UNBUNDLING OF TRANSMISSION AND ANCILLARY SERVICES .2. COST-BASED PRICING FRAMEWORK

This paper presents a systematic framework for pricing transmission an d ancillary services in competitive power markets. This framework is b ased on the recovery of fixed and operating costs, and it meets the tr aditional revenue requirements. It is practical, feasible, easy to imp lement, and to regulate. It can be implemented with minimum transition cost. This network flow-dependent and non-discriminatory 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 transm ission system related fixed cost component is recovered from all trans actions based on percentage utilization of the transmission system equ ipment. The charge is based on the actual network power flows. The anc illary service charge for a given transaction can be computed as the s um 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 ser vice, its pricing is cost based, and charge for its use is usage based ; the generation based ancillary service supply can be made competitiv e, its pricing is market based, and charge for it is usage based. A gl obal overview of the proposed pricing strategy is analyzed in the cont ext of other alternatives, especially cost-based methods. A numerical example on a five-bus system is given to illustrate the use of this pr icing strategy.