Analysis of distribution reliability in performance-based regulation

As a consequence of the liberalization of the electricity sector where electricity markets are deregulated and grid ownership are privatized, the need for regulation of distribution grid owners (DGOs) due to the monopoly nature of electric distribution has increased. The regulation of DGOs is in many countries conducted based on the DGOs' performance, i.e. performance-based regulation (PBR). PBR is meant as a substitute for a competitive market by rewarding efficient DGOs and/or penalizing inefficient DGOs. A risk however is that distribution quality suffers due to lack of maintenance and postponed investments as the DGOs become more financially challenged. In order to prevent this the efficiency regulation can be combined with quality regulation in which poor quality either means decreased revenue or increased expenses. Quality regulation usually is conducted on one-year basis, this means that the yearly variation of system reliability brings financial uncertainty to DGOs. In order to make more accurate financial risk assessments the yearly variation of system reliability must be considered. In this paper a sequential Monte Carlo simulations (MCS) method is described and applied on a reliability test system in order to conduct comparative analyzes of quality regulation model within PBR