Service Quality in Electricity Supply: The Customer's Costs

33 Pages Posted: 22 May 2010

See all articles by Elena Fumagalli

Elena Fumagalli

Polytechnic University of Milan

Paola Garrone

Politecnico di Milano

Luca Grilli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering

Renato Redondi

University of Brescia - Department of Industrial Engineering

Date Written: January 31, 2008

Abstract

This paper describes the methodology employed and the results obtained in a study we conducted to estimate the costs sustained by electricity users for voltage quality. The study concerned, in particular, Italian industrial consumers, connected to medium voltage distribution networks. We have found that the direct costs for voltage disturbances are highly concentrated, and are quite large in some observed "sensitive sectors." Indirect costs are almost as significant as the direct costs, and are more distributed across the national economy (they concern a larger number of sectors). While the average Italian firm is unlikely to suffer important costs because of voltage disturbances, direct and indirect costs have an overall impact on the national economy that cannot be overlooked. The magnitude of voltage quality costs seems to justify a regulatory intervention. The uneven distribution of these costs, however, seems to indicate that an “individual” policy action (i.e. limited to sensitive sectors) might be a more sensible decision than a general intervention. We propose three, not mutually exclusive, lines of action. 1) Identification of costs for industrial users. It seems reasonable that any type of intervention should be preceded by an objective assessment of costs for voltage quality. To this end, a larger diffusion of power quality analyzers seems necessary. Similarly, a dissemination of a unified methodology for cost assessment seems extremely useful. The methodology described here is certainly a good example. 2) Ex-ante measures: contracts for quality. Contracts for quality, as already envisaged by the current Italian regulation, seem in this context a valuable option. These contracts oblige distribution operators to compensate consumers for quality levels that have been defined by the two parties. Nonetheless, several aspects need to be explored in the practical use of these contracts. 3) Ex-post measures: reconciliation of disputes. It seems possible to pro-mote initiatives for the reconciliation of controversies between distributors and industrial users. Also in this case, several practical issues would need further investigation.

Keywords: voltage quality, customer cost, electricity supply, quality regulation

JEL Classification: L94, L98

Suggested Citation

Fumagalli, Elena and Garrone, Paola and Grilli, Luca and Redondi, Renato, Service Quality in Electricity Supply: The Customer's Costs (January 31, 2008). Available at SSRN: https://ssrn.com/abstract=1612156 or http://dx.doi.org/10.2139/ssrn.1612156

Elena Fumagalli

Polytechnic University of Milan ( email )

Piazza Leonardo da Vinci
Milan, Milano 20100
Italy

Paola Garrone (Contact Author)

Politecnico di Milano ( email )

piazza Leonardo da Vinci 32
Milano, 20133
Italy
+39-02-23992742 (Phone)

Luca Grilli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering ( email )

Via Lambruschini 4C - building 26/A
Milano, 20156
Italy

Renato Redondi

University of Brescia - Department of Industrial Engineering ( email )

Via Branze, 38
Brescia, 25123
Italy

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