MARGINAL PRICING OF TRANSMISSION SERVICES - AN ANALYSIS OF COST RECOVERY

This paper presents an in-depth analysis of network revenues computed with marginal pricing, and in particular it investigates the reasons w hy marginal prices fail to recover the total incurred network costs in actual power systems. The basic theoretical results are presented and the major causes of the mismatch between network costs and marginal r evenues are identified and illustrated with numerical examples, some t utorial and others of realistic size. The regulatory implications of m arginal network pricing in the context of competitive electricity mark ets are analyzed, and suggestions are provided for the meaningful allo cation of the costs of the network among its users.