Performance-based Regulation Research Articles

The Expansion of Incentive (Performance-Based) Regulation of Electricity Distribution and Transmission in the United States

I examine developments in the application of performance-based regulation (PBR) to electricity distribution and transmission in the United States. Applications of comprehensive PBR to electricity distribution had been slow to diffuse in the U.S. prior to roughly 2000. PBR mechanisms are now being applied more frequently to electricity distribution, which reflects the changing structure of the electric power industry and the increasing obligations that are being placed on electric distribution companies. The new obligations are a consequence primarily of aggressive targets for decarbonizing the electricity sector in nearly half the states and the goal of using “clean” electricity to electrify transportation, buildings, and other sectors. PBR should be viewed as a set of “building blocks” that can be adopted in various combinations and should recognize that PBR and traditional cost-of-service regulation (COSR) are properly viewed as complements rather than substitutes. Recent reforms in the regulation of distribution companies in Great Britain—“RIIO”—have been influential in the U.S. The main reforms contained in RIIO are discussed. There has been essentially no application of PBR by the Federal Energy Regulatory Commission (FERC) to owners of transmission assets or to independent transmission operators. FERC has applied targeted incentives to encourage investment in transmission facilities and membership in independent system operator organizations. However, the regulation of transmission rates relies primarily on COSR in the form of formula rates and has poor incentive properties. Regulation of independent system operators is a challenge because they are non-profit organizations with no equity to put at risk. Reforms here are suggested.

Safety by simulation: theorizing the future of robot regulation

Mobility robots may soon be among us, triggering a need for safety regulation. Robot safety regulation, however, remains underexplored, with only a few articles analyzing what regulatory approaches could be feasible. This article offers an account of the available regulatory strategies and attempts to theorize the effects of simulation-based safety regulation. The article first discusses the distinctive features of mobility robots as regulatory targets and argues that emergent behavior constitutes the key regulatory concern in designing robot safety regulation regimes. In contrast to many accounts, the article posits that emergent behavior dynamics do not arise from robot autonomy, learning capability, or code unexplainability. Instead, they emerge from the complexity of robot technological constitutions coupled with near-infinite environmental variability and non-linear performance dynamics of the machine learning components. Second, the article reviews rules-based and performance-based regulation and argues that both will fail adequately constrain emergent robot behaviors. The article claims that controlling mobility robots requires a simulation-based regulatory approach. Simulation-based regulation is a novelty with significant theoretical and practical implications. The article argues that the approach signifies a radical break in regulatory forms of knowledge and temporalities. Simulations enact virtual futures to create a new regulatory knowledge type. Practically, the novel safety knowledge type may destabilize the existing conceptual space of safety politics and liability allocation patterns.

Performance-based drift prediction of reinforced concrete shear wall using bagging ensemble method

Reinforced Concrete (RC) shear walls are one of the civil structures in nuclear power plants to resist lateral loads such as earthquakes and wind loads effectively. Risk-informed and performance-based regulation in the nuclear industry requires considering possible accidents and determining desirable performance on structures. As a result, rather than predicting only the ultimate capacity of structures, the prediction of performances on structures depending on different damage states or various accident scenarios have increasingly needed. This study aims to develop machine-learning models predicting drifts of the RC shear walls according to the damage limit states. The damage limit states are divided into four categories: the onset of cracking, yielding of rebars, crushing of concrete, and structural failure. The data on the drift of shear walls at each damage state are collected from the existing studies, and four regression machine-learning models are used to train the datasets. In addition, the bagging ensemble method is applied to improve the accuracy of the individual machine-learning models. The developed models are to predict the drifts of shear walls consisting of various cross-sections based on designated damage limit states in advance and help to determine the repairing methods according to damage levels to shear walls.

A Multi-Period Regulation Methodology for Reliability as Service Quality Considering Reward-Penalty Scheme

In distribution systems, reliability insurance and financial performance are often hard to reconcile due to a natural monopoly. While many studies have proposed regulatory design of reward-penalty scheme (RPS) as an effective performance-based regulation framework to compensate for this natural monopoly, little attention is devoted to consideration of RPS in reliability as service quality. In this paper a novel methodology is proposed for considering an RPS in regard to reliability assessment problems to ensure a reasonable balance between reliability improvement and financial performance. In the proposed methodology, the impact of the utilities' financial and reliability performance in one regulation period is considered as to how it influences the next periods, i.e. multi-period modeling. The implementation results in an IEEE test system are utilized to reveal possible improvements in both reliability and financial performance, which lead to the delivery of a satisfactory level of service quality to customers in both the short- and long-term. The proposed methodology can be regarded as a performance-based standard for reliability improvement and efficient investment in distribution systems.

Toward consumer-centric energy network regulation: Australia's experience

Understanding the objective of economic regulation as mimicking the process of competition, rather than the outcome of theoretical competitive markets, recognises the need for regulated energy transmission and distribution network service providers to respond to consumer preferences. The regulator, network service providers, and consumer advocates in Australia have conducted experiments on ways consumer preferences can shape regulatory proposals. These experiments demonstrate that agreements about regulatory proposals between the network service provider and a counterparty representing the interests of consumers are effective in ensuring that the proposal reflects consumer preferences. The paper demonstrates that in this process, consumers can also design output-oriented incentive schemes proposed by performance-based regulation.

Optimal Equilibrium Selection of Price-maker Agents in Performance-based Regulation Market

This paper analyzes the oligopolistic equilibria of multiple price-maker agents in performance-based regulation (PBR) markets. In these markets, there are price-maker agents representing some frequency regulation (FR) providers and a number of independent price-taker FR providers. A model of equilibrium problem with equilibrium constraints (EPECs) is employed in this paper to study the equilibria of a PBR market in the presence of price-maker agents and price-taker FR providers. Due to the incorporation of the FR providers' dynamics, the proposed model is reformulated as a mixed-integer linear programming (MILP) problem over innovative mathematical techniques. An optimal equilibrium point is also selected for the market, where none of the agents is the unique deviator and the dynamic performance of power system is improved simultaneously. The effectiveness of the proposed optimal equilibrium point is evaluated by comparing the outputs with the conventional optimal dispatches of the FR providers.

EVTOL Certification in FAA and EASA Performance-Based Regulation Environments: A Bird Strike Study-Case

Considering the new generation of air mobility vehicle that has been developed, the electric vertical take-off and landing (eVTOL) aircraft operation will become a reality in the next years. This paper studies the main concerns that can be pointed out due to the different certification approaches that the Federal Aviation Administration (FAA) and European Union Aviation Safety Agency (EASA) have been applying for this kind of aerial vehicle. The paper explores the 14 CFR Part 23-64 and CS-23-5 reorganization to demonstrate how these changes into the requirement structure will be important and influence the eVTOL certification basis construction. Based on the high probability of bird strike events that an eVTOL may face due to its altitude operation, a study-case for a bird strike certification using the known FAA and EASA approaches is performed, considering the current regulation presented into Part 23/CS-23, Part 27/CS-27, Part 29/CS-29 and SC-VTOL-01. The main differences concluded in this evaluation and possible risks and difficulties that an applicant will face during the process are then explored. A final comparison between a bird strike certification process that may be required by FAA and EASA is presented, as well as a recommendation based on the study.

A reliability-centered methodology for identifying renovation actions for improving resilience against heat waves in power distribution grids

In performance-based regulation paradigms, national authorities offer incentives to distribution system operators to develop plans for increasing the network resilience against natural hazards, such as heat waves, hurricanes, rain bombs, flooding. In this paper, we propose an approach, compliant with the Italian performance-based regulation framework, to prioritize renovation actions on sections of electrical power distribution networks for improving resilience against heat waves. The approach is made up of three steps, each addressed through a novel methodology: (i) define the hazard of interest, i.e., heat waves; (ii) estimate the reliability of the network branches; (iii) prioritize the renovation interventions on the network to improve its resilience. The methodology has been applied to the medium voltage distribution network of Milano, Italy, yielding the identification of prioritized intervention actions to submit to the authority for incentives.

Performance-based regulation of train service delays: Hong Kong

ABSTRACT This paper studies performance-based regulation of train service delays in Hong Kong. Motivated by the criticism that the Mass Transit Railway (MTR) offers fare rebates deemed too small for long service delays, our logit analysis of a stated choice experiment’s data collected from 1,559 MTR users in Q4:2020 yields the following findings: (1) the disaggregate willingness to pay (WTP) estimates that ignore passenger attributes are HK$21 to HK$37 for a 15- to 60-minute train service delay announced to occur in a 1-hour period; (2) increasing the period by one hour raises these estimates by ~HK$16; (3) accounting for passenger attributes magnifies these estimates by ~18%; and (4) the aggregate WTP estimates are 1.3 to 4.9 times MTR’s existing rebates for rush-hour delays and 0.5 to 1.9 times for non-rush-hour delays. Hence, aligning MTR’s rebates with the aggregate WTP estimates likely incentivizes MTR to reduce long service delays.

Performance‐Based Regulation and Climate Change

Performance‐based regulation (PBR) has been used for several decades to incentivize and regulate US energy utilities. Its popularity has been bolstered in recent years by mounting concerns over the impact that greenhouse gas (GHG) emissions from the production and consumption of natural gas and the generation of electricity have on the world's climate. In combination with other policy measures, PBR has helped to mitigate adverse climate impacts in part by reducing energy use and moving toward cleaner energy choices. Mounting climate concerns have caused PBR to change. In this article these authors provide a useful taxonomy of PBR tools and then discuss how PBR has grown and evolved.

Average residential outage cost estimates for the lower 48 states in the US

Motivated by diverse residential electricity outage cost estimates and possible hypothetical bias of contingent valuation (CV) survey data, this paper proposes a simple formula for market-based estimation of residential outage costs. Its key finding is that average residential outage cost estimates for the lower 48 states of the US range from US$0.12 to US$0.34 per kWh unserved, below the regional CV-based estimates of US$1.0 to US$4.2 per kWh unserved found by a national study. It makes three contributions to the literature of residential outage cost estimation. First, it obviates collecting and analysing CV survey data for estimating average residential outage costs. Second, its proposed formula has minimal data requirements and is applicable to any city, state, region, or country. Finally, it details the policy implications of our newly found empirics in electricity pricing, resource planning, resource procurement, electricity product differentiation, and performance-based regulation of electricity reliability.

A back of the envelope estimate of the average non-residential outage cost in the US

Using the Envelope Theorem, this paper derives a simple formula for market-based estimation of an average non-residential outage cost. Its key finding is that the 2019 estimate for the US is about US$10 per kWh unserved, below the regional estimates of approximately US$20 to US$40 per kWh unserved previously found by a large national study that uses contingent valuation (CV) survey data. This finding’s policy implication is reductions in marginal-cost-based electricity prices, an electric grid’s need for transmission and generation capacity and demand response resources, a local distribution company’s reliability-related investment, an independent system operator’s cap for wholesale prices, and a regulator’s penalty for reliability deterioration under performance-based regulation.

A Report on the Theory and Practice of Performance-Based Regulation

This report is designed to be a self-contained introduction to performance-based regulation (PBR) with an emphasis on the energy sector in North America. The main topics include: key differences between PBR and traditional cost-of-service regulation (COSR), the various forms of PBR and their efficiency properties, common misconceptions about PBR, the economic and public policy principles that should inform the design and implementation of PBR, the mechanics of PBR, the advantages and disadvantages of earnings sharing mechanisms, the importance of regulatory commitment and the role of benchmarking in PBR regimes.

Assessing socio-technical resistance to public policy instruments: Insights from water performance indicators in the Grenoble area (France)

This article puts forward the notion of socio-technical resistance with an application to the regulation through performance indicators in the water sector. Governance failures are mainly explained by concentrating on governance design, considering regulation as a set of control mechanisms. We propose an alternative perspective by putting the emphasis on socio-technical resistance to take into account both human and non-human actors in the governance process. We observe the misuse of performance indicators by local actors in urban water systems in Europe to highlight the empirical significance of socio-technical resistance. Results support that socio-technical resistance is frequent and reduces significantly the reliability of the information gathered through performance indicators. Drawing on a new typology of resistance, we show socio-technical resistance is a dynamic combination of cognitive, interpretative, territorial, strategic, technical and structural factors. These results and the proposed notion underline a crucial limitation of public policies and regulation in the process of policy-instruments implementation and compliance. Empirically, it reveals particularly relevant to provide new insights on New public management and performance-based regulation, where measurement are crucial.

Designing performance-based regulation to enhance industry performance and consumer welfare

This article provides two observations about the design and implementation of performance-based regulation (PBR). First, PBR delivers stronger incentives for superior performance when the “ratchet effect” is mitigated. Consequently, utilities should be rewarded (penalized) based on their performance relative to external, not internal, benchmarks. Second, even when hindered by limited information, regulators can ensure consumers benefit from PBR by offering utilities a choice among a carefully designed set of regulatory options.

FLAME: A Parametric Fire Risk Assessment Method Supporting Performance Based Approaches

A fire risk assessment has always been a challenging task. Performance-based approaches to fire engineering have shown that risk-based decisions and fire scenarios are fundamental elements that must be considered in fire safety strategies. A correct assessment of the fire risk allows all the involved stakeholders to identify a specific strategy from among a variety of possibilities. A risk assessment is the best tool to identify comparable fire protection strategies and to measure the reduction in fire risk that can be obtained with each specific prevention and protection measure, i.e., by means of different fire safety strategies. The present paper illustrates a method that takes into account several well-known methods, even some that were developed as far back as in the early seventies. The method is named “FLAME” (Fire Risk Assessment Method for Enterprises). FLAME considers fundamental fire safety aspects instead of making use of sophisticated and time-consuming methods like CFD. FLAME uses the “Fire Safety Concept Tree”, which is explained in detail in the NFPA 550 Standard, as a reference scheme. The method allows the risk to the occupants to be evaluated separately from the risk to the building. Over the years, we have tested the method considering different kinds of buildings and occupancies. We here report the results of an application of the FLAME method to hospitals and health-care facilities. Overall, about 300 compartments (overall size of about 60,000 m2) were analysed, including two hospitals of about 200,000 m2 each. The results of the risk estimation with the FLAME code have been found to be coherent with Italian fire code prescriptions. About 44% of the compartments were defined as being at a Medium risk and 39% as being at a high risk (according to the Italian Fire Code). More than 60% of the hospital compartments were defined as being at a High risk. A good agreement was obtained between the RSET results with those of the method proposed in FLAME when using the current performance-based regulation criteria. The RSET estimation in FLAME considers the occupants’ behaviour and the actual characteristics of the occupants in clinics or hospitals, who often have difficulties due to reduced mobility or an incapacity to understand emergency instructions.

How PBR can go wrong

This paper is a cautionary tale for performance-based regulation (PBR) to serve the public interest. There are different reasons for why PBR may fail to benefit utility customers. This paper provides a numerical example that shows that setting the wrong benchmark can have unintended consequences. The main message is that knowing whether a utility achieves a desirable outcome may be harder than what first meets the eye.

Participation of Pumped Hydro Storage in Energy and Performance-Based Regulation Markets

This paper examines the non-strategic and strategic participation of a pumped hydro energy storage (PHES) facility in day-ahead energy and performance-based regulation (PBR), which includes regulation capacity and mileage markets. The PHES is modeled with the capability of operating in hydraulic short-circuit (HSC) mode with detailed representation of its operational constraints, and integrated with an energy-cum-PBR market clearing model. For its strategic participation, a bi-level market framework is proposed to determine the optimal offers and bids of the PHES that maximize its profit. The operation of PHES is modeled at the upper level, while the market clearing is modeled in the lower level problem. The bi-level problem is formulated as a mathematical program with equilibrium constraints (MPEC) model, which is linearized and solved as a mixed integer linear programming problem. Several case studies are carried out to demonstrate the impact of PHES’ non-strategic and strategic operations on market outcomes. Furthermore, stochastic case studies are conducted to determine the PHES strategies considering the uncertainty of the net demand and rivals’ price and quantity offers.

Multi-class EV charging and performance-based regulation service in a residential smart parking lot

Abstract Electric vehicles are becoming an indispensable part of modern cities and power grids through their versatile and fast-response charge and discharge characteristics. Currently, smart parking lots in residential areas mainly provide slow-charging services and possibly participate in demand response programs. However, the fast emerging of EV fast-charge has brought the necessity to provide new installations and planning frameworks to cater a high level of energy within a small non-shiftable time fraction for this type of power demand. Also, due to its random nature and high power demand, fast charge may inflict heavy fluctuations to the grid. In this paper, the EV aggregator’s task in a parking lot is modeled to also incorporate fast-charge services. Through using the aggregate capacity of slow-charged EVs in the parking lot as a sourcing–sinking resource, the fast-charge demand fluctuations are guaranteed to be safely absorbed. Besides, the flexibility of slow-charged EVs is also used to perform the newly-restructured regulation services which credits the participants not only based on the offered capacities but also on their real-time regulation performance. A real-time stochastic approach is introduced to take care of the aggregator’s extensive planning for both slow and fast-charging EVs besides procuring dynamic regulation to the grid. This approach significantly lowers charging costs for aggregators in exchange for sophisticated scheduling task to use the available resources more efficiently. The effectiveness of the proposed method in handling the energy and regulation management is demonstrated through several case studies.

Mileage-Responsive Wind Power Smoothing

This paper proposes a novel wind power smoothing control paradigm in context of performance-based regulation service. Conventional methods aim at adjusting wind power output using hard-coded filtering algorithms that can result in visually smoothed power output with unmeasurable impacts on system generation-demand balance. Distinguished from conventional methods, the newly proposed control method smooths wind power output from a power system perspective by using the regulation mileage as a key performance indicator. To simultaneously address the system needs and maximize wind energy harvesting, a mileage-responsive framework is developed to enable wind farms to optimally generate smoothing power. The effectiveness of the proposed method is well demonstrated through case studies, of which the simulation results shows a great potential for practical applications.