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A Stochastic Model for the Measurement of Electricity Outage Costs

Abraham Grosfeld-Nir and Asher Tishler

The Energy Journal, 1993, vol. Volume 14, issue Number 2, 157-174

Abstract: The measurement of customer outage costs has recently become an important subject of research for the electric utilities. This paper uses a stochastic dynamic model as the starting point in developing a market-based method for the evaluation of outage costs. Specifically, the model postulates that once an electricity outage occurs, all production activity stops. Full production is resumed once the electricity outage is over. This process repeats itself indefinitely. The business customer maximizes his expected discounted profits (the expected value of the firm), taking into account his limited ability to respond to repeated random electricity outages. The model is applied to 11 industrial branches in Israel. The estimates exhibit a large variation across branches.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 1993
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Handle: RePEc:aen:journl:1993v14-02-a08