Reliability differentiated pricing and optimal planning for electrical power systems

The dissertation presents an optimal pricing policy and resource planning strategy for electrical power systems, based on customer outage cost. The proposed pricing policy, Reliability Differentiated Pricing (RDP), overcomes some of the shortcomings of present pricing policies. It integrates the various quality attributes of electricity into the electricity price. These quality attributes include the voltage level of the delivered power, the amount of harmonics or other distortion that might be included in it, the release of emissions to the environment during its production, and the reliability of the system generating and transmitting the power. Under this pricing system, the price of electricity reflects the true marginal costs of providing electric power service. RDP policy differentiates electrical service prices for differentiated levels of reliability of service based on customer outage costs. Consumers are offered the choice of opting for different levels of service reliability that best suits them and their end-uses. Such a choice unbundles the service and thus results in improved efficiency and benefits to both consumers and producers. RDP also presents an economically sound and efficient policy for pricing various electrical services, e.g. spinning reserve, firm capacity, transmission services and wheeling services. The theory of RDP allows one to integrate the optimal investment strategy across the entire portfolio of technologies used in the power system. The welfare gains associated with the higher reliability are an integral part of the investment planning evaluation when the RDP model is used to measure the benefits of an investment decision. RDP policy also provides accurate price signals to all participants in the electricity market, resulting in overall system welfare maximizing, as well as individual participant benefit maximizing, decentralized investment and operational decisions.