Pricing for system security [power tariffs]

Security in power systems refers to the ability of the system to withstand imminent disturbances (contingencies). Maintaining security is an issue which must be addressed at the system level. It is shown in this paper, however, that it is possible to maintain power system security in an operating environment with many participants (power companies, independent power producers, co-generators, consumers) each attempting to optimize their own benefit, through pricing incentives and appropriate information exchange. Rates for power generation/consumption and for an offer to use during a contingency, as well as information on the probability distribution of contingency need for each participant, are derived so that individual optimization will lead to the socially optimal solution in which power system security is optimized and the aggregate benefit is maximized