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Customer Demand for Service Reliability in the Electric Power Industry: A Synthesis of the Outage Cost Literature

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  • Caves, Douglas W
  • Herriges, Joseph A
  • Windle, Robert J

Abstract

The purpose of this paper is to review and synthesize recent North American research into the demand for service reliability and to draw conclusions of general interest to the utility industry. The electric power industry has, over the past 15 years, experienced increasing pressures to become more efficient, that is to provide greater value to its customers for the same resource utilization. The industry's response to these pressures has given rise to the potential for major changes in the theory and practice of utility planning, operations and pricing. A common thread running through many of these changes is a recognition that the consumer's demand for service reliability plays a key role in designing prices and services. To date the demand for service reliability has been characterized almost exclusively in terms of `outage costs', which refer to loss in value to the customer resulting from a sudden interruption of power. In the case of industrial and commercial customers, these costs may take the form of lost sales, idle labor, or product and input spoilage. While residential outage costs may also include spoilage, the less tangible costs of inconvenience are likely to play a more dominant role.
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Suggested Citation

  • Caves, Douglas W & Herriges, Joseph A & Windle, Robert J, 1990. "Customer Demand for Service Reliability in the Electric Power Industry: A Synthesis of the Outage Cost Literature," Bulletin of Economic Research, Wiley Blackwell, vol. 42(2), pages 79-119, April.
  • Handle: RePEc:bla:buecrs:v:42:y:1990:i:2:p:79-119
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    Cited by:

    1. Clementina Bruno & Ugo Finardi & Azahara Lorite-Espejo & Elena Ragazzi, 2016. "Emerging costs deriving from blackouts for individual firms: evidence from an Italian case study," quaderni IRCrES 201601, Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    2. Pepermans, Guido, 2011. "The value of continuous power supply for Flemish households," Energy Policy, Elsevier, vol. 39(12), pages 7853-7864.
    3. Irina Klytchnikova & Michael Lokshin, 2009. "Measuring Welfare Gains from Better Quality Infrastructure," Journal of Infrastructure Development, India Development Foundation, vol. 1(2), pages 87-109, December.
    4. Röpke, Luise, 2013. "The development of renewable energies and supply security: A trade-off analysis," Energy Policy, Elsevier, vol. 61(C), pages 1011-1021.
    5. Ozbafli, Aygul & Jenkins, Glenn P., 2015. "The willingness to pay by households for improved reliability of electricity service in North Cyprus," Energy Policy, Elsevier, vol. 87(C), pages 359-369.
    6. Abrate, Graziano & Bruno, Clementina & Erbetta, Fabrizio & Fraquelli, Giovanni & Lorite-Espejo, Azahara, 2016. "A choice experiment on the willingness of households to accept power outages," Utilities Policy, Elsevier, vol. 43(PB), pages 151-164.
    7. Asher A. Blass & Saul Lach & Charles F. Manski, 2010. "Using Elicited Choice Probabilities To Estimate Random Utility Models: Preferences For Electricity Reliability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 421-440, May.
    8. Woo, C.K. & Ho, T. & Shiu, A. & Cheng, Y.S. & Horowitz, I. & Wang, J., 2014. "Residential outage cost estimation: Hong Kong," Energy Policy, Elsevier, vol. 72(C), pages 204-210.
    9. Aygul Ozbafli & Glenn Jenkins, 2013. "Estimating Willingness To Pay For Reliable Electricity Supply: A Choice Experiment Study," Development Discussion Papers 2013-01, JDI Executive Programs.
    10. Aygul Ozbafli & Glenn P. Jenkins, 2015. "The Willingness To Pay By Households For Improved Reliability Of Electricity Service," Development Discussion Papers 2015-02, JDI Executive Programs.
    11. Beenstock, Michael & Goldin, Ephraim, 1997. "Priority pricing in electricity supply: An application for Israel," Resource and Energy Economics, Elsevier, vol. 19(3), pages 175-189, August.
    12. World Bank, 2002. "India : Power Sector Reform and the Poor," World Bank Other Operational Studies 15286, The World Bank.
    13. Merz, Carina, 2008. "Monetaere Bewertung der Netzzuverlaessigkeit fuer eine effiziente Qualitaetsanreizregulierung," EWI Working Papers 2008-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    14. Ozbafli, Aygul & Jenkins, Glenn P., 2016. "Estimating the willingness to pay for reliable electricity supply: A choice experiment study," Energy Economics, Elsevier, vol. 56(C), pages 443-452.
    15. Klaus Moeltner & David F. Layton, 2002. "A Censored Random Coefficients Model For Pooled Survey Data With Application To The Estimation Of Power Outage Costs," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 552-561, August.
    16. repec:aen:journl:ej38-4-oseni is not listed on IDEAS
    17. Yu, W. & Jamasb, T. & Pollitt, M., 2007. "Incorporating the Price of Quality in Efficiency Analysis: the Case of Electricity Distribution Regulation in the UK," Cambridge Working Papers in Economics 0736, Faculty of Economics, University of Cambridge.
    18. Diboma, B.S. & Tamo Tatietse, T., 2013. "Power interruption costs to industries in Cameroon," Energy Policy, Elsevier, vol. 62(C), pages 582-592.
    19. Ajodhia, Virendra & Hakvoort, Rudi, 2005. "Economic regulation of quality in electricity distribution networks," Utilities Policy, Elsevier, vol. 13(3), pages 211-221, September.

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