Quantitative Consideration of Reward/Penalty Policy Setting in Performance based Regulation

Z. Pan and R. Billinton (Canada)


Risk Assessment, Probability Distribution, PBR.


Performance based regulation (PBR) is being increasingly adopted as the basis for rate regulation of electric distribution utilities. A reward/penalty structure could be integrated into a PBR plan to encourage distribution utilities to maintain appropriate service reliability levels. In this new environment, distribution utilities will need to adjust their reliability performance strategy to avoid possible financial risks, and could decide to invest in new capital projects to improve system reliability. This paper introduces quantitative considerations of the effect of system reliability improvements on the financial risk, and the impact of reward/penalty policy on projects for improving system reliability. This paper also presents some concepts associated with the development of a reasonable reward/penalty policy in the new regime. This work should prove useful for regulatory agencies and distribution utilities in the new environment.

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