Voltage sag (dip), a sudden reduction of the voltage magnitude within a short duration in power system, is one of major concerns of power quality problems. The main reason of the increased concerns for voltage sag problems is that the losses caused by voltage sag events are high and not negligible. Reliability indices have been used for many years to quantify the effect of sustained interruptions on the electric power system. Power quality indices reflecting the severity of various power quality problems, such as flicker, harmonics, voltage swell and sag conditions, power factor, losses, electromagnetic interference, and other phenomena, are still under development. The representation and classification of voltage sags have been studied recently by standard-setting organizations. In order to find compatibility between service quality and the equipment adopted and a least cost solution for possible power quality problems, the concept of system disturbance level and equipment immunity level was proposed in IEC 61000-3-7 but without clear definitions. A novel voltage sag index based on fuzzy logic technique to quantify system disturbance and equipment immunity levels is proposed in this dissertation. This approach takes network vulnerability, equipment sensitivity and uncertainties in measuring voltage sags into account, thereby, providing meaningful information for both the utility and customers. Using the proposed method, the probabilistic distribution of system disturbances can be obtained from the single event indices of all events recorded and the probabilistic distribution of equipment sag immunity capability can be evaluated based on the device voltage sag tolerance curve. This dissertation also presents a novel framework for predicting the number of equipment disruptions due to voltage sags in a unit of time by using the disturbance and immunity levels concepts. In the proposed approach, the number of disruptions is computed by using the unreliability concept. The area of overlapping between the distributions of site disturbance and equipment immunity levels, which indicates the number of possible disruptions, is calculated based on interference theory and reliability computations. The presented methodology can be used as a planning tool to quantify the system disturbances and equipment sensitivity. It can also be used to perform cost analysis of the compatibility of equipment with an electric power system. To minimize the costs due to voltage sags, it is always a good strategy to maintain a minimum overlap between the equipment immunity level and site disturbance level to have satisfactory operation of the equipment. The tool achieved in this work can be used to perform such analyses.