Unbundling of transmission and ancillary services. II. Cost-based pricing framework

For pt.I see ibid., vol.12, no.2 (1997). This paper presents a systematic framework for pricing transmission and ancillary services in competitive power markets. This framework is based on the recovery of fixed and operating costs, and it meets the traditional revenue requirements. It is practical, feasible, easy to implement, and to regulate. It can be implemented with minimum transition cost. This network flow-dependent and nondiscriminatory framework is based on the decomposition approach presented in Part I of this paper. This decomposition forms an essential part of the proposed framework for usage-based recovery of the fixed and operating costs. The transmission system related fixed cost component is recovered from all transactions based on percentage utilization of the transmission system equipment. The charge is based on the actual network power flows. The ancillary service charge for a given transaction can be computed as the sum of the costs incurred at secondary generation for compensating the imbalance caused by that specific transaction. The "path providing" function of the transmission grid is viewed as a true monopolistic service, its pricing is cost based, and charge for its use is usage based; the generation based ancillary service supply can be made competitive, its pricing is market based, and charge for it is usage based. A global overview of the proposed pricing strategy is analyzed in the context of other alternatives, especially cost-based methods. A numerical example on a five-bus system is given to illustrate the use of this pricing strategy.