Quality dependent revenue caps-a model for quality of supply regulation

The paper describes the new model for quality dependent revenue caps (the CENS arrangement), introduced by the Norwegian regulator from 2001. The arrangement takes into account all incidents in networks with voltage levels above 1 kV that results in interruptions of duration above 3 minutes. Based on estimates of energy not supplied (ENS) and average specific interruption costs for each customer category, interruption costs (IC) are calculated for each company annually. The expected level of ENS is calculated for each company and hence the expected level of IC. At the end of the year the regulator calculates the difference between expected and actual IC. If the difference is positive, i.e. the quality of supply has been better than expected, the difference will be added to the company´s revenue cap. The difference will be subtracted from the revenue caps if the quality has been worse than expected