Evaluation of Spot Price Based Electricity Rates

It is necessary to be able to evaluate the cost of providing electric service on a hour by hour basis in order to effectively market electric energy in a fashion which meets both the utility's and its customer's needs; i. e. to offer appropriate rates, contracts, and load management options to the customers. This paper provides a methodology which uses the theory of spot prices to evaluate the variable costs of electric energy on an hourly basis. The methodology decomposes variable costs in components corresponding to generation fuel and maintenance, T and D network losses and maintenance, and generation and network quality of supply components arising from unserved energy caused by shortages of generation and network capacity. The methodology provides a choice between four different methods of revenue reconciliation to cover the capital and fixed costs of generation and the T and D network. Planning studies can be done using the methodology without developing large new computer programs. A numeric example is presented which exhibits large price variations depending on random weather and generator outages