Risk assessment approach for re-regulated distribution systems

In an attempt to re-regulate the distribution segment of an electric power system, public utility commissions (PUCs) are increasingly adopting a reward/penalty framework in order to guarantee acceptable electric supply reliability. This reward/penalty framework is commonly known as performance based ratemaking (PBR). A PBR framework is introduced to provide distribution utilities with incentives for economic efficiency gains in the competitive generation and transmission markets. A distribution utility´s historical reliability performance records could be utilized to create practical PBR mechanisms. This paper presents actual reliability performance history from two different Canadian utilities used to develop PBR frameworks for use in a re-regulated environment. An analysis of financial risk related to historic reliability data is presented by including reliability index probability distributions in a PBR plan. In addition, this paper identifies a number of factors and issues that should be considered in generating a PBR plan for a distribution utility. A brief analysis of cause contributions to reliability indices also is performed and presented in this paper. The historic reliability based PBR framework developed in this paper will find practical applications in the emerging deregulated electricity market.