On risk mitigation strategies with focus on distribution system reliability in performance-based regulation

Financial risks are not usually associated with grid operation but regulatory regimes with focus on performance that applies quality dependent revenue or price caps are used to greater extend than before to regulate Distribution System Operators. Due to the uncertainty in annual system reliability, the financial risks within grid operation are therefore tangible. This paper is an introduction to the complex area of risk management in Performance-Based Regulation (PBR). A general strategy framework for risk management is described and then put into a PBR environment. The basic idea is to manage the risk of performance-based revenues by mitigating the uncertainty in regulatory outcome. The main focus lies on markets in which the grid ownership is totally separated from generation and retail such as the Swedish and Norwegian markets.