Cost of transmission system usage based on an economic measure

Throughout today's unbundled power systems, it is assumed that the transmission system is a natural monopoly, and therefore, it should be regulated. To compensate for the revenue requirements of the owners of the transmission system and encourage its future expansion, transmission pricing schemes should be designed fairly. Also the schemes must aim to achieve the objective of maintaining system security by encouraging proper operation and maintenance of existing and investment in new facilities. In this paper, based on a simple economic principle, a novel method for allocation of the fixed cost of the transmission system to agents using these facilities is developed. This new method introduces the concept of critical capacity of a line and considers congestion in the transmission system to allocate the share of the transmission system revenue requirement that each agent has to provide. Identifying and charging the agents who cause congestion is very important as it sends the correct economic signal to transmission network users. This is a novel feature of this method, thus making it most suitable for systems where congestion does occur. We also point out briefly the reliability concerns of the new method. A simple eight-bus network representative of the PJM-ISO system together with its market pricing mechanism is used as a competitive power system to illustrate the main features of the proposed method.