Download Discussion of "Distribution pricing based on

Discussion of “Distribution Pricing Based on Yardstick
Regulation”
Hugh Rudnick, H. Sanhueza, and D. Watts
The authors would like to congratulate J. W. Marangon Lima,
J. C. C. Noronha, H. Arango, and P. E. Steele dos Santos [1] for their
contribution in the field of distribution regulation.
Since the early 1980s, countries worldwide have implemented electricity sector reforms, unbundling the generation, transmission, distribution, and supply activities, aiming at introducing competition in generation and supply. The monopolistic activities have not been left aside.
Some countries have adopted incentive benchmark regulation to promote efficiency improvement in those activities, particularly in distribution [2], [3].
Incremental and Marginal Costs: The paper formulates a distribution pricing method that is based on incremental costs derived from the
aggregated expansion plan of a particular utility, named “model utility.”
The employment of incremental costs for the evaluation of alternative
investment plans is widely accepted. It strictly interprets the term “marginal” as a derivative of cost with respect to demand; the usual practice
is to use years as the time increment.
The incremental cost is sensitive to the achieved investments, but
remains constant for the load and cost changes in the time increment.
Thus, the incremental cost does not reflect the economies associated
with investment delays due to a reduction in demand growth. How do
the authors approach this drawback in the proposed model?
Distribution Expansion Planning: The determination of the costs
associated with the primary elemental distribution system (PEDS),
product of a given demand growth forecast, is a clear and direct way
to evaluate each one of the proposed expansion plans of the system.
However, this aggregation methodology is not clear in explaining how
to incorporate, in the expansion plan evaluation process, the technical
and physical restrictions that make feasible the resulting networks.
How do the authors deal with these restrictions? As indicated in the
paper, they have rejected the detailed geographical methodology, arguing it is not adequate for long term planning. However, one must be
aware that distribution tariffs have a limited time validity, which for
most regulations extends up to three to five years.
Tariff Design: The determination of the and coefficients
considers a recursive bottom-up process, for the determination of the
PEDS demand curve, beginning from the typical load curves of the
low-voltage consumers. The contribution of each consumer to the
PEDS, according to the article, is a result of a correlation that studies
the impact of each consumer on the average costs in a given group
of PEDS. The method considers a fixed network topology and the
contribution of each consumer is prorated to each PEDS according to
the correlation result. Did the authors consider the use of coincidence
factors obtained from the real companies? The use of ratios could lead
to lower average costs for the network expansion.
Information Asymmetries: One of the challenges of fixing distribution tariffs is to make the process immune to information asymmetries
Manuscript received October 2001.
The authors are with the Department of Electrical Engineering, Pontificia
Universidad Catolica de Chile, Santiago, Chile (e-mail: [email protected]).
(i.e., independent from the information provided by the agents) It is
not possible to regulate monopolies, and to define their tariffs, without
information from the real firms. But the firms have the incentive to
strategically manipulate the information they provide to achieve monopolistic prices. Therefore, we assign much importance to the way
the adopted regulatory scheme handles these information asymmetries
and subtracts and protects itself from their perverse influences.
The model-company yardstick regulation lends itself to more information independence than the price cap approach [4], [5]. How does
the method proposed by the authors perform in this aspect? How much
can it be manipulated by the information provided by the distribution
companies?
Open-Access Distribution Pricing: Building an open-access
pricing scheme for distribution networks that is coherent with a tariff
scheme for regulated consumers is a challenge. It is a growing need in
systems that evolve from wholesale competition to retail competition,
supplying nonregulated consumers and regulated ones through the
same distribution wires [6]. How can this coherency be achieved
through the proposed method?
Wire and Commercialization Business: Countries that have had
benchmark regulation of the distribution business for many years,
like Argentina and Chile, have looked at the separation of the wire
business from the commercialization one as a means to introduce more
competition in the market [6]. The authors are aware of this trend but
it is not clear to the discussers how their pricing scheme would deal
with this separation in the setting of the tariffs.
REFERENCES
[1] J. W. Marangon Lima, J. C. C. Noronha, H. Arango, and P. E. Steele
dos Santos, “Distribution Pricing Based on Yardstick Regulation,” IEEE
Trans. Power Syst., vol. 17, pp. 198–204, Feb. 2002.
[2] H. Rudnick and R. Raineri, “Chilean distribution tariffs: Incentive regulation,” in (De) Regulation and Competition: The Electric Industry in
Chile: Ilades-Georgetown Univ., 1997, pp. 223–257.
[3] T. Jamasb and M. Pollitt, “Benchmarking and regulation: International
electricity experience. Utilities Policy,” Department of Applied Economics, Univ. Cambridge, vol. 9, 2000.
[4] H. Rudnick and J. Donoso, “Integration of price cap and yardstick
competition schemes in electrical distribution regulation,” IEEE Trans.
Power Syst., vol. 15, pp. 1428–1433, Nov. 2000.
[5] H. Rudnick and J. Donoso, “Paper discussions and closure ‘Integration
of price cap and yardstick competition schemes in electrical distribution
regulation’,” IEEE Trans. Power Syst., vol. 16, pp. 939–945, Nov. 2001.
[6] E. Recordon and H. Rudnick, “Distribution access pricing application of
the oftel model to a yardstick competition scheme,” IEEE Trans. Power
Syst., 2001, to be published.