System reliability and power quality: performance-based rates and guarantees

Industry restructuring has placed intense pressure on electric power delivery companies to reduce cost. At the same time, regulators and customers are demanding increasing levels of reliability and power quality. To manage this tension, financial instruments that link reliability and power quality to profits are becoming increasingly more common. Examples include performance-based rates and performance guarantees. This paper describes each of these approaches, discusses their advantages and disadvantages, and suggest ways that power delivery companies can best integrate them into their overall business model.