| This research has two objectives: (a) to develop a price structure that unbundles electricity service by reliability levels, and (b) to analyze the implications of such a structure on economic welfare, system operation, load management, and energy conservation. We developed a pricing mechanism for electricity service that combines priority (reliability differentiation) pricing with real-time Ramsey type pricing. The electric utility is assumed to be a single welfare-maximizing firm able to set and communicate prices instantly. At time of supply shortages, the utility has direct control over customer loads and follows a rationing method among customers willing to accept power interruptions. Therefore, customers are given the choice either to be served with a high reliability "firm" service, or to be subject to interruption. To encourage customers to make rational reliability choices, a payment/compensation mechanism was integrated into the welfare-maximization model. In order to account for uncertainties associated with the operation of electric power system, a stochastic production cost simulation is also integrated with the model. The stochastic production cost simulation yields the estimation of the expected production, cost, marginal cots, and system reliability level at total demand.;We examine the welfare gain and energy and reserve saving possibilities due to different pricing schemes. The results show that reliability-based pricing yields higher economic efficiency and energy and power saving than both spot and Ramsey pricing when system imperfect reliability is considered. Therefore, the implication of this research is that reliability-based pricing provide feasible solution to electric utilities as a substitute for power purchases, and/or new capacity investment. The contribution of this research is the introduction of stochastic production cost simulation into the pricing model, the estimation of expected marginal cost, and the development of an implementable price structure. |
