Endogenizing Fuel Price Risk (and Uncertainty)

As the recent literature indicates, risk assessment in power systems is underdeveloped and there is even no general agreement on how to do it. Rectifying this shortcoming would have salutary consequences well beyond improving the assessment of fuel price risk. Moreover, if fuel price risk is to be endogenized properly into decision making for electric power systems, regulators must be shown legally valid and politically acceptable methodologies for assessing risk and incorporating its costs into their decisions.

The objective of this project is to:

  1. Conduct a comprehensive review and critical assessment of methods for measuring risk, as relevant to fuel price risk in electric power systems,
  2. Investigate how fuel price risk (as appropriately measured) may be incorporated into decision making. How this risk can be endogenized into decision making for electric power systems so that the burden of risk is not inappropriately shifted. The analysis will include regulated and deregulated power systems.

Steven Kimbrough

Professor of Operations, Information and Decisions
Steven Kimbrough is a professor of operation, information, and decision in the Wharton School.