Priority network access pricing for electric power

We propose a priority-pricing scheme for zonal access to the electric power grid that is uniform across all buses in a zone. The independent system op erator (ISO) charges bulk power traders a per unit ex ante transmission acc ess fee. The zonal access fee serves as an access insurance premium that en titles a bulk power trader to either physical injection of one unit of ener gy or a compensation payment. The access fee per MWh depends on the injecti on zone and a self-selected strike price that serves as an insurance "deduc tible" that determines the scheduling priority of the insured transaction a nd the compensation level in case of curtailment. Inter-zonal transactions are charged (or credited) with an additional ex post congestion fee equal t o the differences in zonal spot prices. The compensation for curtailed tran sactions equals the difference between the realized zonal spot price and th e selected strike price (deductible level). The ISO manages congestion so a s to minimize net compensation payments and thus, curtailment probabilities increase with strike price and for any particular strike price may vary fr om bus to bus. We calculate the rational expectations equilibrium for three -, four- and six-node systems and demonstrate that the efficiency losses of the proposed second best scheme relative to the efficient dispatch solutio ns are modest.