Financial risk assessment for distribution system operators regulated by quality regulation

In the reregulated electricity market, performance-based regulations accompanied by quality regulations are gaining ground. The quality regulation results in new financial risks for the distribution system operators (DSOs) which calls for risk assessment methods that can simulate what costs a certain regulation implies for the DSO. When, for example, guaranteed standards for worst-served customers is combined with a reward and penalty scheme the methods must be able to predict both customer and system reliability. This paper presents a new risk assessment methodology based on time sequential Monte Carlo simulations that can handle both of these levels of reliability to simulate the total regulation cost due to an arbitrary quality regulation. Since most quality regulations are corrected ex-post for each year, variations in yearly reliability can cause large variations in the total regulation cost. Instead of only considering the average total regulation cost the developed methodology uses risk tools from the financial industry to also measure the costs of more extreme years. Doing so gives the DSOs a better understanding of the financial risks they are exposed to. The developed risk assessment methodology is used to evaluate different investment alternatives in a case study.