Monte Carlo simulations of Ofgem incentive scheme for electricity interruptions (2003-2004)

At a previous employer, Franck Latrémolière led a series of assignments for a UK electricity distribution company on financial incentive schemes proposed by its regulator Ofgem to encourage a reduction in the amount and duration of power cuts. This was called the "information and incentives project" or IIP.

Our work was to quantify financial risks arising from Ofgem's proposals for financial incentive regimes based on customer interruptions and customer minutes lost; and to help the client develop its position towards options for caps on liability or severe weather exclusions.

We developed and used a Monte Carlo simulation tool based on a large database of fault events supplied by the client, and estimated probabilities of extreme combinations of events and their financial impact through the proposed incentive scheme.

*Franck Latrémolière

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