Robust optimization policy benchmarks and modeling errors in natural gas

The problem of regulating natural gas procurement has become a huge burden to regulators, especially due to the plethora of complicated financial contracts that are now being used by local distribution companies (LDCs) for risk management purposes. Muthuraman, Aouam, and Rardin (2008) proposed a new benchmarking scheme, called policy benchmarks and showed that these benchmarks do not suffer from the usual criticisms that are made against existing regulatory methods. Such policy benchmarks based regulation has however faced hurdles in being adopted. One of the primary reasons has been concerns over its robustness.

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