26. NATIONAL POWER SYSTEMS CONFERENCE, NPSC 2008 Transmission Pricing Methodologies under Restructured Environment: An Overview OP.Rahi —-Y.R.Sood ‘The power Industry restructuring has. received ion around the world for the last two decades, One fof the important issues in restructuring effort is the pricing of transmission as it is neither feasible nor economical to build independent transmission systems for each generation load pai. In tis paper a number of embedded as well as newly developed methods of determining the transmission pricing hasbeen presented. Proper pr thodology under restructured « cat is needed for transmission networks so as (0 ensure ‘elability and of secure operation of power system. Index Terms— Deregulation, embedded cost, transmission pricing, wheeling. L Intropuction ]OWER industry throughout the world is undergoing change from traditional vertically integrated utilities 10 deregulated ones, There are two main reasons for this shift; one is the lack of adequate funds to set up the funds required generation, transmission and distribution facilities, especially in third world countries and second to bring in improvement in the overall efficiency in the industry, The objective of restructuring or deregulation electricity market and to incorporate competition at various levels in the industry [1 Transmission pricing plays a crucial role in the success of deregulation since it determines whether the provided transmission serviees are beneficial to both wheelers and customers. Wheeling is a term used to deseribe the situation in a given utility’ distribution network is used to exchange electric energy between 1wo other parties. The electricity pricing methodology by which itis computed is @ high industry due to the growth in the transmission, the difference of cost between utility companies and the dramatic growth in the non-utility generation capacity. A key feature of the open transmission access in a restructured environment is the need to charge all customers on a non- discriminatory basis for transmission services [2]. Derivation of charges for the different kinds of transmission services should be simple and transparent and signals these charges provide should be stable. The transmission pricing can be broadly classified in main two categories, ie, embedded cost based and transparent and to ereate an which transmission! (OD Rati is with Elecrical Engineoing Department, NIT Hamirpur (HP), ndia-17700S, (email opahiarecham ere Dr. Y.8Sood i with letra Engineering Department, NIT Hmicpur (1) India 177005, (e-mail sane), De RC-Chauhan is with SHSL CIET Longowal (Pb. Indi 148106, (e-mail ‘schaubandahoinailcom Member IEEE, R.C.Chauhan Member IEEE signals these charges provide should be stable. The transmission and transparent and signals these charges provide should be stable. The transmission pricing can be broadly classified in main two categories, ic., embedded cost based and transparent and signals these charges provide should be stable. The transmission pricing can be broadly classified in main two categories, ic., embedded cost based approaches and marginal cost based approaches. Accurate pricing of ttansmission services is useful in providing economic signals for efficient short run operations, recovery of costs, long term capital investments and fair allocation of costs among participants, TL, COST COMPONENTS OF TRANSMISSION SYSTEM Transmission pricing has been an important issue on the ongoing debate about power system restructuring and deregulation, This issue is one of the complicated issues in restructured environment. Purpose of the pricing is to recover the cost of transmission, to encourage efficient use and investment. Before pricing the transmission systems, one must have the knowledge and clear idea about various types of the cost components involved in a transmission system (3). The following components of are involved in a twansmission system, A. Operating Cost This includes variable cost primarily due to rescheduling, maintaining system voltages, reactive power support and line flow limits B. Opportunity Cost Its the cost which a transmission company has to forego to meet the transactions such as it could not use cheaper generation and could not realize revenue from firm contracts ‘due to line flow reaching limits. CC. Reliability Cost Each transmission transaction may change the servive reliability level and this affects the expected outage cost and hence results in the reliability cost. Reliability costs are very difficult to assess as they attributed to the many factors such as the timing, the duration, the extent of the service outage and the customer location ete. D. Reinforcement Cost ‘This cost is charged to only firm transactions and includes, capital cost of new facilities requited to meet the transaction (4)INDIAN INSTITUTE OF TECHNOLOGY, MADRAS 600 036 DEC.27.30 E,_ Existing Cost This includes the capital cost ofthe existing facilities and need to be allocated to various transactions on some rational basis, ‘The power flow in the transmission network is governed by physical laws and need to balance supply and demand all the time, Since generators and loads are connected to the same network, action by one participant can have significant ‘consequences on the others making it difficult to investigate the cost each participant is tesponsible for. ‘Therefore, transmission pricing should be computed such that the fotal transmission charge includes the cost ofall the above components and allow a small regulated smount of profit to the owner, TIL TRADITIONAL TECHNIQUES Embedded Cost method ‘This method allocates the embedded capital costs and the average annual operation and maintenance cost of existing transmission facilities [5]. Therefore, this method is based on recovery of on a lump sum basis, the embedded capital cost, average annual operating cost, replacement cost considering service period and depreciation, The four embedded cost methodologies of pricing are mentioned as below: 1). Rolled in Embedded Method: This method is also ealled postage stamp method. In this method, transmission prices are ‘charged equally on per MW basis of transaction, irrespective Of the distance of the power to be transmitted, Its calculated different for different time of the day. In this scheme, a ‘customer drawing a same amount of power as another one but located farthest from the source point is charged same transmission price, whereas its use of transmission network is 2) Contract Path Method: This method is. similar to MWMile method except that the transmission of power between two points are charged based on the rate of a fixed contracted path. Although this method is simple, it offers a poor implementation of a true transmission pricing as power flows can not be restricted to a predefined path in ease parallel ppaths are available, Apart form parallel lows; pan caking of iransmission rates is another shortcoming of this method. Pan ccaking takes place when 2 contract path crosses a boundary defining a tansmission ownership [6]. Additional transmission charges would be added which in turn increases the price of a transaction. These two methods do not require power flow executions, 3) Boundary flow Method: Boundary flow method incorporate changes in MW boundary flows of the wheeling ‘company either on a line basis of net interchange basis. Two power flows, executed successively for every year yield the ‘changes either in individual boundary line or net interchange MW flows. ‘The load level represented in the power flows ean be at peak load or at another appropriate load level. 4) Line by Line Method: Line by line methods, in determining the transmission cost; consider changes in MW flows in all transmission lines of a company, and the line length in miles. Two power flows executed successively, with and without the wheel, results the changes in MW flows in all transmission lines. B. Short Run Incremental Transmission Costs (SRIC) Methodologies Short Run Incremental Transmission Costs (SRIC) refers to the cost of costs of incremental produetion over a short period, that includes variable costs such as fuel and operation cost but do not the capital or other fixed costs (7), In this pricing methodology, the incremental operating cost of the power system due to a transmission transaction is calculated first ‘The SRIC based pricing includes incremental generating cost, incremental cost due to losses and also due to operating constraints. The incremental operating cost per MW of the transacted power can be estimated as the difference in the ‘optimal cost of power at all points of delivery and receipt of | that transaction. The capital costs in the SRIC based transmission pricing methods are recovered by using revenue reconciliation C._Lomg Run Incremental Transmission Costs (ERIC) Methodologies ‘The long run incremental cost (LRIC) generally refers to the costs of incremental production over a long. period, including both fixed and variable costs and can be defined as the incremental cost of supplying an additional unit of energy when the installed capacity of the system is allowed 10 increase optimally in response to the incremental increase in demand, As such, it incorporates both capital and operating cost For the system as @ whole, a single value of LRIC can be developed fora time period, which reflets the cost of system expansion. The long run incremental transmission costs methods can be further classified in two categories as explained below. 1) Standard Long Run Incremental Cost Method: This methodology of cost allocation uses traditional. system planning approaches to determine to determine reinforcements that are requited and corresponding investments with and without each wheel, through out the study period. It is the objective of the cost allocation to determine the part of the total reinforcement and the change in operating costs, whieh are due to each specifi transaction. There are four separate transmission cost allocation methodologies presented as below: Dollar per MW allocation method allocates the transmission price for all wheeling increments by developing an annual cost per M\W tansmitted for both the cost of reinforcements and the change in operating costs. MW-Mile allocation method of pricing, the distance involved is also considered in a transaction apart from the amount of power being transacted. The distance may be aerial or eieuit length, Charges may vary on the different times of the day. Some of the controversies 1o be addressed by thisus. method are the actual parallel/counter flows, displacement of power and Interface Flow allocation by Regions method was conceived by I. Allen, in which an allocation may be desired by regions rather than companies, with all inputs provided by regions. The regions could likewise represent individual companies within a power pool. The methodology described is similar (o that under boundary flow methods, except that the latter was an embedded cost method with the boundaries representing company boundaries. The number of regions present as well as list of the each region's boundary lines are inp In one by one allocation method the transmission cost associated with each transaction are calculated separately for any increment in power flow. 2) Long Run Fully Incremental Cost (LRIC) Method: This method of cost allocation does not allow excess transmission capacity to be utilized but allows the reinforeement. This cost of transmission reinforcement in the case of the long run fully incremental method hence does not have to be allocated for individual transaction as each transaction has already been separately considered. TV, RECENT TRENDS With the shift of power industry from traditional vertically integrated utilities to the restructured ones in many countries, there is change in transmission price allocation [8]. Basic aim behind restructuring or deregulation of power industry is 10 make energy markets competitive, thus benefiting the end user, i.e. the consumer [9]. A key feature of the open transmission system in a restructured environment is the need to charge all customers on a non- discriminatory basis for transmission services. A. Transmission Usoge Evaluation ‘The exact knowledge of the extent to which transmission usage is needed is mandatory for implementation of transmission usage evaluation. Its implementation is typical because of the non-linear nature of the power flow equations, and also with respect to decomposition of network flow in respective components for each customer. However, an approximate model can be devised from an engineering point of view for acceptable and reasonable accuracy that estimates the contribution t the transmission network from individual user (10). B. Power Transfer Distribution Factors Power transfer distribution factor (PTDF) based on DC power flows can be used as an efficient tool for evaluating transmission capacity use under various open access structures [11]. Other factors like generation shift distribution factors (GSDF's) and Generalized Generation’ load distribution Factors (GGDF'SIGLDF"s) have been used extensively in power system security analysis to approximate the transmission fine flows and generation/load values. GSDF's are used to identify the maximum transaction related flows for ceases in which transactions were specified by the bounded [NATIONAL POWER SYSTEMS CONFERENCE. NPSC 2004 generation and load injections. GGDF"s are straightway applied for to estimate the contribution by each generator 10 the line flow on the transmission grid and GLDF's are used t© allocate the sub-transmission network charges ever the loads within a distribution company. C. AC Flow Sensitivity Indices Like the application of D.C. power flow A.C. power flow models can be derived and sensitivity of transmission lin flows to the bus power injection can be calculated. The Line Utilization Factors (LUF's) can be used to find the contribution of active power by cach generator bus to nes. Also the Reactive Power Adjustment Factor (RPAF) represents. sensitivity indices of network reactive power losses to the active and reactive injections. D. Full A.C. Power Flow Solutions A.C. power flow solution provides more procise information about the transmission cost. For the single transaction difference approach is used, however, problem becomes typical in a multi transaction ease as problem becomes non- linear in this case [12]. In this methodology, two power flow solutions are carried out. One for the based load and other for the operating case to determine the combined impacts ‘caused by the transactions on the system, which may include MW/MVAR line flows. E. Power Flow Decomposition Power flow decomposition (PFD) algorithm is a network solution for allocating transmission services among individual ‘economical transactions on the system. For each transaction, it determines the usage of transmission network for real as well as reactive flow, the net power imbalance and the contributions fom participating generators to real power loss ‘compensation [13]. This algorithm is based on the principle ‘of superposition of all transactions on the system and decomposes the network flows into components associated with individual transactions plus one interaction component to account for the non-linear nature of power flow model. F. Tracing Algorithms ‘Tracing algorithms were designed for the recovery of fixed ‘transmission cost in poo! based markets. The basic paradigm used by tracing algorithms is the proportional sharing principle, There are two tracing algorithms known as the Bialek and the Kirschen. The Bialek algorithm is constructed ‘on a matrix formulation and therefore enables the use of lineal algebra tools to investigate the numerical properties of the algorithm [14]. The extensive studies of this algorithm have shown its capability and efficiency in allocating transmission usage/supplement charge among different generators and ‘normal operating conditions. The Kirschen algorithm also has ‘wo versions designed for identifying the contributions from cither the individual generators or loads to the line flows. This is a graphical approach and therefore a recursive procedure is used to calculate the contributions from the generators or loads.INDIAN INSTITUTE OF TECHNOLOGY, MADRAS 600036 DEC. 27-30 \V. ALTERNATIVE PRICING STRATEGIES In this section, altemative pricing strategies under open access will be discussed. The three Key. issues. in implementing usage based cost allocation are considered here. ‘These are unused transmission capacity, MVA Mile Methodology and pricing counter flows. A. Unused Transmission Capacity ‘The difference of facility capacity and the actual low on that facility is termed as unscheduled or unused transmission capacity. Comprehensive reliability studies are involved in this method to find the expected value of power flow variations and then an importance index is calculated for each line with respect to a particular transaction [IS]. These indices are measure of the extent to show how cach transaction use the capacity margin of cach fine under contingency conditions B._MVA Mile Methodology ‘The usage of transmission resources is measured efficiently by monitoring both real power and reactive power by specifying the line MVA loading limits and allocation of reactive power support from generators and transmission facilities. The concept of MW-Mile method ean be extended to include the charging for reactive power flows resulting in the so called MVA Mile methodology [16]. C. Pricing of Counter Flows ‘The power flow component contributed by @ particular component transaction that goes in the opposite direction of the net flow is termed as counter flow. In the MW Mile methodology and usage based allocation pricing formulation, the impact of each transaction on the flows is measured by the {quantity so that all transmission users have to pay for the use of path provision service, irrespective of the flow direction. However, in view of the contributions of counter flows in relieving the congested transmission line, any usage based {riff that charges for counter flows needs to be carefully reviewed [17]. Keeping in view this, the zero counter flow pricing methods suggests that only those who use the transmission facility in similar direction of the net flow should bbe charged in proportional to their contribution to the total positive flow, V. Case Stuby Generalized Flow Mile Method of wheeling has been illustrated with the 5-bus system shown in fig. 1. The input data for the system is given in table-l. The power flow ‘method was applied to find out real power flows in different lines of the test system. The power flow was first carried out ‘without wheeling transaction. This is called the base case. ‘Then wheeling transaction has been done with the injection of 5 MW at bus-I and removal at bus-5. ‘The power flow is done again including wheeling transaction, The results of both power flows have been given in table-2. 19 Fig.1: Transaction in S- bus system ‘Table I: Input Data for S-bus System Bus | Bus | Resistance | Reactan- | Length of iyi (pu) ee | Line (mile) (pu) T/2 002 0.06 200 1} 3 0.08 024 200 2/3 0.06, os 400 2/4 0.06, os 500 2/5 0.04 oz 450 34 0.01 0.03 200 ais 0.08 024 200 Table 2: Power Flow Results Line | Base case real | Wheeling tans. power flow case total wy Real power flow (Ww) 12 99.33 93.56 13 41.79 42.95 23 24.47 2461 24 22.1 28.05 54.66 58.30 19.39 20.60 6.60 8ditr [NATIONAL POWER SYSTEMS CONFERENCE, NPSC 2004 ‘The annual revenue for transmission service from sale s,t0 [4] _ Lib: La “Power Sytem Restructuring and Deregation” John Wiley transmission system |, is calculated using the MW-mile And Sons, Le, 2001p. 186. formula and the data of table 2 [5] Kovacs, AL, Leverett “A Loud Flow Based Method for Calculating Embedded, Embedded, Incremental and Marginal Cost of Transmission Darmy,,,*M,) cen EEE Tosoton on Poe Ste, V5. Fey AR, = ARR, [5] Yong Moon Park Jong Bae Park, Jung Uk Lim and Jong Ryu Wo, ss = “An Anata!” Appoach for" Trasction "Cons Allcaon in DRMW,,.*M,) Tnnssen Sy IEEE Taman on Per Sten Vol 3 it Nos Noveber 198, pp. 1-412. (71 -ML Baughman SStldiga and JW. Jamia, *Advenced Pca in where, lcincal Systems IEEE Transaction om Power Systems, Vo. 12, No . Feb 1975p 8802 AR, ,= Annual revenue for transmission service from sale s jg] Ac Did ual ¥2. Li. “Flesticy Pricing wit Congttve Suply Contos” Inernatonl neal of Eerie Power and Ener to transmission system t Ses, Val 18, No 2 Apa 1981 pp 111-122 AFM, ,,~ change in power low line fdue to [PF Nishi, RD Tabor, MD. te nd JR. Laclle Meteo, “Benet : Optiizaton of Cenalzed and Decal Power yen ina Mal transmission sales on transmission system t Unity Environment”, JERE Tromatin on Prer Sema, Vol, -M ,= length in miles of line f No3, August 1993 pp. 180-1186 ‘ Wo} Pa ¥-Teko, 8 Rehman and Kes Ju, “Review of Usage Based RMI, ,,~ power rating or flow on line from all sales son —Tisoomision Cow Allocation Method ender Open Ass, IEEE ‘Transccion on Power Stems, Vol 18, No, November 2000, pp transmission system t inte (11) RD. Chrisie, BLE, Wollnberg and 1. Wangsteen, “Transmission on annual requirements from Management in Deregulstd Envzonment, Proc IEEE Trunamission transmission owner t usually on an embeded cost basis “S K Management inte Dereplted Environ, Yo $8, N02, ebreny a 2000, p09 (ay) [12] MCE Bran V. Banunarayanan, KE Garen, “A Tasaction Assment DAFMI, ,, =3498 MW “Method for Allocation of Transmission Services” /EEE Transaction on Power Systems, Vl 14 No.3, August 1998, pp. 920928 Ru 33066 MW. 113] D. Shirmohanmadi, VX. Filho, B. Govenstin and M.V.P. Pereira fas Some Fundaren Technical Concept about Cont Based Tension So, rein’ IEEE Tranzacton on Power emt, Vol 3, NO.2,Febrty . 1996p, 1002108. AR, , = (3498/83066)*(K) [14] J. Bialek, “Tracing the Flow of Electiity”, IEE Proceeding on - Generation, Trawmson at Dismbuon Transaction on Powe ~S00RK Sto, Vol. 148, No. 1987, pp 98-08 US) EL Siva, SEC Mota M. Maoawaskl, “Teasmision Accs VIL, CoNcLUsiON Pring to Whesing Tessactons: A Reb Based Approach EEE Traction om Paver Sstems, Vol. 13, Nod, Noverber 99%, 99 In this paper traditionsl as well as recent methodologies of | isi-ase transmission pricing have been discussed. ‘The various 06) $."oo. "A. Paplopolas, “Recs Foner Peking, and ransmission pricing methodologies ean be mainly clasif Manage! IEE Transact on Power Stems, Vol 2, No ‘ Pricing methodologies ean be mainly classified Fataay 1997, p. 95-108 into two categories, one based on the embedded cost and the 17) 54" Marngon Lins, “Alloction of Trsission Fined Chargss: An ‘other based on the ineremental cos Overview EAE Transaction on Pov Sto, Vol, NO“, Aus Recent trends in determining the transmission pricing under 996.pp. 140-1418 deregulated environment of power industry based on incremental est melhods and wie based evalations are alka gaining popularity. Researchers ate also working on Brocnaruns combination of various methodologies for determining. the ‘rue cost of transmission of power. Po ‘OPRadt ws bom in Kull, LP Inia He recived his Bh Tech. Degree. in REFERENCES, Elkeieal Engineering form Regina! Engnering College, Hania nd ME (0). CW. Yu, A.k Davi Pricing Tansssion Servis in the Content of Degie fom Punjob Engnsing Calls, Indy Deeslaion’”, EER: Paton on Power Stems, Val. 2, (Chedigrh and serenity pring PAD Nol, ebay 1997p. 503-10. Degte 2] Ti Pore-Amugs, Hugh Rudnick and Water 0. Swi, “atemasona Power Syste Trarsnsion Open Acces Exper", IEEE He is camenly a Lecneer ia Hetil Transaction om Power Sytem, Vol. 10, No T- February 1995, pp. 5 Fginerng Deparment, Notional ose fen of Technology Hair nia. (8) SCSsvasava, * Transmission Pricing in a Restuctured Blecicty Masher”, Proc of OTP STC on Eleric Per Sytem Operation an “Management in Resrctred Envivonment, IT, Kanpur, ai, 8-39 Wis areas faire are inthe acu of emputr aplication powers), B83, fly, 20 ereultion congestion management td Wansnsion pen ates,INDIAN INSTITUTE OF TECHNOLOGY. MADRAS 600 036 DEC. 27-30 Dr. Yor Raj Sood was torn in Banur (Pata, India. He obtained his Be ‘degre fom PLU. Chandisth in 1980 Me revived his BE degre in lca Engicerng wih “Honours” dnd MME, in. Power” System from Puyjab —Enpiocriag” College = CChandigaeh (UT) 1984 and 1987 respectively. He has done his PAD. from Indian stitute of Technology, Roorkee, He joined Regional Engincring College Kurita in ISS6. He fas boon. working at Assistant Profesor in the Electial Engineering Deparment of Notional Taste of Tectnology, Mamispar (4, since 1991. He na published 8 umber of esearch papers His rseareh interests are inthe area of computer appiatons Yo power ‘stem, wheeling, derepuition, open access tansmision system, power ‘network optinizain and nos-onventonal sources of net. 131 Dr. R. CChauhan received BSE io lectical Engineering from Banaras Hida Universi. Varans, tea, and ME. dowao ia clecmcal engnceing snd Ph.D. fom University of Rooks, Roorkee, nda, He is curently Diecor 5: archon) Singh Longowal Cental Taste of Engineering and Technology (SHL-CIED, Longowal, Sinan, Panjab, na since 1996, He has been Diner, Science Technology ant Environment Deprtnent in HP nia fom 1988 to 1986 and Principal and Dear, Regional Engineering Giloge, Harp, LP, Inde fom T9S6 10 1990 and Chie? Enginer in inact Pradesh State Elericty Bourd, Shimla, Inia. He has published rmny research papers He his visited USA, Singapore, Malaysia to sly Hyd Power Sten and to peson papers. is research interests ate power system operation and contol, sign processing, rerutring of power stems and ANN applications Yo power Stems