There’s No Such Thing as Normal
21 March 2019
If all networks are unique, why are investment decisions often based on an average?
Wouldn’t it be great to be able to show the direct benefit to customers for every network investment? For example, as a consumer “How will this improve the network and how much money will it save me?” being the all-important question.
When measuring the social value of a DNO, the best method is to review how well the DNO performs at keeping the kilowatt-hours flowing to homes and business but also how much customers are paying for this service.
At the moment, deriving such a clear statement is far from straightforward. Focusing on Great Britain, the regulator seeks to obtain social value from network companies by applying a set of high-level regulatory structures that come under the following headings:
- Incentive schemes – to reward good performance or penalise bad but also to act as a lagging indicator of how well a DNO has implemented its plans.
- Investment benchmarking – to understand whether the network business plan is proposing to invest at justified levels and what will be the social return on the investment.
However, incentive scheme performance and investment benchmarking mean little to stakeholders outside of Ofgem and network companies. Therefore, a link needs to be developed between the DNO measurements and customers, increasing visibility and understanding of the requirement of investments and upgrades to the network. Answering that fundamental question, “You’re spending all this money!? How does it benefit ME?”, because really that’s what we care about most.
EA Technology’s Target model does just this. The bespoke model allows you to stop studying network outcomes under rigid, average and worst-case conditions. The reason why it is beneficial to use different assumptions than an average is shown in the graph beneath.
This graph depicts a typical statistical distribution of the size of unplanned outages against the cumulative societal cost (which is taken to be set by same as rates set by the Interruptions Incentives Scheme (IIS)). The fact that the distribution of unplanned outage sizes is not a normal distribution is significant because it means that outlier events that are above average have a greater effect on society than events that are considered average.
Instead of using an “average” approach, the Target model offers a facility which completes 365-day Montecarlo analysis where the probability of failure in the model is biased by equipment data that has already audited as part of Ofgem’s’ Common Network Asset Investment Indices.
Due to the fact that a full year view of network loading, customer restoration or flexibility options as well as asset condition is considered, the Target Model provides the probable outcome of equipment failure that will be experienced by society rather than an outcome calculated using a fixed and worst-case view of the consequences.
So, why is this useful? Especially if you are already aware of how to calculate secondary indices or have processes in place to decide where and when to invest as part of a CML or CI improvement project.
Firstly, it is easier for people to grasp why network companies are required to spend money when it is presented in terms of the network resilience that will be experienced. The Target model does this by linking planned spending on load related, non-load related and network resilience to the levels of interruption that will experienced by communities and businesses. Making your message relevant to your customers.
Secondly, by evolving away from the use of averages in assessing network interventions or assessing the Target model calculates probable real-world effects and not regulatory indices that are based on worst case network assumptions. This allows you to communicate your investment strategies to stakeholders based a central case and not an outlier case.
Finally, the Target model connects the analysis of load related, non-load related and network resilience spending. As shown in the case study, the Target methodology can give a stronger insight into what the value of different interventions will be on the customer experience. This means the Target model can allow you to gather the maximum value from the investments you are making on behalf of your customers.
For more information on the Target Model, please contact Paul Morris: Direct Line: +441513472470 | +44 (0) 151 347 2313.