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A Stochastic Model for the Measurement of Electricity Outage Costs

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  • Abraham Grosfeld-Nir
  • Asher Tishler

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.

Suggested Citation

  • Abraham Grosfeld-Nir & Asher Tishler, 1993. "A Stochastic Model for the Measurement of Electricity Outage Costs," The Energy Journal, , vol. 14(2), pages 157-174, April.
    • Handle: RePEc:sae:enejou:v:14:y:1993:i:2:p:157-174
    DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No2-8
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    References listed on IDEAS

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    1. Tishler, Asher, 1984. "A model of industrial demand for electricity under time-of-use pricing and three labor shifts," Resources and Energy, Elsevier, vol. 6(2), pages 107-127, June.
    2. Douglas W. Caves & Joseph A. Herriges & Robert J. Windle, 1992. "The Cost of Electric Power Interruptions in the Industrial Sector: Estimates Derived from Interruptible Service Programs," Land Economics, University of Wisconsin Press, vol. 68(1), pages 49-61.
    3. Michael L. Telson, 1975. "The Economies of Alternative Levels of Reliability for Electric Power Generation Systems," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 679-694, Autumn.
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