Incorporating reliability index probability distributions in performance based regulation

The move towards deregulation in the electric power industry has created a new climate of competition and customer choice. There are also concerns that customer reliability could suffer under the new regime. Performance based regulation (PBR) is being introduced in a number of jurisdictions in an attempt to maintain an acceptable balance between appropriate customer service qualities and customer service costs. A reward/penalty structure integrated in a PBR plan works like a contract that penalizes and/or rewards a utility based on its performance and in doing so introduces an element of financial risk to an electric power utility due to the uncertainty associated with maintaining a specific level of system reliability. This paper illustrates the utilization of time sequential Monte Carlo simulation to develop reliability index probability distributions for a feeder, a bus and a system, and assesses such risks by incorporating reliability index probability distributions into the reward/penalty structure. The paper applies this approach using some real system reliability data from Canadian service continuity reports. These concepts should prove useful for regulatory agencies responsible for setting initial PBR procedures in place, and for electric power utilities to reduce their risk and increase their rewards in the new environment.