- John D. Kueck and Brendan J. Kirby, Oak Ridge National Laboratory
- Philip N. Overholt, U.S. Department of Energy
- Lawrence C. Markel, Sentech, Inc.
Published in Measurement Practices for Reliability and Power Quality: A Toolkit of Reliability Measurement Practices, 2004
Prepared by Oak Ridge National Laboratory Oak Ridge, Tennessee 37831-6285 managed by UT-BATTELLE, LLC for the U.S. Department of Energy under contract DE-AC05-00OR22725
The transmission and distribution (T&D) system is inherently a communal asset. The system provides the same level of service to all customers, or to all customers within a given area. Unlike the system for supplying energy, the T&D system does not easily differentiate among different customers’ needs. Consequently, there must be a communal decision concerning the basic level of power quality and reliability the system will provide to all customers. This is inherently a regulatory decision that regulators make by considering the value of reliability and power quality to the aggregation of all customers and comparing that value with the cost of providing that level of service. Once the regulator decides on the level of power quality and reliability that is desired, market forces can be used to motivate the regulated distribution company to provide that service at the lowest cost. Performance-based rates can provide a financial incentive for the T&D company to deliver the desired level of power quality and reliability.
The transmission and distribution system is a communal asset, providing the same level of service to all customers in a given area. So there must be a communal decision as to the basic level of power quality and reliability it will provide to all customers.
There is generally a tradeoff between the price of the energy delivery service and quality/reliability. (There are some situations where price reductions and increases in service quality can be achieved simultaneously, but generally there is a tradeoff.) Incentives to the T&D company to reduce the cost of energy delivery may encourage reductions in service quality. Hence, there is a clear need for performance targets and incentives to ensure that service quality is not sacrificed.
Once targets have been established that define the basic service for power quality and reliability, incentives can be established to motivate the T&D utility to meet these targets. Annual adjustments can be made to the T&D company’s maximum allowable price (and consequently revenues) based on the service performance achieved relative to set targets. The payments should be set at or above the projected cost of improving power quality and reliability, as an incentive for the utility to meet the targets (the utility keeps any profit that results if the utility exceeds the targets at costs that are below projections). The payment should be at or below the value placed on the improvement by customers. There is no point in increasing performance if the cost exceeds the value.
Basing these payments on the annualized cost of improving power quality and reliability, rather than on the value to customers, also limits the distribution company’s financial risk. This is especially important when an incentive program is first being established and the risks are not known precisely. Penalties and incentives should be symmetric. That is, the distribution company should lose revenue if it fails to meet the expected targets and should receive extra revenue if exceeds the expected targets.
It is also important to provide a mechanism such as compensation to individuals whose power quality and/or reliability is significantly below standard so the desired improvements in average performance do not mask problem spots. Improving reliability on one feeder is no use to customers on another feeder. We must be wary of averages.
In Victoria, Australia, where incentive rates are being tried,8 the threshold for requiring payments for poor performance was set at approximately four times the average duration of interruptions. The expected cost to the distribution companies is about 0.25% of revenue; the utility is running little risk. However, these incentives should encourage distributors to undertake capital expenditures to improve the quality and reliability of supply by introducing new technology as well as by making conventional investments.
The Victoria experience makes the statement that customers would much rather receive quality service than receive payment for poor reliability. The payments made to customers for unusually poor power quality or reliability performance are meant to motivate the utility; they are not intended to adequately compensate the customer for its loss.
Key Principles in Incentive Design
Several key principals for devising quality incentives are emerging in energy markets:
- Clearly specify the metrics and incentives in advance.
- Make the metrics and incentives as simple as possible for both distributors and customers without distorting the incentives.
- Ensure that performance measurement is verifiable.
- Address worst-case performance as well as average performance.
- Provide penalties for under-performance as well as incentives for exceeding targets.
- Limit the financial risk, especially when first implementing the system, but make the incentive large enough to provide real motivation. Incentives should be greater than the cost to the distributor to achieve the incremental improvement, but less than the value to customers.
Interestingly, Victoria includes one more key criterion: Allow no exceptions for external events. In fact, utility executives in Victoria specifically mentioned severe storms, load shedding, and shortfalls in generating capacity as external events for which the distribution company should remain liable. The regulator’s thinking is that the distribution utility is in a better position to take action to mitigate the risk than individual customers are. “Such risks are better allocated to distributors than customers, given that distributors have greater capacity to mitigate their impact,” says a review from the Office of the Regulator-General in Victoria.8 “For example, distributors are better able to make decisions about the appropriate level of investment in network changes to reduce the impact of adverse weather. They are also better able to seek demand reductions when there is a material risk of load shedding.”
Markets Serving Individual Customers’ Power Quality and Reliability Needs
Customer power quality and reliability needs differ greatly. The basic level of service established by the regulator will not be adequate for all customers. Customers requiring greater reliability or increased power quality can take actions to obtain the level of service they require. Competitive markets minimize the cost and ensure customer choice in obtaining these services.
Customers can install equipment within their facilities to achieve any desired level of power quality and reliability they desire. Filters, surge protectors, UPSs, and backup generators are all available. Further, the customer can decide if it is necessary to increase the reliability or power quality for the entire facility, or if it is more cost-effective to address individual loads within the facility. This is inherently the customer’s decision. Only the customer knows the value of increased reliability or power quality for the customer’s situation. Much of the DER industry is dedicated to meeting the power quality and reliability needs of individual customers through market-based solutions.
Customers can install equipment within their facilities to achieve any desired level of power quality and reliability they desire. Much of the DER industry is dedicated to meeting the power quality and reliability needs of individual customers through market-based solutions.
Though most of the serious economic impact from lower-than-needed power quality and reliability is in the commercial and industrial sectors, the residential sector provides examples that illustrate the problem and possible solutions. A typical home may have a number of high-power loads such as a heat pump, water heater, oven, dryer, refrigerator, and freezer. While none of these loads is (e.g., digital clocks in the VCR, microwave, and oven) are sensitive to momentary interruptions. Yet these sensitive loads are an insignificant portion of the energy or power demand. It makes little sense to raise the power quality and reliability of the entire distribution feeder in order to serve these loads. It makes much more sense to either design the clocks with enough energy storage (a small capacitor) to ride through momentary interruptions, or to place the individual appliances on UPSs.
An interesting problem arises when the market fails to offer products that meet the customer’s power quality needs. If a consumer cannot find a VCR that is designed to tolerate momentary power interruptions, for example, the customer may pressure the load-serving entity and the regulator to increase the power quality of the overall distribution system. This is understandable, but it is the wrong solution. It may be in the load-serving entity’s interest to help the customer address the power quality and reliability problem locally. For residential customers, this could be through educational material provided in the bill. For industrial customers this could include engineering support.
Some Customers Want Lower-Quality Service
Some price-sensitive customers are more interested in reduced costs and are willing to accept lower levels of reliability than the level provided under the basic regulated service. These customers can “sell” interruption rights back to the power system. The T&D company (or the energy supplier) would interrupt this customer when the system was under stress and thus avoid interrupting other customers. The T&D company could use this capability to postpone a distribution system upgrade, for example. This concept does not work well for power quality, sags, and dips—as opposed to interruptions. It will be difficult for many customers to accept lower power quality in exchange for payment from the T&D company.
Transmission and Distribution Companies Providing Premium Power
In many cases, the most cost-effective method for addressing the power quality and reliability needs of the customer is modifying the distribution system. An industry might desire a double-ended substation with two independent feeders to supply its load. It is entirely appropriate, and fairly easy, for the T&D company to identify the additional costs involved in providing this type of above-average service and to bill the customer for it. The customer is free to evaluate the T&D solution against local generation, UPSs, and other commercially available alternatives.
Because the T&D system is a communal asset that tends to provide the same level of service to all customers within a given area, having the system itself address individual issues regarding increased reliability and power quality can be problematic. The problem centers on the fact that the regulated entity may shift costs from the customers for which it is competing to other customers that are captive to its monopoly services. How could this happen? A T&D utility that wants to sell premium power to an industrial customer could, for example, design $100,000 of improvements to the distribution system and claim that $60,000 of them are really supporting the system as a whole and should be placed in the regulated rate base. It would then offer the premium power solution to the industrial customer for $40,000. It can be very difficult for someone on the outside, or even for regulators in some cases, to know if this split between the regulated ($60,000) portion and the competitive ($40,000) portion is appropriate.
Complications always arise when regulated and competitive markets interact. It is difficult for regulators to ensure that the monopoly customers they are charged with protecting are not being used to unfairly subsidize a competitive venture. Obviously, this subsidy would be viewed as unfair by the other companies competing to sell these products or services. But it also harms the regulated customers. First, they are harmed because their regulated rates are necessarily higher if they are subsidizing competitive ventures of the distribution company. Second, they are harmed again if the regulated company is able to use its unfair advantage to drive its competition out of business. Customer choice for the competitive service is then reduced, and prices will likely rise.
With this strong incentive not to allow regulated entities to deal in competitive services, why allow T&D companies to sell premium power? The economic benefits of solving power quality problems on the distribution system can be so overwhelming that eliminating this option would seriously harm customers. It is often technically easier and cheaper to implement power quality and reliability enhancements on the distribution system rather than exclusively (or in conjunction with) within the customer’s facility. This provides a strong argument for wanting to include T&D companies in the mix of solution providers.
Adomaitis and Frank9 provide an excellent example of a case in which enhancing the T&D system proved to be the most cost-effective way to address a power quality problem for a 15-MVA industrial customer. They describe a situation where a manufacturer of glass picture tubes was experiencing production problems and losses whenever a lightning storm occurred in the area. The manufacturing process requires maintaining tight tolerances and was sensitive to power quality. If the process is shut down in a disorderly fashion, hours or days may be required to restart and get production back within specification. Momentary power interruptions and voltage sags were causing such shutdowns. The customer had installed ride-through capability on the low-power devices. Ride-through capability for the large motors was prohibitively expensive, however. A dynamic voltage regulator (DVR) solution was estimated to cost $4 million. Supplying the plant directly from the 230-kV system was also investigated, but this move, too, was found to be too expensive, at about $2.5 million.
Allegheny Power studied the problem carefully and found that by installing lightning arresters every 600 to 800 ft on approximately 50 miles of the 46-kV subtransmission system (and recoordinating the protective relay scheme), they could eliminate the power quality problems. The solution cost approximately $400,000 and was clearly the economically correct choice.
While this project is a beautiful example of why it is technically and economically important for distribution companies to be able to participate in supplying enhanced power quality, Adomaitis and Frank did not address several interesting commercial and regulatory concerns. Who should pay the $400,000, for instance? Since the beneficiary was the picture tube manufacturer, should it pay the entire cost? Power quality on the entire regional 46-kV sub-transmission system was raised, opening the argument that other customers who also benefited from the improved power quality should help pay for the project. But there is no indication that other customers in the area were dissatisfied with the level of service they were already receiving. Future customers, especially power-quality-sensitive customers, are also a concern. If another sensitive factory locates in the region, should it share in the cost of the upgrade and reduce the share the picture tube manufacturer is paying? (Reference 10 discusses a situation where the customer should pay to provide premium power to its own facility.) Should the regulator allow the cost of the enhancement to be spread among all customers on the theory that enhanced power quality will attract new industry and be good for the economic growth of the region in general? These difficult policy issues are intimately related to the technical differences in the technology choices.
The manufacturers of DVRs, for example, would be especially concerned with how these questions are answered. Had the economic trade-off between the DVR and T&D solutions been closer, the decision could very easily have turned on who is paying how much. In fact, the picture tube manufacturer would likely favor the T&D solution, even if it were more expensive, if the distribution company were able to spread the cost among other customers.
At least three important points can be drawn from this picture tube factory example:
- The distribution solution can be the lowest cost, by a significant margin.
- The potential exists for the distribution company to cross-subsidize between regulated and competitive services—in fact it can be difficult to determine what the correct allocation between regulated and competitive services is.
- A free-rider problem exists.
Ensuring That Market Forces Work to Provide Power Quality and Reliability
This chapter shows that market forces can be used to address power quality and reliability requirements for both the majority of customers that are satisfied with basic service and for customers with special requirements. It is important to get the rules right, however, or the unintended consequences can be dire. Basic principles include these:
- Identify metrics to measure power quality and reliability.
- Establish a baseline for normal service. The baseline will likely be different for each utility and for different types of feeders.
- Establish a rate structure with incentives for the distribution utility to meet and exceed the power quality and reliability standards.
- Define premium power as service beyond the normal expectation.
Historically, detailed standards for power quality and reliability have not been well defined. There is a need for more disaggregated measures of power quality and for the focus of regulation to shift from the current standards that provide a safety net to targets for service quality that customers expect to receive. When this shift occurs, it will become possible to more clearly distinguish premium power from normal power. Regulated T&D companies can then be allowed to sell premium power competitively, since the costs they incur to provide that service can more readily be distinguished from the regulated costs they incur to provide the normal regulated service. Concerns over cross-subsidies are thus greatly reduced. Without clear expectations for basic service power quality and reliability, it could appear that the T&D company was intentionally suppressing the quality of basic service to increase sales of premium power.
- 2001 Electricity Distribution Price Review, Draft Decision, Office of the Regulator-General, Victoria, Melbourne, Australia, May 2000, 15601.
- J. Reese Adomaitis and Fred F. Frank, Use of Surge Arresters in Place of Static Wires to Reduce Lightning Caused Voltage Sags on Subtransmission Systems, Allegheny Power, Engineering Development and Support, Greensburgh, Pa., 1997.
- Jim Evans, “Big Three Automakers Get What They Pay For,” Transmission and Distribution World, December 1999.
Appendix C Activities and Organizations Developing and Sharing Information on Reliability and Power Quality
The following is a list and brief synopsis of the many organizations that have ongoing activities in power quality or reliability. Again, this list is not intended to capture all organizations, but rather the significant ones that are presently involved in examining power quality.
North American Electric Reliability Council (NERC)—North American Electric Reliability Organization (NAERO)
Targeted industry segment: Utilities, state regulatory agencies.
Strengths: In 1997, NERC began a self-assessment activity to examine how best to ensure adequate reliability of electric power under the new, competitive structure of the North American electric utility industry. NERC is a voluntary member organization comprising regional reliability councils. The recommendation is to establish a successor organization, NAERO, with a similar structure but charged with developing a mandatory set of guidelines. Unlike NERC, NAERO will have the authority to enforce compliance with its guidelines.
Limitation: This activity is just beginning.
Self-Assessment Template, Power Delivery Reliability Initiative, EPRI Distribution Program, Level 2 report, April 2001
Targeted industry segment: EPRI member utilities.
Limitations: This is a report of continuing research, not a final technical report. It is intended for EPRI member utilities that have contributed to this specific research target; the report is not available to the entire industry.
Strengths: This is a broad-based and comprehensive effort to develop data on levels of distribution system reliability (as seen by the customer) and causes of outages. This is a template for assessing practices at distribution companies and therefore is a precursor to the development of reliability-related best practices.
Other: EPRI is assembling a database of utilities’ responses to the template. The project includes a Web link for users to ask EPRI about industry practices or suggest enhancements to the template. EPRI has a similar activity to assess transmission system reliability.
Transmission Reliability Project, EPRI Transmission Program
Targeted industry segment: Transmission planners of EPRI member utilities.
Limitations: This is continuing research project. It is intended for EPRI member utilities that have contributed to this specific research target; the report is not available to the entire industry.
Strengths: The Transmission Reliability Project takes a grid-wide approach to power system reliability, recognizing the regional interconnected structure of the U.S. transmission system. Its objective is the development of an improved probabilistic risk assessment technique that models the grid’s physical and operating margins probabilistically, rather than deterministically (as is now general practice). This is a first step in developing improved reliability-related best practices for transmission planning and operations.
Other: This is an on-going research activity and will not provide definitive results for several years. EPRI has a similar activity to assess distribution system reliability.
Assessment of Distribution System Power Quality, EPRI Research Project PR3098-1
Targeted industry segment: EPRI member utilities.
Limitations: Reports distribution system power quality observations from a limited number of utilities. The full reports are available only to EPRI members. However, summary statistics have been published in open literature.
Strengths: Multi-year power quality statistics are given for more than 300 points on the distribution systems of 34 utilities. The summary statistics provide a large sample of power quality performance on utility systems throughout the United States. The database has the capability to correlate observed levels of power quality with utility, weather, geography, feeder topology, and customer characteristics.
Other: This project is ongoing and provides the broadest sample of U.S. distribution system power quality statistics. It is a necessary first step in setting power quality standards.
IEEE Power Quality Activities
This item lists some additional power quality groups within IEEE. IEEE groups are updating or developing some of the previously listed standards—1159 and 1346—as well as other related standards.
Targeted industry segment: Utilities, vendors, equipment designers, systems designers.
Limitations: Voluntary organization; limited outreach to organizations and individuals not in IEEE; coordination among IEEE groups is critical because of the different constituencies (IEEE Standards Coordinating Committee SCC-22 is attempting to do this).
Strengths: Consensus standards; broad-based constituency
IEEE SCC-22 – Standards Coordinating Committee on Power Quality
SCC-22 is responsible for coordinating IEEE activities relating to power quality. In addition to coordinating the following activities, SCC-22 is the designated IEEE liaison with any other standards-developing bodies that are preparing power quality standards or guidelines.
IEEE P1409 Distribution Custom Power Task Force
This task force is developing the Guide for Application of Power Electronics for Power Quality Improvement on Distribution Systems Rated 1 kV through 38 kV. The document will provide guidelines and performance expectations for the application of power electronics–based equipment on utility distribution systems for improving power quality and control in these distribution systems. The guide will be a resource to utilities in the competitive marketplace, providing detailed information about custom power devices as options for solving power quality problems.
P1453 IEEE Voltage Flicker Task Group
This task force is developing a recommended practice for a measurement protocol for and limits to voltage flicker. The task force has voted to adopt and enhance the IEC Flickermeter measurement protocol.
IEEE Working Group on Surge Characterization
This working group completed a set of documents on surge characterization and test procedures:
- C62.41.1—Guide on the surge environment in low-voltage ac power circuits
- C62.41.2—Recommended practice on surge characterization in low-voltage ac power circuits
- C62.45—Recommended practice on surge testing for equipment connected to low-voltage ac power circuits.
Other IEEE working groups
- PC62.44 – Applications guide on secondary arresters
- PC62.72 – Low-voltage ac power circuit protective devices
- PC62.74 – Application guide for multi-port protectors
National Association of Regulatory Utility Commissioners (NARUC)
Targeted industry segment: State regulators.
Limitations: It is difficult to address all of the reliability issues
Strengths: NARUC has a staff subcommittee on Electric Reliability that is working to develop standard reliability assessment techniques (and identifying how to enhance reliability). This activity is providing guidance to regulators who traditionally do not have extensive expertise in power system reliability and is helping to standardize evaluation procedures among states.
American Public Power Association (APPA), Distribution System Performance Improvement Guide
Targeted industry segment: Publicly-owned utilities, technical and engineering staff.
Strengths: This is a companion guide to APPA’s Making the Most of Your Distribution System, which was targeted to policymakers. It provides step-by-step procedures for evaluating distribution system performance and comparing performance improvement options. The report contains several case studies. It covers many aspects of utility operations, not just reliability. APPA has asked members to report outages consistent with IEEE P1366. APPA has conducted statistical surveys of the SAIDI and CAIDI but has found that these numbers cannot be compared because of differences among member utilities in how outages are defined (i.e., the problem is in defining what is an outage, not in how SAIDI is calculated). APPA has published the Distribution System Performance Improvement Guide and Distribution System Optimization Guide, consisting of selected case studies that illustrate how its members address this issue. This is the first attempt to assemble a comprehensive reliability performance database for public utilities.
Limitations: Voluntary reporting is not complete; there are different data definition and reporting procedures.
Maintenance Guidelines, Requirements Study Format
Organization: U.S. Department of Agriculture, Rural Utilities Service (RUS)
Targeted industry segment: Rural electric cooperatives.
Description and strengths: To qualify for a loan from RUS, a utility must submit a 5-year requirements study, including a Load Forecast, a Construction Work Plan, and a Long-Range Plan. RUS does not have a required format for these documents, but guidelines for their submission are on the RUS Web site, and data requirements are given in 7 CFR 1710. RUS is also instituting a Web-based data reporting system. The cooperatives’ plans must be updated every year for transmission projects and every 3 years for distribution projects. The cooperative must also follow the RUS maintenance guidelines, outlined in Bulletin 1730-1 Electric System Operation and Maintenance. This bulletin contains guidelines related to electric borrowers’ operation and maintenance (O&M) and outlines the RUS standard practices with respect to review and evaluation of O&M practices. While RUS does not have a reliability standard, the intent is that adhering to these loan conditions will result in a plan that provides an acceptable quality of service. For construction design criteria, RUS usually uses ANSI standards as requirements for cooperatives’ projects, but RUS has a more conservative standard than ANSI for transformers. Standard practices (e.g., in design, construction) across the country mean that a lineman from any cooperative can recognize (and help) any other cooperative. Design standards, lists of acceptable materials and equipment, and more detailed information can be found on the RUS Web site at Hwww.usda.gov/rus.
Limitations: These are general requirements and guidelines for utility practices and construction standards for cooperatives applying for loans from RUS. RUS does not impose a reliability standard. RUS also sees different problems—and solutions—for rural vs urban cooperatives.
NRECA Reliability and Power Quality Assessment
Organization: National Rural Electric Cooperative Association (NRECA), Cooperative Research Network (CRN)
Targeted industry segment: Rural electric cooperatives.
Description and strengths: NRECA feels that many industry guidelines—such as the IEEE reliability indices and definitions and the EPRI reliability performance studies—are not applicable to rural cooperatives, or even rural parts of electric utility service territories in general. Rural customers have different needs, expectations of quality and availability of service, ways to cope with service interruptions, and access problems from the typical urban customer. As a remedy, the CRN is undertaking a comprehensive look at reliability and power quality for rural areas to (1) develop reliability and power quality indices that apply to rural systems, (2) conduct benchmarking of reliability and power quality performance, and (3) identify relevant case studies. The intention is to eventually be able to develop recommended levels of reliability and power quality for rural systems based on the benchmarking work. This project is expected to be completed by the end of 2002. Through the CRN, NRECA also has developed several operations guidelines to improve system reliability for rural cooperatives. (These reports cover specific topics such as vegetation management.) Additional information can be obtained directly from NRECA or on the CRN Web site at Hhttp://www.crnweb.org/H.
Limitations: The reports are available only to CRN members.
International and European Organizations
Several European electric utility organizations have working groups developing power quality specifications:
Congress Internationale des Grand Reseaux Electriques a Haute Tension (CIGRE)—Working Group 36.05 on voltage quality
Congress Internationale des Reseaux Distribution (CIRED)—Working Group 2, joint with CIGRE Working Group 36.05
UNIPEDE/Eurelectric—Working groups on voltage limits, electromagnetic compatibility, harmonics
Targeted industry segment: Utilities, regulators.
Strengths: Broad-based participation from European countries.
Limitations: European practices and designs are not always compatible or consistent with those in the United States.
Reports on Electric Power Disturbances
Organization: Federal Energy Regulatory Commission (previously, Federal Power Commission, Energy Regulatory Agency)
Targeted industry segment: Utilities and regulatory agencies.
Limitations: These are summary reports of major outages. The information is not very detailed regarding the numbers of customers affected, duration of outages, and amount of load interrupted. The format is especially limiting for assessing partial restoration after the incident. However, the biggest limitation is that only major bulk power outages are included; events affecting fewer customers or for short durations may not be reported.
Strengths: Provides data on large outages in the United States over the last 30 years.
Other: Provides a historical perspective on U.S. power system reliability.
Scoping Study on Trends in the Economic Value of Electricity Reliability to the U.S. Economy
Organization: Consortium for Electric Reliability Technology Solutions (CERTS) Hhttp://certs.lbl.govH
Targeted industry segment: Utilities, industries, electrical consumers.
Limitations: This is a scoping study prepared using a literature review and the other available data with direction from EPRI. It is a step toward understanding the cost impact to the U.S. economy of unreliable electricity, how the value of reliability is likely to change in the future, and how customers are addressing their reliability needs.
Strengths: This study provides an analysis of trends in the economic value of electricity reliability in the U.S. economy. The analysis includes requirements of commercial office equipment, statistical indicators of industrial electricity use and economic activity to identify high-reliability market segments, and a case study of a market segment known to have high-reliability requirements.
Office of Electric Transmission and Distribution
Organization: Office of Electric Transmission and Distribution, U.S. Department of Energy
Targeted industry segment: Utilities, regulatory agencies, vendors, customers.
Purpose: This office is an in-depth resource for the many aspects of transmission and distribution reliability. One of the first reports is the National Transmission Grid study, available at http://www.ntgs.doe.gov.