Transmission System Operators (TSOs) and Distribution System Operators (DSOs) perform a number of key activities in the electricity and gas sectors, over different timeframes.
TSOs typically prepare network development plans, which are then assessed and/or approved by the competent National Regulatory Authority, the Government or, in some cases, the Parliament. Incentive-based regulation is seldom applied to network planning, despite some attempts in this direction in a number of jurisdictions (e.g. UK, Italy, …). The Third Legislative Package on Energy has introduced EU-wide Ten-Year Network Development Plans (TYNDP) - to be drafted by the European Networks of Transmission System Operators (ENTSOs) - which, while not binding, will serve as a reference for the development of national and regional network development plans. Moreover, the environmental policy objectives adopted by the European Union – especially in the area of renewable energy, greenhouse gas emissions and energy efficiency – are likely to significantly affect the electricity generation sector and, to a somewhat lesser extent, the gas sector, impacting on the requirements for network development.
TSOs are also generally responsible for implementing the (approved) investment programme. The inclusion of new infrastructure in the Regulatory Asset Base (RAB) may involve some form of incentives promoting efficient and timely construction of the new infrastructure. The EC Communication on “Infrastructure Priorities” of November 2010 identified a number of barriers preventing or delaying network development and proposal from the Commission for legislative action in this area is expected later this year.
In the shorter timeframe, TSOs are responsible for operating the transmission systems – including the provision of ancillary services. Incentive-based regulation has typically been applied to network and system operation and, in some jurisdictions, to the provision of ancillary services as well (e.g. GB).
The greater emphasis on cross-border exchanges in electricity and gas, following the liberalisation of the European energy sector and the drive towards the integration of national markets into a single Internal Energy Market (IEM), has led to an increased requirement to develop infrastructure which benefit consumers/grid users in more than one jurisdiction and to the need to allocate costs correspondingly. An interim Inter-TSO Compensation (ITC) scheme has been in operation in the electricity sector since March 2002, replacing the former transit tariffs which created tariff pancaking. Over time the scheme has been repeatedly amended, and it is now due for a review.
DSOs are responsible for the development and operation of the distribution systems, delivering electricity and gas to final consumers. Incentive-based regulation is typically applied to the whole of the DSOs’ activities. As distribution network expansion is a diffuse activity, it is typically not regulated separately. The economic regulation of DSOs may recognise the regional differences in network configuration and customers’ characteristics.
Moreover, embedded generation and demand response/demand side management are acquiring greater importance as a consequence of new energy and environmental policy objectives. These developments may require smarter grids and a re-thinking of some aspects of the economic regulation of DSOs.
Finally, DSOs play a key role in supporting retail competition, as they handle customers’ switching between suppliers. The regulation of DSOs should recognise this role and provide appropriate incentives so that retail competition may fully extend. The Workshop aims at reviewing current practices, at the European level, in the economic regulation of the different TSO and DSO activities, at recognising the challenges which the new energy and environmental policy framework poses and at identifying how these challenges can be best met.
