Pricing Reliability Service Based on End-users
Choice
Nestor Gonzalez-Cabrera
Department of Electrical and Electronic Engineering
Instituto Tecnológico de Morelia
Morelia Michoacán, México
acapulco1393@yahoo.com.mx
Abstract—Electricity has been considered as a heterogeneous
product even in today´s electricity marketplace. However, end-
customers have different needs and preferences, such that choos-
ing the level of availability that they are willing to pay for be-
comes a key issue. This paper elaborates the concept by differen-
tiating electricity in multiple availability types and multiple types
of classes.
Keywords:Power-Market-LOLP-GenCo-TransCo-ESCos-
Reliability
I. INTRODUCTION
Analyzing the electricity industry begins with the recogni-
tion that there are three very distinct components: generation,
transmission, and distribution. Once electricity is generated,
whether by burning fossil fuels, harnessing wind, solar, hydro
energy, or through nuclear fission, it is sent via high-voltage,
high-capacity transmission lines to the regions where it is con-
verted to a lower (safer) voltage and sent through local distribu-
tion wires to consumers. In the new restructured industry, utili-
ties are no any longer obligated to serve their customers on
demand. Each firm is free to develop a market strategy that
maximizes its own profits [1][2]. Yet, generators, transmission
companies and distribution utilities must still adhere to the op-
erational criteria that govern the safe, reliable and economical
use of the grid.
The National Energy Reliability Council, NERC [3], re-
cently developed and promulgated reliability standards for
planning and operating the bulk electric system in order to ac-
complish minimum level of power reliability. Reliability is a
system concern which in nature differs all over the system.
Given that the transmission network still regulated, much em-
phasis has been done in the generation sector. Reliability
choice costumer’s is not yet available in the competitive elec-
tricity market. Nodal pricing is widely used given that prices
reflect the real-time operating conditions. However, nodal pric-
es do not provide with reliability information such as genera-
tor/line outage costs.
In this paper, we discuss the reliability issue as it applies to
end-users. The paper is organized as follows: Section II
presents a review of previous work dealing with reliability in
the deregulated market. In Section III we present an overview
This work was supported by ANUIES-PROMEP
978-1-4244-5721-2/10/$26.00 ©2010 IEEE
24
G. Gutierrez-Alcaraz
Department of Electrical and Electronic Engineering
Instituto Tecnológico de Morelia
Morelia Michoacán, México
ggutier@itmorelia.edu.mx
of our proposal for end-users’ choice reliability. Conclusions
and suggestions for future research are presented in Section V.
II. REVIEW OF PREVIOS WORK
In most of the new electricity markets, a System Operator,
SO (also known as an Independent System Operator) is respon-
sible for ensuring that market participants satisfy the so-called
n-1 security criterion (all generators involved in the market are
required to provide energy with a minimum level of availabili-
ty) must be satisfied at all times. Thus, it is plausible to state
that the SO must satisfy the n-1 criterion at any cost, yet the
cost of guaranteeing a high level of system reliability is a cost
that some consumers presumably would like to avoid.
Load management plays an important role in guaranteeing
reliability, and can be viewed as a reliability service. Customers
who do not require high reliability, such as a xxx, are often
asked to participate in demand management programs. The
literature shows several proposals for pricing reliability service.
[4] analyzes a general formulation for optimal pricing, invest-
ment rules for priority service and market organization re-
quirements for its implementation. The formulation is proposed
for pricing energy in retail markets. [5] [6] presents a pricing
model for costumers’ reliability preferences, taking into con-
sideration randomness of generator outages. They introduce a
customer choice model based on the concept that the reliability
service represents the risk involved in the customer’s benefit.
Additionally, they propose a pricing mechanism that combines
reliability differentiation pricing with real-time pricing. The
pricing scheme charges different prices according to custom-
ers’ reliability preferences. The utility is considered regulated
and a rationing load method is applied to the participating cus-
tomers. Power interruption is considered as part of the control
actions. [7] introduces contingency bids for remedial actions,
including spinning reserve and supplemental reserve ancillary
services. The authors introduce a market mechanism that al-
lows customers to bid for different availability and Expected
Energy Served levels (EES). Two types of bids, power bids and
contingency bids, are considered. The power bids of generation
companies (GenCos) include the availability level of the sup-
plied power, but the power bids of energy services companies
(ESCOs) do not. Contingency bids are composed of bid price,
bid amount, an offered remedial action, and an auction class for
PMAPS 2010