1

Optimal Transmission Line Pricing Algorithm

for a Restructured Power System
C. O. Ahiakwor, U. C. Chukwu and D. O. Dike, Student Member, IEEE

AbstractPrior to this present era of privatization and

commercialization, effort towards electricity pricing was geared
towards allocating cost only to generation and distribution
segments. This was accepted then considering the fact that power
utilities were either wholly owned by either Governments or by
primary consumers made up of corporate bodies. In view of the
current trend of transformation of Electricity Sectors in most
countries of the world from vertically integrated utility to
unbundled and competitive set-ups driven by market forces,
there is now the dire-need to provide a fair and effective
mechanism for appropriate pricing of all units in the power
industry generation, transmission and distribution. This is
imperative as each of these sectors are now been operated by
different bodies with little or no control by the Government and
many consumers of electricity, with attendant increased
competition aimed at reducing cost while enhancing efficiency.
From the experiences of most developed countries like U.S.A and
many European countries who had embraced this new concept of
power utilization, load is the most important price driver. An
independent operational control of transmission grid in a
restructured industry would facilitate a competitive market for
power generation and direct retail access. The transmission
system plays a pivotal role in the efficient delivery of electrical
power to the consumers, hence is very critical in the emerging
trends in developing countries power transformation and
electricity markets. To this end, a proper transmission pricing
would motivate investors to build new generating capacity for
improving efficiency. This paper, therefore, focuses on developing
a novel transmission pricing algorithm using Bialeks Tracing
Model.

I. NOMENCLATURE
TC
t
TC

L
k
C
k

= Cost allocated to Transaction t.

= Total cost of all lines in Naira [N].
= Length of line k in mile.
= Cost per MW per unit length of line k

C. O. Ahiakwor is with the Department of Electrical and Computer

Engineering, River State University of Science and Technology, Portharcourt,
Nigeria (e-mail: chrisahias@yahoo.com).
U. C. Chukwu is with the Department of Electrical and Computer
Engineering, University of Portharcourt, River State Nigeria (e-mail:
uxtian@gmail.com).
D. O. Dike is with the Department of Electrical and Computer Engineering,
Tennessee Technological University, Cookeville, TN 38501, U.S.A. (e-mail:
dodike21@tntech.edu).

978-1-4244-1904-3/08/$25.00 2008 IEEE

MW = Flow in line k, due to transaction t.

t, k
T
= Set of transactions.
K
= Set of lines.
F
k, t

=Flow on facility k caused by transaction t

_
F
=the capacity of facility k.
k
F
=Total active power flow between buses l and k
lk
0
= Power flow on a line between buses l and k from
F
lk
previous taxation

= GGDF of a line between buses l and k

D
l k,i
corresponding to generator at bus i.
=GGDF of a line between buses l and k due to
D
l k, r
generation at reference bus r.
=Total generation at bus i
G
i
0
= Power flow on line a between buses l and k from
F
lk
previous taxation
= GLDF of a line between buses L and K
C
l k, j
corresponding to demand at bus j
= GLDF for a line between buses L and K due to the
C
l k, r
load at reference bus r.
= total loaf demand at bus j
L
j
g
p
ij
g
p
i
A
u
P
Gk
d

i
u

= n unknown gross line flow in line i - j

= an unknown gross nodal power flow through node i
= upstream distribution matrix
= generation in node k
= set of nodes supplied directly from node i
= set of buses supplying directly from bus i

g
D
ij, k

= topological distribution factors

C
ij

= total supplement charge for the use of line i-j

g
w
ij

= charge per MW of each line i-j

II. INTRODUCTION

HE power sector is very critical to the economic,

industrial, technological and social development of the
country. Electricity consumption has become one of the
indices for measuring the standard of living of a country. Only
40% of the Nigerian population has electricity, the majority of
who are concentrated in urban areas. The electricity network
has been characterized by constant system collapses as a
result of low generating capacity by the few generating
stations presently in service. The present installed generation
in Nigeria is about 6000 MW and National Electric Power
Authority, NEPA (now defunct) has only been able to
guarantee a maximum of 4000MW. For a vast and populous
country as Nigeria, this need is grossly inadequate to meet the
consumers electrical demand. About additional 10,000 MW
to current capacity is needed to meet the current demand.
There is therefore need for a reform regime.
The reform of the electricity sector is of extreme priority to
the government of Nigeria and the citizenry. Government of
Nigeria has chosen privatization as a cardinal economic
program to address the problems of the power sector and
other sectors of the national economy. Electric power sector
reform implementation committee (EPIC) developed
recommendations to promote the policy goals of the total
liberalization, competition and private sector-led growth of
the electricity sector. In March, 2005, the power sector reform
bill was signed into law. The objective of the reform
contained in the policy is to attend to the immediate needs of
the electricity sector as well as establishing a system that will
ensure, in the long term that the problems currently facing the
sector do not arise again.
This objective will be met by the introduction of
competition and the appropriate regulation framework. In
order to introduce competition, functional segmentation or
unbundling of NEPA into a restructured format is critical [1].
This will fundamentally require the following: the separation
of transmission and dispatch from generation, the
establishment of single transmission company called
TRANSISCO, the establishment of a number of competing
privately owned generation companies called GENCOs, the
opening of generation to new market entrants, and the
establishment of a number of distribution companies
(DISCOs) and sales (marketing) companies which will also be
privatized.
An efficient transmission pricing mechanism should
recover transmission cost by allocating the cost of
transmission network users in a proper way. The transmission

costs may include running costs, past capital investment and

ongoing investment for future expansion and reinforcement
associated with load growth and additional transactions. The
structuring of electric power industry has made the price of
electricity the focus of all the activities in the power market.
Price forecasting has long been at the centre of intense studies
in other commodity markets like stocks and agriculture [2][6].
In recent years, electricity has also been traded as a
commodity in various markets. However, electricity cannot be
stored economically, and transmission congestion can prevent
a free exchange among control areas. Thus, electricity price
movements can exhibit major volatility, and the application of
forecasting method as prevailed in other commodity market.
With the introduction of restructuring in the power industry,
more literatures have been devoted to price forecasting.
However, forecasting accuracy is still an issue which could be
due to the limited number of the physical factors considered
in pricing forecasting [7].
.
III.

TRANSMISSION PRICING METHODS

During the past few years, different transmission pricing

schemes have been proposed and implemented in various
markets [8].The methods are discussed hereafter.
A. Postage-Stamp rate Method
The most common and sophisticated approach to
transmission pricing is the postage-stamp method [9]. In this
method, regardless of the distance that the energy travels, an
entity pays a rate equal to a fixed charge per unit of the
energy transmitted within a particular utility system. Postagestamp rates are based on average system costs.
B. Contract Path Method
This method is also used by electric utilities to allocate
fixed transmission cost. It does not require power flow
calculations, and is based on the assumption that transmission
services can be represented by transmission flows along
specified and artificial electrical path throughout the
transmission network. The contract path is a physical
transmission path between two users. After specifying
contract paths, transmission charges will then be assigned
using a postage-stamp rate. .
C. Mw-Mile Method
This method considers, in its calculations, change in MW
transmission flows and transmission line lengths in miles [10].
It requires dc power flow calculation. The MW-mile method
is the first pricing strategy proposed for the recovery of fixed
transmission cost based on the actual use of the transmission
network. The MW-mile equation was modeled as.

TC =TC
t

kK

C L MW
k k
t, k

t T k K

C L MW
k k
t, k

(1)

D. Unused Transmission Capacity Method

The difference in a facility capacity and the actual flow on that
facility is called the unused (unscheduled) transmission capacity
[11]. Here all transmission users are responsible to pay for both
the actual capacity use and the unused transmission capacity.
According to [12], the following expression ensures that the
total cost recovery is made, whether or not the line capacity is
fully used.
TC =
t

Fk ,k

C
kK
k

tT

(2)

Ft , k

Unfortunately, equation (2) is inequitable to some users

when they are forced to share the cost of an inexpensive
transmission line facility for which only a small portion of the
facility capacity is being utilized. In addition, some margin of
a line capacity is left unused for maintaining reliability. To
overcome this drawback, transmission users should be
charged based on the percentage utilization of the facility.
However, this suggestion has a drawback too as it ignores the
reliability of the transmission margin.
Hence, an improved MW-mile rule is defined as:
TC =
t

Ck
kK

Fk ,k

tT

(3)

Generalized load distribution factor (GLDF) determine the

contribution of each load to line flows. GLDF allocate charges
of the sub-transmission network to the load within a
distribution company service area. It measures the total use of
transmission network facilities by loads in where loads are
seen as negative injections. In [15]-[17], GLDF is stated as:

C
=
l k, j

F0 +
lk

G. Distribution Factors Method

From the works of [14], distribution factors are calculated
based on linear load flows. In general, generation distribution
factors have been used to approximately determine the impact
of generation and load on transmission flows. This factor
determines the impact of each generation only on active
power flows as depicted in equations (4a, 4b and 4c).
N

D
G
l k, i i

(4a)

D
=D
+A
l k, i l k, r

(4b)

i =1

IV.

TRANSMISSION LINE PRICE MODELING

The Bialeks tracing method employed in this work is

generally based on proportional sharing principle depicted in
figure 1.

F. Counter-Flow Method
This method suggests that if a particular transaction flows
in the opposite direction of the net flow, then the transaction
should be credited the transaction would pay a negative
charge.

A
jL
ik j
i =1
N
L
j
j =1

(5)

E. MVA-Mile Method
The MVA-mile method is an extended version of the MWmile method [13]. The extension is proposed to include
charges for the reactive power flow in addition to charges for
real power flow.

F
=
lk

G
A

i k i
i = 1

i r

D
= F
i
k

l k,r
N

i
i = 1

fa
f1

fb

f2

Fig.1. Illustration of Proportional Sharing

f1 = f1

fb
fa
+ f1
f a + fb
f a + fb

fb
fa
IF
f2 = f2
+ f2
f a + fb
f a + fb

(6)

The figure shows four lines connected to a node. The

outflows ( f1 and f 2 ) can be represented in terms of the
inflows ( f a

and f b ). These relationships help us to

determine how much of f1 comes from f a , and how much

of f1 comes from f b , which also holds for f 2 . To show
how this algorithm works, the gross demand is defined as the
sum of a particular load and its allocated part of the total
transmission loss. The total gross demand in a system is
equal to the total actual generation. Topological distribution
g

(4c)

factors are given by the following equation in which Dij ,k

refers to the kth generators contribution to line i-j flow.
3

P =
Gk

k =1

g
D
P
ij, k Gk

(7)

Where,

g
g
p = p
ij
i

g
D
=
ij, k

[Au ]ij

j u
i

g
p + P ; i = 1, 2,..., n
ij
Gi

[ ]

[ ]

g
p A 1
p A 1
ij u ik
ij u ik

g
p
p
i
i

1, i = j

p ji
, j iu
=
pj

0, otherwise

(8)

(9)

(10)

The total network usage by the kth generator ( U Gk ) is

calculated by summing of the individual contributions of the
generators to the line flows. This is given by:

gk

i = 1 j d
i

g g
w D P =
ij ij Gk

A 1
u

Cij (11)

i = 1 p g j d

i
i
n

From the above derivations done using the Bialeks tracing

model, the flow chart for the transmission price algorithm is
presented in figure 2.

was taken as slack while Bus 2 is a voltage-controlled bus.

The load flow algorithm was developed using Fast Decoupled
technique. Table 5 shows the transmission allocation and
charges Using Bialeks upstream algorithm. The total
transmissions charge for G1 is $1984.56 while that for G2 is
$557.44. This table shows that for every 1MW, it costs G1 an
average of $7.9772 and G2, an average of $13.936. It is
observed that the contribution of G1 is dominant because of
its capacity relative to G2.
Table 1: IEEE 14 Bus System Line Data

Line
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

ij
1-2
1-5
2-3
2-4
2-5
3-4
4-5
4-7
4-9
5-6
6-11
6-12
6-13
7-8
7-9
9-10
9-14
10-11
12-13
13-14

Series Z (pu)
X

0.019
0.054
0.047
0.058
0.057
0.067
0.013
0.000
0.000
0.000
0.095
0.123
0.066
0.000
0.000
0.032
0.171
0.082
0.221
0.171

0.059
0.223
0.198
0.763
0.174
0.171
0.042
0.209
0.556
0.252
0.199
0.256
0.130
0.176
0.110
0.084
0.270
0.192
0.200
0.348

Shunt
Y/2
0.026
0.025
0.022
0.019
0.017
0.017
0.006
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

Line
Cost ($)
CKLK
200
210
290
400
200
180
185
60
60
59
52
120
121
0
40
50
80
50
85
100

S ta r t
In p u t L in e a n d B u s
D a ta

Table 2: IEEE 14 Bus System Bus Data

S o lv e lo a d F lo w p r o b le m

A re th e re
lo s s e s ?

Y es

No

A llo c a te e a c h lin e
lo s s a s a d d itio n a l
lo a d s o n b o th
e n d s o f lin e

C o m p u te u p s tr e a m
d is tr ib u tio n m a trix ( A u )
In p u t G e n e r a tio n
V e c to r
C o m p u te in v e r s e o f A u & P g e n
C o m p u te c o s t fo r
tra n s m is s io n lin e t ( T C t)
C o m p u te T a riff

End

Fig.2. Proposed Transmission Price Algorithm Flow chart

V.

RESENTATION AND DISCUSSION OF RESULT

Tables 1 and 2 are the respective line and bus data for IEEE
14 bus system which is used to test the algorithm. The results
are presented in tables 3 - 5. There are two generators G1 and
G2 with generations 248.78MW and 40MW respectively
evaluated from load flow analysis of the test system. Bus 1

Bus
Generation
No. P
Q
P
(MW) (MVar) (MW)
1
2
3
4
5
6
7
8
9
10
11
12
13
14

40.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
21.700
94.200
47.800
7.600
11.200
11.200
0.000
29.500
9.000
3.500
6.100
13.500
14.900

Load
Q
(MVa
r)
0.000
12.700
19.000
-3.900
1.600
7.500
0.000
0.000
16.600
5.800
1.800
1.600
5.800
5.000

Bus
Bus
Voltage Angle
(Volt) (deg)
1.060
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
4

Table 3: Line Flow Result of the AC Loadflow

Line
No.
1

i-j

Table 5: Transmission Allocation and Charges Using Bialeks

Upstream Algorithm

1-2

Power Flow
P (M W)
137.54

Q
(M Var)
-534.93

1-5

66.35

-509.97

2-3

65.11

-405.97

2-4

48.66

-348.56

2-5

35.06

-318.73

2-4

-19.50

-344.35

1-5

66.35

57.20

9.15

210

12012.00 1921.50

4-5

-56.56

-139.79

2-3

65.11

45.73

19.38

290

13261.70 5620.20

4-7

36.37

22.07

2-4

48.66

34.60

14.06

400

13840.00 5624.00

4-9

18.55

12.45

2-5

35.06

28.05

7.01

200

5610.00

10

5-6

40.82

28.37

3-4

19.50

15.60

3.90

180

2808.00

702.00

4-5

56.56

39.59

16.97

185

7324.15

3139.45

11

6-11

05.10

03.09

4-7

36.37

30.91

5.46

60

1854.60

327.60

12

6-12

05.43

02.52

4-9

18.55

15.77

2.78

60

946.20

166.80

13

6-13

11.50

07.21

10

5-6

44.82

40.34

4.48

59

2380.06

264.32

14

7-8

00.00

00.00

11

6-11

5.10

4.08

1.02

52

265.20

53.04

15

7-9

25.17

17.65

12

6-12

5.43

3.80

1.63

120

456.00

195.60

16

9-10

2.72

4.79

13

6-13

11.50

8.50

3.45

121

1028.50

417.45

14

7-8

0.00

0.00

0.00

0.00

0.00

17

9-14

6.09

4.11

15

7-9

25.17

15.10

10.07

40

604.00

402.80

18

10-11

-03.09

-01.07

16

9-10

2.72

2.44

0.28

50

122.00

14.00

19

12-13

00.40

0.69

17

9-14

6.09

3.65

2.44

80

292.00

195.20

20

13-14

04.17

01.95

18

10-11

3.09

2.38

0.71

50

119.00

35.50

19

12-13

0.40

0.24

0.16

85

20.40

13.60

20

13-14

100

37.50

42.00

Line
No i - j
.
1

1-2

Generation

CL

137.5

118.49

19.05

200

ij

Load
Q(MVar)

Bus
Voltage
(Volt)

Bus
Angle
(deg)

P(MW)

Q(MVar)

P(MW)

248.778

95.949

0.000

0.000

1.060

0.000

2
3
4

40.000
0.000
0.000

44.749
0.000
0.000

21.700
94.200
47.800

12.700
19.000
-3.900

1.000
0.910
0.924

-4.810
-13.265
-10.620

0.000

0.000

7.600

1.600

0.939

-8.882

0.000

0.000

11.200

7.500

0.872

-16.809

0.000

0.000

11.200

0.000

0.878

-15.998

0.000

0.000

0.000

0.000

0.878

-15.998

0.000

0.000

29.500

16.600

0.856

-18.108

10

0.000

0.000

9.000

5.800

0.850

-18.315

11

0.000

0.000

3.500

1.800

0.586

17.762

12

0.000

0.000

6.100

1.600

0.853

-18.120

13

0.000

0.000

13.500

5.800

0.848

-18.260

14

0.000

0.000

14.900

5.000

0.830

-19.717

288.778

140.698

270.200

G1
CL
MW ,
k

ij

4.17

3.75

0.42

592.1

470.22

121.97

Total

G2
P

1 k

G2
CL
MW ,
k

23698.00 3810.00

1402.00

TC= 86679.31 24347.06

2542

C L MW
TC
Cost ($/MW) = TC /MW
k

Bus

G1
P

ij

Total

Table 4: Simulated Result for Bus Data

P
(MW)

t,k

111026.37
1984.56 557.44
7.9772 13..936

VI. CONCLUSION
In a restructured power environment, the transmission
network is the key mechanism for generators to compete,
supplying large users and distribution companies. One of the
main objectives in electric industrys restructuring is to bring
fairness and open access to the transmission network.
The Authors have using Bialeks tracing method,
developed an algorithm which will ensure a major practical
implementation of fair rules in the allocation of transmission
line pricing and usage in the Nigerian electricity industry
which is currently undergoing restructuring. Results obtained
thereto by the Authors will be presented in the final
submission.

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