Reliability in performance-based regulation

University dissertation from Stockholm : KTH

Abstract: In reregulated and restructured electricity markets the production and retail of electricity is conducted on competitive markets, the transmission and distribution on the other hand can be considered as natural monopolies. The financial regulation of Distribution System Operators (DSOs) has in many countries, partly as a consequence of the restructuring in ownership, gone through a major switch in regulatory policy. From applying regulatory regimes were the DSOs were allowed to charge their customers according to their actual cost plus some profit, i.e. cost-based regulation, to regulatory models in which the DSOs performance are valued in order to set the allowable revenue, i.e. Performance-Based Regulation (PBR). In regulatory regimes that value performance, the direct link between cost and income is weakened or sometimes removed. This give the regulated DSOs strong cost cutting incentives and there is consequently a risk of system reliability deterioration due to postponed maintenance and investments in order to save costs. To balance this risk the PBR-framework is normally complemented with some kind of quality regulation (QR). How both the PBR and QR frameworks are constructed determines the incentive that the DSO will act on and will therefore influence the system reliability development.This thesis links the areas of distribution system reliability and performancebased regulation. First, the key incentive features within PBR, that includes the quality of supply, are identified using qualitative measures that involve analyses of applied regulatory regimes, and general regulatory policies. This results in a qualitative comparison of applied PBR models. Further, the qualitative results are quantified and analysed further using time sequential Monte Carlo simulations (MCS). The MCS enables detailed analysis of regulatory features, parameter settings and financial risk assessments. In addition, the applied PBRframeworks can be quantitatively compared. Finally, some focus have been put on the Swedish regulation and the tool developed for DSO regulation, the Network Performance Assessment Model (NPAM), what obstacles there might be and what consequences it might bring when in affect.