Optimal investment planning for power systems under performance-based regulation

The paper presents a new method for reliability investment decisions when a reward/penalty scheme is applied to the regulation of distribution system operators. The method was developed in order to facilitate the transition from cost-based regulation to performance-based regulation for distribution utilities. New investment planning criteria for distribution utilities subjected to the new regulatory regime is identified and mathematically formulated as a new investment efficiency index IEI, which yields the relation between the improvement of system reliability due to the investment in the electric system and total investment costs. The method was tested on Slovenian distribution system, where two investment candidates were compared in order to determine which project has a greater benefit-cost ratio and therefore represents a better investment alternative.