tends to reduce the maintenance costs and to postpone the replacement of the old components of the network. The Office made some effective measurement in order to improve overall security of medium and high voltage network. The results in the following years can be seen in the Table 1. Experiences justified that this method can be used for monitoring the supply quality in an unbundled and privatized industry. B. Survey of Consumers' Satisfaction Experiences The measurement of consumers satisfaction is a monitoring method of the quality of supply from the consumers side and so it is independent from utilities statistics. Regular surveys of consumer satisfaction have been conducted in Hungary since 1966 in order to protect consumers interest [6]. The structure of satisfaction index is the same one for the importance index. The gap between the importance and satisfaction shows the consumers opinion on the service performed. The survey is carried out every year at the same time all over the country. Since the territories of the companies are very similar in size, even the arithmetical average will give a fairly good picture about the present state of customer satisfaction with electricity services in the country. The satisfaction and importance are measured separately in household and business segments. The results of the survey of consumer satisfaction are as follows (Fig.1).

72 70 68 66 64 62 60 1996 Business consumers 1997 1998 1999 household 2000 2001

Fig.1 Consumer satisfaction in Hungary between 1996-2002

0,138 0,108

During the successive surveys the distribution companies got used to the fact that customer satisfaction is an important issue even for a utility company having a monopoly position. C. Continuity of Supply The Hungarian Energy Office focused on the main features of continuity of supply in harmony with international trend [5], which are important to consumers as follows. The type of interruption: both planned and unplanned interruptions; The duration of long interruption (more than 3 minutes); Interruption of supply: low/medium/high voltage network;

In Hungary the privatization took place in 1995 and price cap regulation was introduced in 1997. It is stated in [5] that the importance of monitoring the supply quality becomes greater in the case of price cap regulation, as the price cap regulation can result in cutting costs in order to increase profits, and privatization of utilities may reduce the quality of service in monopolistic activities. Moreover price regulation without quality regulation may give unintended and misleading incentives to quality level. Hungarian experiences seem to underline this statement is in harmony with international

The type of continuity indicators: number and duration of outages. - Restoration of supply in 3 hours and 24 hours; After careful cooperation with utilities the data collection began in 1998. As there is no record of number of consumers affected by interruption a calculation methodology was agreed with utilities in order to begin the determination of the indices of continuity of supply and parallel to it a correct recording method was developed step by step at utilities. These consumer oriented monitoring methods with approach gave the following results (Table II).
TABLE II. CONTINUITY INDICES IN HUNGARY CI (SAIFI) CML (SAIDI) minutes Restoration within 3 hours 1998 2.71 300 86.1 % 1999 3.09 411 86.1 % 2000 2.29 241 83.2 % 2001 2.13 250 83.8 % 2002 2.04 198 89.2 %

made consultations with representatives of companies and consumer interest representing organizations. Beside them the Offices homepage was used to publish and make the Regulator work transparent. The strategy of setting standards is as follows: the quality is multidimensional and standards should reflect that; quality monitoring and regulation should focus on those dimensions of service which are important for consumers both from the reliability and the consumer relation point of view; quality should be controllable by companies and measurable by regulators; measurement methods should be the same at all distribution companies; performance standards should be based on experiences gained during the previous years and on a consultation process; the aim is to improve the continuity of supply and to promote adequate investment and maintenance; to avoid the problem arising from weather problem by using a three-year average; expected standards and minimum standards should be set up; audit procedures are important; economic incentives/penalties should be introduced; to improve the country average level towards European level. Taking into account these principles, the Office prepared and issued both the expected and minimum performance standards on January 1, 2003. E. A. Performance Standards of Network Security The aim of network security standards is to regulate the ability of the electric system to withstand sudden disturbances such as electric short circuits or unanticipated loss of network elements. The procedure of determination of standards is based on the results gained from data of security of high and medium voltage network of the distribution companies presented in the previous years. The standards are different for each distribution operators reflecting the different parameters of the region. The prescribed expected levels and minimum quality standards, based on average of year 1999-2001, are as follows: Outage rate, Faults of medium voltage network/100 km (overhead line and cable separately), Average clearing time of medium voltage faults, Relative number of low voltage faults.

The data reveal that in the year 1999 the supply reliability worsened both from the interruption frequency and the duration time point of view. This result confirms that to use the method and procedure applied in Hungary is suitable for monitoring the continuity of supply. D. Guranteed Standards To ensure the quality of service for each single customer the guaranteed standards are an appropriate method. As the electricity law enforced in 1994 did not give the power the regulator to introduce this type of regulatory instrument, the Office had to make an agreement with the utilities on the minimum quality threshold to each consumer and compensation payment if guaranteed standards are not met. In the end, 6 types of guaranteed standards were introduced in Hungary in 1999. The experiences are unsatisfactory: out of more than 10000 case only 17 money compensations were paid to the consumers. There are several reasons why this system does not work e.g. very short claiming time, very moderate payment, and as several surveys disclose it: the consumers do not remember the claiming procedure. IV. PRINCIPLE OF QUALITY REGULATION AFTER THE INTRODUCTION THE COMPETITION IN 2003 The new electricity Act that created a liberalized electricity market after January 1st, 2003 brought lots of changes from the quality regulation point of view. One of them is that the transmission and distribution networks and the regulated public supply businesses are separated from competitive activities because they constitute natural monopolies. The other is that the Office, the Regulator is empowered to set the expected level and minimum quality standards of quality of each individual licensee. Based on this prescription the Office launched projects with proposed standards of performance and

The performance is measured again on a three year average basis and compared to the minimum standards: e.g at the beginning of 2005 the performance of average of 2002-2004 is compared with the minimum standards based on ther 19992001 average. Penalty is imposed if the performance is worse than the minimum standards.

F. Overall performance standards of continuity of supply and its improvement The aim is to guarantee a minimum quality threshold to the average customer. The procedure of determination of standards is similar to the network security: the standards are different for each distribution operators reflecting the different parameters (geographical, historical, etc.) of the region. The prescribed expected levels and minimum quality standards, based on average of year 1999-2001, are as follows: - System average interruption frequency; - System average interruption duration; - Restoration time within 3 hours; - Restoration time within 24 hours; - Quality indices of Call Center; -Justified complaints submitted to Regulator/1000 consumer. The evaluation process is similar to the reliability of network: The performance is measured again on a three-year average basis and compared with the standards: e.g. 2002-2004 average for year 2004 is compared with the standards based on the 1999-2001 average. Penalty is imposed if the performance is worse than the minimum standards. The target of yearly improvement depends on the performance of interruption duration time: where the performance is low, the improvement target is higher (Table III).
TABLE III. CML (SAIDI) Improve ment/ year min/y ear % QUALITY IMPROVEMENT TARGET 61180 1 181240 2 241300 3 301360 4 >360 5

quality of supply. The price-cap regulation could drive a regulated company to reduce its quality of supply by cutting investments, maintenance, or personnel in order to increase its profit (see Chapter III.A and C.). In Hungary the price-cap regulation was introduced in 1997. In 2000, when the quality of supply of utilities was evaluated, worsening quality of supply was realized with all of privatized distribution companies as shown on Fig. 2.

0//00
0,31 0 0,26 0 0,21 0 0,16 0 0,11 0 0,06 0

1997
D D SZR t. D SZR t.

1998

1999

2000

2001

2002
E L M R t. T IT S ZR t.

D M S ZR t. M SZR t.

Fig. 2 Outage rate in Hungary between 1996-2002 by distribution companies

The first evaluation and the necessary improvement of minimum standards will be in 2004. The prepared case study gave signs that every distribution company should improve the minimum standard. G. Worst-served consumers The method relates to the long-term (more than 3 minutes) supply interruption caused by incidents of medium voltage lines. Lines should be classified according to the interruption duration index (CML) compared with the company average duration index. A consumer is considered as worse-served consumer if the duration of interruption is 2 times higher than the average consumer interruption time of the distribution company. At the moment there is no standard being no experiences with this index. The first evaluation will be carried out in aware of the facts of 2003. H. Quality Incentive/Penalty Regime Economic regulation of utilities usually focuses on price regulation, without attention to the performance of quality of supply. Price regulation involves different incentives for

Realizing the decreasing the reliability of supply quality the Office has set its main technical objective to improve the service by keeping power outages as short as possible and by shrinking them to the smallest possible area. In order to achieve this aim the Office chose two ways: (1) setting minimum performance standards and imposing penalties if any of them is not performed, and (2) proposing a quality dependent price cap economic regulation system to the Minister of Economic Affair as he regulates the tariffs and charges. The Office set ten performance standards from 1.January 2003 and the qality incentive regulation was introduced by Minister from 1. January 2003 too. According to the ministerial decree the Office is entitled to select maximum 4 supply quality performance indices from the previously described minimum standards and the distribution network charge respectively the company profit depends on the performance of the minimum standards. The Office designated 3 quality performance standards to be taken into account in the quality incentive regime for the next 3 years (Table IV).

TABLE IV QUALITY INDICES TAKING INTO ACCOUNT IN NETWORK CHARGE

No. 1 2 3 Performance Standards Indices

the financial compensation should be enough incentive for trying to achieve the standards; the level of standards should be progressive enough.

Network Reliability Continuity of Supply Continuity of Supply

Outage rate Interruption frequency (SAIFI or CI) Interruption duration time (SAIDI or CML)

After consultation with licensees and consumer interest representing organizations we will adopt the following standards (Table V).

The incentive/penalty mechanisms are as follows. The regulated distribution charge should be decreased a) by 0,5% if the performance is worse than 5 % but less then 10%, and b) by 1% if the performance is 10% or more worse than the standard. In the case if 2 or 3 minimum standards are worse, the decrease of distribution charge should be determined by adding them. In the worst case it means total 3% decrease in charge. The amount of decrease should be transferred to the consumer in a way agreed with the Office. In case any of performance is 10% better and none other is worse, the profit limit may be 10 % higher. The procedure of incentive mechanism will begin in 2004. Each network operator prepares and submits annual report to the Office by March 31. The first report will be submitted in 2004. The report will contain, among others, self-evaluation on the quality performance and it will show the necessary decrease of distribution charge or the possibility profit increase. The final decision will make on the basis of the formal approval of the Office and it will come into force from July 1 of every year for a year. The mechanism will be applied first from July 1, 2004 to June 30, 2005 I. Standards of Service for Individual Consumer, Guaranteed Standards The quality regulation method described in the previous chapters relates to the average consumer. To protect the individual consumer the so-called Guaranteed Standards are suitable means. The electricity act, which introduced the competition in Hungary in 2003, gives the power to the regulator to prescribe the quality of service standards even for individual consumers. Learning from the experience of previous years, the principles of guaranteed standards in the competitive environment are as follows. to guarantee a minimum quality threshold to each single customer; to find out the standards relating to the network operator and supplier; to protect consumers through a more automatic compensation as much as it is possible from the licensees point of view; to introduce standards relating to those services that are considered as important by consumers;
Distribution network licensee Supplier licensee TABLE V. GUARANTEED STANDARDS IN HUNGARY Number of Guaranteed Standards 7 2 Out of automatic payment 2 0

J.

Consumer Satisfaction The measurement of consumer satisfaction survey introduced 7 years ago brought several experiences both for the regulator, utilities and media and therefore by common consent it is useful to continue it in the competitive environment, but with considerable updating. The main reasons for changes are (1) that during the years a lot of changes occurred in the industry (e.g. billing), and (2) the introduction of competitive market brought new requirement regarding the consumer satisfaction survey. Starting points for a new consumer satisfaction survey method are as follows. 1. The satisfaction should be measured separately for distribution and supply business but the same questionnaire should be applied to consumers. 2. The importance should have the same structure as that of satisfaction. Results of the satisfaction - importance analyses would give additional information for the companies themselves for improving their performance. 3. Household and business consumers are separate segments. 4. The questions relating to price and environment should be only informative. 5. The new methodology should be checked by a so-called pilot study representing the consumers of the whole country. 6. Inspite of the fact that overall satisfaction of old and new methodologies can not compared some consumers evergreen problems (e.g. fault clearing time, answer complain) should be asked in order to compare the companies performance in time. The main components of satisfaction (and important respectively) structure in shown on Fig. 3.

Satisfaction with the distribution network company I. Satisfaction with the service quality II. Satisfaction with the clients' contacts Fig. 3. The Composition of the Satisfaction Index The first consumer satisfaction survey of new type will be carried out in autumn of 2003. K. Voltage quality (power quality) The Business Conduct Rules prescribed for the network companies to follow the European standard EN 50160 since the midis 90s. Companies have to submit annual reports to the regulator about the voltage complaints and the improvement stages. In order that the regulator should have measured data a measurement project was launched with 400 devices in the spring 2003. Beside the voltage quality the project is intended to collect data also on the long-term outages.
V.

T.Tersztyanszky: LE MONITORING DU SERVICE DE LNERGIE LECTRIQUE,ET LES MTHODES ET CRITRES DE LA RPARATION EN HONGRIE. Rsum: Dans lintroduction ltude prsente lvolution de la rgulation du systme nergetique hongrois vers la libralisation. Ensuite il prsente les principes de rgulation de la qualit de lnergie lectrique en premier dans les annes 1995-2002, ensuite en 2003 par la rgulation introduite a la libralisation. Ltude dcrit les mthodes et les procdures de la surveillance et du monitoring des service en Hongrie. Elle prsente en dtail les mthodes suivantes: a) scurit du service du rseau de moyenne et haute tension, b) sondage de satisfaction des consommateurs, c) garanties du service, d) continuit du service, e) monitoring du service clientle. A lintroduction de la libralisation de 2003, cest les expriences jusquea lan 2002 qui ont servi comme base pour la rgulation du service. Les mthodes utiliss sont prsents en dtail, et comprennent les standarts minimales et demandes. Les buts de perfection, du continuit du service sont prsents aussi. Ltude prsente le systme de pnalisation et dimpulsion de la qualit, introduite en 2003. Comme en Europe aprs lItalie, la Norvge,et le Royaume Uni, en Hongrie le systme dimpulsion de la qualit est introduite aussi.

CONCLUSON AND FUTURE WORK

After unbundling and privatization of the electricity industry in Hungary several methods were applied to monitor the quality of supply. This regulatory work produced enough experience to realize the worsening quality in time. When the introduction of the liberalized market took place in 2003 the regulator could prescribe minimum standards in cooperation with the representatives of utilities and consumer interest representing organizations. The Minister of Economy at the same issued a decree, which prescribes the quality incentive distribution charge on the basis of minimum standards, prepared by the regulator. Further research is needed in order to analyze the results of companies behaviors, the reasons of differences of performances of distribution companies, among others, with the help of benchmarking and to learn customers expectations in connection of quality of supply. REFERENCES
[1] T. Tersztyanszky: Restructuring and Market Opening Tendency in the Electric Supply Industry in Hungary, Unipede, 2nd Conference on the Development of Interconnected Power System, Report 3.12 G.Szrenyi: Quality Requirements of Electric Power Supply Publications of the Hungarian Power Companies Ltd., No. 5, October 1998, pp. 2-9. Availability of Supply indices.- Unipede Distribution Study Committee 50.05. DISQUAL, July 1997. Report on distribution and transmission performance. Office of Electricity Regulation 1996/1997. London. R. Malaman (2002): Keynote presentation: Quality of Supply Regulation GROUP 36 CIGRE 2002 Proceedings G. Rekettye, T. Tersztyanszky: In Hungary, Customers Rate Their Electricity Distribution.- Transmission &Distribution, July, 2002. Vol. 54, No. 7

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