Derivation and Applications of Optimum Bus Incremental Costs in Power System Operation and Planning

Currently utility companies in North America are encouraging customer cogeneration as an alternative to system expansion, mainly to alleviate some of their financial burdens due to ongoing construction projects. This new trend, calls for a rational basis for utilities to compute payments for third party producers. This paper investigates two schemes, one based on the system incremental cost (SIC) (System Lambda) and the other based on optimum Busload Incremental Costs (BIC's) defined as the minimum additional operating cost due to a unit magnitude of energy increment at all system buses taken one at a time. We show here that, unlike the SIC, the BIC's provide the true cost of electricity at all system buses under all operating conditions. Hence, these should prove an excellent basis for a unified policy in the tariffication of economy interchanges.