Annexe 2 to report of working group on specification and negotiation of network services
Output Focussed Performance Criteria for Network Service
Providers in NEM
1
Introduction
Traditionally network performance has been managed by requiring network designers
to meet the so called reliability criteria (typically “n-1” and in some cases “n-2”).
These criteria have always been justified on the basis that all customers generally
preferred to have power supply maintained following a “credible contingency”.
Measurement of actual system performance then focussed primarily on two or three
indexes:

Duration index (most often measured in System Minutes), and

Frequency index (measured the frequency of interruption).

Circuit availability (measured percentage of time circuit was available for usage).
Together these indexes claimed to be good measures of network performance because
they provided information on frequency and extent of network interruptions.
However these type of indexes are somewhat deficient in that they:

do not provide an indication of the relative impact of specific events compared
with others, and

do not provide the appropriate indication of the relative impact of the same event
in relation to time of day, time of year (e.g. middle of night versus early morning
peak, spring versus summer etc.)

do not include impacts of network operation/performance where the network is
abnormally constrained but outages do not occur.

are open to manipulation through the interpretation of “credible contingency”.
For example a network failure at 3 am for a domestic load is probably relatively low
for the first hour or so. However, a similar failure at 7:30 am on a weekday when
parents are attempting to get children ready for school and themselves for work is a
lot more costly. Similarly a network failure that reduces interconnector flow may
cause higher cost generation to be run than would otherwise have been the case.
These performance indicators reinforce viewing the transmission system as common
bundle of benefits for all network users that cannot be unbundled. Such a view leads
to the likely outcome of ongoing regulated intra-regional transmission system
augmentation and ongoing support for across the board postage stamp based pricing.
While there is a strong argument for an element of postage stamp pricing for existing
sunk assets, this argument has much less weight for future investment. Locational
signals will be enhanced in the market place if future transmission investments are
Annexe 2 to report of working group on specification and negotiation of network services
primarily committed to on the basis of funding by recognised beneficiaries rather than
assuming the benefits exist for all and hence all should pay.
Performance measure that do not differentiate (that accept all customers as equal
beneficiaries) enhance the arguments for accepting the view of benefits for all through
funding by all, rather than promoting the more efficient approach of beneficiaries
funding any augmentation. In contrast to the centrally planned approach, the
beneficiary funding approach introduces the idea of property rights (as outlined by
GPU and William Hogan). Transmission property rights overcome the issue of
defining broad network standards because the rights would be specifically
incorporated into contracts between the NSP and beneficiaries and would clearly
promote a more efficient outcome in terms of transmission augmentation.
As a first step to moving to a fully locationally planned and priced transmission
network, a system that incorporates elements of energy market price impacts are
desirable as the basis for network standards and performance measurement. This is
relevant because the spot market (regardless of various views) reflects the actual
marginal value of energy being supplied in any half hour. In this sense then it is the
most sensible factor to use in setting standards and measuring performance. Hence
spot market energy price impacts can be used to scale the relative impacts of events,
including comparing similar outages that occur at different times and provide
objective criteria for measurement, rather than relying on definitions of “credible” that
are open to interpretation and potentially manipulation.. In addition the spot market
provides a mechanism for assessing the cost impact of network
operations/performance where actual outages do not occur but the newtork is
abnormally constrained.
If this concept is taken a step further it can be argued that the spot market can also
provide the basis for assessing the impact of current network design in terms of how
the existing network constraints affect the price of power that is delivered to
customers.
The remaining discussion sets out a market linked methodology for measuring
network performance at both an operational and design adequacy level. It should be
noted that the purpose of the performance criteria measurement system below is to
measure performance against a benchmark. The proposal as it stands is not intended
to be used as a mechanism to determine NSP remuneration other than if penalties
apply where an NSP fails to meet a set benchmark (minimum standard).
2
Linking performance to the market
It is important to ensure that where a system is designed to measure NSP performance
that it is linked to the market. The current TNSP proposal discusses such things as
frequency and duration of outages with parameters such as system minutes. These are
typical of traditional network reliability and performance planning but do not in
themselves provide a complete measurement system in a competitive market
framework.
Annexe 2 to report of working group on specification and negotiation of network services
The market places a different value on energy at different times of the day and year
which is expressed explicitly through the spot price in each region. The value that a
link provides to the market in each half hour is in part a function of the level of energy
flows on the link and the price differentials between adjacent regions which are joined
by the link (significant when the link is constrained). Thus any measurement system
must reflect the value that the market places on the transmission services at the time
of any outage which results in:
1. unserved energy, or
2. any constraint that it is imposed on the market by the transmission system
capability and which has a price impact.
Thus there are primarily two elements in compiling a performance measurement
system linked to the market
Load that is not served as a consequence of transmission outages or constraints should
be calculated as a sum of all events in relation to a particular service provider where
the cost of each event would be calculated as:
1.
MW not served * duration * VoLL where the demand is passive(not bid
explicitly into market).
VoLL is the appropriate value to applied in this case as it is the value that the
market ascribes to passive demand. This calculation would apply even to very
small load disruptions (e.g. small urban and rural feeders). It is not valid to
argue that this value should be lower as otherwise it would be expected to be
bid into the market to be shed at the lower value.
2.
MW not served * duration * Bid Price where the demand is active(bid
explicitly into market).
3.
{[Spot Price Constrained less Spot Price not constrained]*served energy
in each region} less {incremental NSP costs to reschedule the outage, if
planned}
The operation of networks, particularly in the case of transmission (e.g. say an
outage on one element of an interconnector) may not result in any unserved
energy but any subsequent constraints imposed by this operation would
normally result in an increase in at least one regional reference price (higher
constraints would normally result in limiting some participants and a higher
price). Hence using what if analysis, the impact of an NSP constraint can be
evaluated in each region to provide for each trading interval (half hourly) what
if prices if the constraint had not applied (the network was operated
optimally). These what if prices along with actual spot prices could be used in
the equation above. Hence for example an outage on a transmission line that
as likely to have an impact on pricing would result in a lower value in the
above formula if performed during low network utilisation periods, low price
periods or both.
Annexe 2 to report of working group on specification and negotiation of network services
The above outline is intended to explicitly show that there are a number of ways in
which the transmission system design and performance can affect the market. In
reality these three effects are captured in the simple market objective formulation of:
{Spot market benefits (unconstrained) less any incremental NSP costs of
avoiding network constraints} less Spot market benefits (constrained) where the
constraints in consideration relate only to the relevant NSP or part of an NSP’s
area.
3
Short and long term constraints
In determining the impact of networks on market prices there are two levels of
constraints that should be considered
1. Performance of the network within its current design envelope.
2. Adequacy of the networks design envelope.
3.1
Measuring performance within the current design envelope
This measure would value the impacts of the network within its current design
capability. For example, if a transmission line is designed to a 2000 MW capability,
being constrained at the 2000 MW level would not be considered to be impacting the
market in terms of this measure. If, however, a planned or forced outage occurred on
the network element that reduced its capability to below the 2000 MW capability and
market price or served energy was affected, the measure would incorporate either or
both of the affected factors. Hence the measure would provide an indication of how
optimally the network was operated within its design capability, but would not
provide any indication of the efficiency/effectiveness of the design envelope.
If an NSP wide measure was considered to be too broad a measure, the parameter
could be broken down on a part regional basis.
The what if pricing could be derived directly from the SPD algorithm. There may be
some issues relating to participant behaviour if the constraint did not exist but these
could be adequately managed as part of the what if process. This process could be run
in near real time and be automated in order to provide timely feedback to all
participants and stakeholders.
3.2
Measuring adequacy of the design envelope
This measure would value the impacts of the networks design capability on the
market. It would be more akin to the network augmentation type criteria and could be
utilised when considering augmentation of intra-regional and inter-regional capability
(assuming other options would also be considered). In this case the impact of the
2000MW element design capability would be considered.
3.3
Formulating measures
Annexe 2 to report of working group on specification and negotiation of network services
For evaluating performance within the design envelope the simple accrual formulation
of:
Sum [Spot market benefits (unconstrained) less Spot market benefits
(constrained)] over the period being measured
In order to take account of varying market conditions over time, a second
measure that provides a multi-period rolling average or weighted rolling
average of the above factor could be utilised.
Both measures could be provided as public information to the market place at the end
of each period (say half yearly or yearly).
For evaluating the adequacy of the design envelope the following forecast formulation
would be appropriate:
NPV { Expected Value[Spot market benefits (unconstrained) less Spot market
benefits (constrained)] } over longer term assessment period. It should be noted
that this would use the explicit spot market value VoLL in setting the reliability
benchmark rather than other measures that are not explicitly present in the spot
market.
Again this measure could be provided as public information to the market place at the
end of each period (say half yearly or yearly).
4
Setting minimum service standards
The setting of minimum service standards could be done by simulating a reasonable
level of planned outages (biased to low price and low network utilisation periods)and
forced outages through a market model. The impact in terms of unserved energy and
higher market prices could be calculated for this reasonable scenario on a regional or
sub-regional basis as required.
It would then be up to the NSP to manage the network within these defined
parameters. The market provides medium term PASA, short term PASA, Predispatch
and ex ante Dispatch information to all participants. The NSPs could utilise this
information to forecast appropriate network operation and maintenance(in the same
way as all participants who are sensitive to price and can accordingly alter their
capability, do so).