Distribution and power quality regulation under electricity competition. A comparative study

Most electrical sector restructuring involves introducing competition in electricity generation and retail. However, transmission and distribution network activities will continue being regulated. The regulation of distribution is evolving from a traditional approach based on cost-of-service regulation, where distribution was bundled to the rest of utility activities, to a more competitive unbundled regulation based on incentives for improving efficiency, known as performance-based ratemaking (PBR) regulation. This new regulation retains strict control over service tariffs by establishing price or revenue caps during a multi-year (two-to-five years) regulatory period. Utilities have the opportunity to earn higher profits by cost reductions and efficient management. However, most utility regulators have emphasized the importance of quality control mechanisms because cost reduction incentives may lead to a progressive degradation of the quality of service. This paper revises practical implementations of PER mechanisms for distribution and power quality regulation. Experiences in England and Wales, Argentina, Norway, California, and Spain, are compared.