1. Norwegian experience from re-regulating the power sector
Tore Langset, Head of Economic Regulation, NVE

2. NVE regulates the power sector
193 Power Producers
227 Power Suppliers
1 Transmission System Operator (TSO)
124 Distribution System Operators (DSOs)
Markets,
prices fixed by competition
Monopolies, prices fixed by economic regulation

3. Re-regulating the Power Sector
Corporatization
From Public Administration to
Regulator, and
Public Utilities
Unbundling 1991
TSO, legally
DSOs, by accounting rules
Develop Markets and regulation
Market design
Economic Regulation

4. Development of the Economic Regulation of DSOs and TSO
Cost+  data
“CPI – X”  efficiency
“CPI – X”  efficiency & quality
Yardstick competition  efficiency, quality & investments
Yardstick competition  … R&D, smart meters, new technologies…
Lessons learned
Dependent on data with high quality
More advanced models over time
Developed in dialog with stakeholders
Efficiency
Quality of service
Incentives for investments
R&D, smart meters, new technologies,….

5. Economic Regulation of TSO and DSOs
OPEX
CAPEX
Depreciations
Return on Assets
Cost Base
Cap
40%
Revenue
Data Envelopment Analysis (DEA)
Regression Analysis environmental differences
Calibration
Cost Norm
60%
Yardstick Competition through benchmarking

6. DEA model for Local DSOs
Output 2 / Input
One Input:
Cost Base
Three Outputs
Number of customers
Km high voltage grid (> 1 kV)
No of substations
Output 1 / Input
Input-oriented
Cost minimizing
Constant Returns to Scale (CRS)

7. Regression Analysis to adjust DEA-scores for environmental differences
Geo1 (mountain environments)
Geo2 (coastal environments)
Geo3 (cold environments)
Share of underground cables
Share of lines located in forest

8. Using Geographical Information Systems (GIS) to assess environmental differences
Left map: average steepness of terrain. Blue area indicates flat terrain, lighter areas indicates more steep terrain
Right map: shows woods, indicated by the green areas. Distance to coast, indicated by the red/yellow/gray areas
Maps are just examples
Map of Norway is divided into grid squares of 100 by 100 meters
In each grid square, we know what the geography looks like, we know what climate it faces, and we know which grid components are located in it
Example: a line on the map.
We know in what grid square it is located, the average temperature, average snow depth, average wind force, how steep the terrain is, and how much forest it is in this location
This information makes it possible to adjust efficiency scores for environmental factors.

9. Resources Energy Regulatory Authority
61 economists, engineers and legal professionals
Section for Economic Regulation of DSOs, 1 TSO
13 in-house economists
Developing regulations and models
Data collection and validation
Various analysis
Benchmarking
Programming
Compliance monitoring
DSO guidance
Use academics and consultants when exploring new areas of knowledge

10. What’s next? Ongoing R&D
Benchmarking
Power and Energy Distance
Construction of exogenous output variables combining information from Smart Meters with GIS to construct and apply advanced optimization technics
Market surveillance
Develop Machine Learning Methods and Models for detecting market manipulation in the Wholesale Market

11. Thank you for your attention!