Assessing the transmission service risk

Under the deregulated framework of the electricity industry, the activity of providing transmission service has been considered as a regulated monopoly. When transmission service is offered separately from the system operation, regulatory agencies usually define a basic payment for each transmission facility, which is defined by means of using performance indexes that will ultimately establish the value paid for the service. A possible approach to promote the maximization of each transmission facility's availability is to reduce the payment to the transmission provider whenever specific outages occur. In this paper, a methodology that allows regulators to define penalties related to the performance of the transmission provider is proposed. In order to define those penalties, a model based on the Monte Carlo simulation technique is proposed, which assesses the expected revenue of transmission companies and the risk associated with it.