ESCOSA report released: SA Power Networks 2020 Reliability Standards Review

Lance Hoch   |   20th August 2018

A new Oakley Greenwood report has found that the majority of customers in South Australia are not interested in paying more for higher levels of electricity supply reliability. The report quantified Australian customers’ willingness to pay for additional reliability in their electricity supply, and their willingness to subsidise improvements in areas that receive materially lower levels of supply reliability.  The study was undertaken by Lance Hoch and Rohan Harris for ESCOSA as part of its review of the service standards that apply to SA Power Networks.  Surveys were undertaken with 1,000 residential and 313 business customers drawn from the Adelaide metropolitan area and other regional centres, rural areas, and areas served by feeders where the number of minutes off supply has been twice the level targeted in the Electricity Distribution Code for two consecutive years (referred to as low reliability distribution feeders or LRDFs).

The survey instrument that Lance and Rohan developed – with input from the Wallis Consulting Group who also administered the survey – used a Contingent Valuation approach for building demand curves for reliability.  These demand curves allowed us to quantify:

• customers’ willingness to pay (WTP) for improved reliability in the areas in which they live;
• customers’ willingness to subsidise (WTS) reliability improvements in areas that experience materially poorer reliability than their own area.

We then compared the sum of the WTP and WTS for each area to the cost of improving reliability within that area, which was provided by SA Power Networks, as the measure of the economic efficiency of improving reliability in each area.  The only instance in which the sum of WTP and WTS exceeded the cost of making the reliability improvement was for LRDFs.

The report noted that a decision to fund these reliability improvements would have equity effects as it would require all customers – and not just those who were willing to do so – to pay for them.  These equity questions are matters of policy and regulatory judgement rather than economic efficiency.

The report was used by ESCOSA in reaching its recently published draft decision on the standards that will apply to a number of aspects of SA Power Networks’ service.  Information on ESCOSA’s review can be found at www.escosa.sa.gov.au/projects-and-publications/projects/electricity/sa-power-networks-2020-reliability-standards-review.  The Draft Decision and Oakley Greenwood’s report can be accessed by clicking on the label entitled ‘Draft – 2 Aug’ in the Publications area at the bottom of ESCOSA webpage. ESCOSA is accepting submissions on the Draft Decision until 14 September.

For more information on Oakley Greenwood’s report please contact Lance Hoch (lhoch@oakleygreenwood.com.au) or Rohan Harris (rharris@oakleygreenwood.com.au).