Reliability indices applied to performance-based mechanisms in electric power distribution systems

Power system failures are random events and their prevention can be managed by the regulatory agencies through pre-established performance targets. Once a standard or target is established for a certain performance index, it is assumed to be the limit value that must not be overstepped or it may cause penalties for the utility. Penalty based schemes, although very popular among regulatory agencies, are very limited to provide efficient economic signals for investments in reliability. This work discusses, firstly, how reliability indices can be fully used through performance-based mechanisms to establish contracts that reward a utility for providing good reliability and/or penalize it for poor services in electric power distribution systems. These contracts can be established between the regulatory agencies and the utilities in the form of performance-based rates (PBR) and between a utility and a customer in the form of customer service disruption payments. Such mechanisms must provide incentives for those utilities that invest in improvements of their system reliability and penalize the ones that do not act the same way. This discussion is extended to cope with tariffs and possible insurances based on reliability performance, so that consumers may share the risks with utilities by paying differentiated price services. The proposed concepts, PBR methodologies, and assessment tools are applied to a small test system (IEEE-RBTS) and the results are discussed.