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The primary objective of any electric utility company in the new competitive environment would be to increase the market value of the services it provides with the right amount of reliability, and at the same time, lower its costs for operation, maintenance, and construction of new facilities in order to provide lower rates for customers. The electric utility company will strive to achieve this objective via many different means, one of which is to defer the capital distribution facility requirements in favor of a distributed generation (DG) solution by an independent power producer (IPP) to meet the growing customer load demand. In this case, the distribution capital investment deferral credit received by the IPP will be dependent on the incremental system reliability improvement rendered by the DG solution. In other words, the size, location and the reliability of the DG will be based on the comparable incremental reliability provided by the distribution solution under considerations. This paper presents a reliability model for determining the DG equivalence to a distribution facility for use in distribution system planning studies in the new competitive environment.