Transmission embedded cost allocation methodology with consideration of system reliability

In a vertically integrated utility industry, the cost of reliability, as a separate service, has not received much rigorous analysis. However, as a cornerstone of restructuring the industry, the transmission service pricing must change to be consistent with, and supportive of, competitive wholesale electricity markets. This paper focuses on the equitable allocation of transmission network embedded costs including the transmission reliability cost based on the contributions of each generator to branch flows under normal conditions as well as the line outage impact factor under a variety of load levels. A numerical example on a six-bus system is given to illustrate the applications of the proposed methodology.