1. Quality Framework Proposal
Commerce Commission Workshop
2 March 2010

2. Background
Quality monitoring scheme for Transpower required as part of future regulatory framework
Weaknesses of current System Minutes model are acknowledged
Measures should be factors under company control or which company is best placed to manage
Propose to model on Service Target Performance Incentive Scheme used by Australian Energy Regulator (AER)
Modified to suit New Zealand environment
Initially monitoring scheme only
But suitable to move to financial incentive scheme in next regulatory period

3. Development of Scheme (1)
Select appropriate measures to reflect important performance issues for customers
During first regulatory period, scheme is monitoring only
Expect in longer term to incorporate financial penalties and rewards
Typically 1% of revenue at risk or potential reward
Set targets for expected future performance based on historical performance
Select a representative historical period, including most recent
Target may be modified if historical period does not adequately reflect reasonably expected future performance, e.g.
Increase or decrease in capital work
Aging of assets
Changes in regulatory environment

4. Development of Scheme (2)
Set performance bands above and below target (Caps and Collars) beyond which no further rewards or penalties would apply
Reward/Penalty on a sliding scale up to maximum based on distance from target value
Caps and collars need not necessarily be symmetrical around target
Assign weighting to each measure
Targets and Caps & Collars and Weightings are reviewed each regulatory period

5. Example – Target with dead band and asymmetric Cap and Collar5

6. Measures used in AER Scheme
Basic basket of measures are:
System Availability
Loss of Supply Event Frequency
Average Outage Duration
(NB: An outage is defined as branch forced/fault unavailability, but is not necessarily an interruption)
Parameters for each measure are:
Target (possibly including a dead-band)
Note: deadbands are no longer a common feature
Cap and Collar values for maximum reward or penalty
Relative weighting of each measure

7. Analysis of Measures System Availability Security risk
Strengths – Measure Indicates:
Weaknesses
System Availability
Security risk
Perverse incentives
Loss of Supply Event Frequency
Customer Impact
Highly visible
Highly variable
Average Outage Duration
Responsiveness
Easily skewed

8. Observations about AER Scheme
Measures, values and methodologies applied vary considerably between companies to accommodate unique circumstances including local climate, transmission network, available data:
e.g. definitions of measures, inclusions & exclusions, historical periods used, calculation of cap & collar values, sub-parameters of measures may be varied as considered appropriate
Proposed targets, caps & collars are premised on the approval of the TNSP’s proposed capital and operating expenditures

9. Transpower’s proposed measures
Loss of Supply Event Frequency
No > 0.05 System Minutes 
No > 1 System Minute
System Availability
AC Transmission Circuits 
HVDC Link
These are Transpower’s current internal KPI’s
They correspond to measures used in Australia
Average Outage Duration excluded from initial measures

10. Exclusion of Average Outage Duration from Initial Measures
Transpower has not traditionally used as a key performance indicator, but does recognize potential value of this measure
Transpower has no experience to date in the analysis of Average Outage Duration as a measure
Establishing reasonable targets, caps and collars is more problematic
Uncertain effect on measure resulting from:
Changes in safety practices
Changes in manual reclose policy to improve public safety
Plan to commence monitoring and reporting this parameter as basis for future inclusion in the basket of measures

11. Implementation Issues
Methodology for setting Targets and Caps & Collars for measures
Appropriate period on which to base these
Agreed definitions
And what’s included / excluded from measures
Event caps
e.g. cap on max outage duration
Weighting of each measure

12. Next Steps
Determine appropriate methodology for setting targets, caps and collars
Submit detailed proposal to Commerce Commission