2011 IEEE PES Innovative Smart Grid Technologies India

Transmission Tariff Allocation Using Combined

MW-Mile & Postage Stamp Methods
Babasaheb Kharbas, Manoj Fozdar Member IEEE, Harpal Tiwari Member IEEE
Department of Electrical Engineering
Malaviya National Institute of Technology
Jaipur, India
bckharbas2001@yahoo.co.in, manojfozdar@rediff.mail.com


Abstractthe transmission tariff function will facilitate
competitive electricity market by impartially providing energy
transportation services to all energy buyers and sellers, while
fairly recovering the cost of providing those services.
Transmission tariff is more fairly and transparently allocated in
order to get full recovery of ARR of transmission facilities by
using combination of MW-Mile and Postage stamp method.
There are number of variants of MW-Mile method i.e. absolute,
dominant and reverse are combined with postage stamp method
to allocate the transmission tariff. In this paper a six bus network
is used for simulation purpose with two cases of demand
variation. It is assumed in this problem the load customer pays
the 100% cost of transmission services to the transmission utility.
Simulation and results are obtained by using Matlab.
Transmission tariff for each load bus is evaluated in all three
combinations of MW-mile with postage stamp for each case of
demand variation.
Keywords Transmission tariff; MW-Mile Method; Postage Stamp
Method; Residual Transmission Charges; Demand variation)
I. INTRODUCTION
The transmission tariff is defined as The function will
facilitate competitive electricity market by impartially
providing energy transportation services to all energy buyers
and sellers, while fairly recovering the cost of providing those
services[1]. The objectives and major components of
transmission tariff are explained in details [2]. Transmission
pricing paradigm is the overall processes of translating
transmission costs into overall transmission charges [3].These
paradigms rolled-in transmission pricing, incremental
transmission pricing and composite embedded incremental
transmission pricing are briefly described [4]. As per the
discussion based on transmission pricing paradigm the
transmission pricing methods are distinguished into two main
categories rolled in (embedded) pricing method and
incremental pricing method [2]. The combine evaluation of
power flow based MW-Mile approaches with postage stamp
method for transmission pricing are discussed [5]. MW-Mile
Method having the number of variants, absolute, dominant and
reverse are discussed and used to determine the cost of each
circuit [5-6]. The study based on evaluation of transmission

978-1-4673-0315-6/11/$26.002011 IEEE
pricing methods shows that the power flow based MW mile
method is more reflective as it usage actual power transmitted
in allocating the transmission costs. It offers several benefits
that are, practicality and fairness to all parties and ease of
measuring electricity loss and protecting stockholders from
free riders. The simulation and results are obtained on typical
six bus system by using combined evaluation of power flow
based MW-Mile variants and postage stamp method. The
power flow analysis at different load conditions in two
different cases of demand variations for each circuit i, of the
network are obtained by using matlab simulation. The cost
parameters, MW-Mile tariff, postage stamp tariff and payment
cost to each demand customers are evaluated. The most
economical approach among the three variants of power flow
based MW-Mile method with postage stamp method is reverse
MW-Mile variant which helps in reducing overloading of line
and reliving transmission congestion. This is giving fair and
more transparent economic signal in transmission pricing to
design tariff. The comparison of tariff is shown at end of
results.
After giving introduction in this section, the paper presents
discussion on MW-Mile approaches in section II, followed by
discussion on postage stamp method in section III, Combined
evaluation method is explained in section IV, a six bus test
network is used for simulation discussed in section V, Results
obtained and discussion on results are mentioned in section VI
and finally concluding remarks are mentioned in section VII.
II. MW-MILE APPROCH
The power-flow-based MW-mile method is more widely
used because it has been shown to be more reflective of actual
usage of the transmission system in allocating the transmission
costs [6]. This paper presents power flow based MW-Mile
method of transmission tariff allocation in combination with
postage stamp method. Under power flow based MW-Mile
method there is having a number of variants like absolute,
dominant and reverse. These variants are discussed in relation
with how the cost of each circuit is allocated to the various
users of the network [5]. With the enactment of Electricity
Acts, lay down, the guide lines towards the transmission tariff
are sensitive to distance, direction and quantum of power flow.
2011 IEEE PES Innovative Smart Grid Technologies India

The power flow based MW -Mile method is one of embedded
cost pricing methodology. In general, under embedded cost
pricing methodology, all the fixed or sunk costs of the
transmission system are allocated to existing users of the
transmission system [7]. Thus, under the power flow based
MW -Mile method, the fixed or Sunk costs are allocated to
reflect the level of power being transmitted as well as the
distance that power being transmitted to the users [6]. In the
power flow based MW-Mile method, there are three different
approaches in relation to how the cost of each circuit is being
allocated to the various users of a circuit. These three different
approaches are absolute power flow based MW-Mile
approach, reverse power flow based MW-Mile approach and
dominant power flow based MW-Mile approach.
Depending on MW-Mile Method the cost allocated to each
individual user, is evaluated [8]. The power flow based MW-
Mile method, the cost allocation to each individual user, C
k
, is
calculated by using,

=
=
N
1 i
i
k
i
i i
k
P
P
.
F
.
L
C
(1)
Where,
C
k
: Transmission cost allocated to each individual user k,
L
i
: Length of circuit i,
F
i


: Predetermined unit cost reflecting the cost per km of
circuit i, in Rs (million) / Km,

Pi
: Capacity rating of circuit i,
P
i
k
: Power flow imposed on the circuit i, by the user k,
N : Numbers of transactions or user demands,
i : Total number of circuits in the system.
The Basic difference in the three approaches of power flow
based MW-Mile method is based on the treatment of the
power flow, imposed on the circuit by the user.
A. Absolute Power Flow Based MW-Mile Approach
The absolute power flow based MW-Mile approach
calculates the charges based on the magnitude of the MW-
Miles of network used by ignoring the direction of the power
flow imposed on the circuit by the user [6]. Power flow
imposed on the circuit i, by the user k, P
i
k
is treated based on
the following condition,
P
i
k
= |P
i
k
| for direct and reverse power flows.
B. Dominant Power Flow Based MW-Mile Approach
The dominant power flow based MW -Mile approach can
be considered as a hybrid of the absolute and reverse
approaches. In this approach, network users are only charged
on the basis of direct power flow impose on each line. Reverse
power flows are not counted so users responsible for the
reverse power flows do not receive any credit like reverse
MW-Mile approach and do not pay any charge like the
absolute MW Mile approach. In the dominant MW-Mile
approach, power flow imposed on the circuit i, by the user k,
is treated based on the following condition [6],
P
i
k
= |P
i
k
|for direct power flows
or
P
i
k
= 0 for reverse power flows
C. Reverse Power Flow Based MW-Mile Approach
The reverse power flow based MW-Mile approach takes
into account of the power flows that are in reverse direction
and the charge for each line is based on the net flows. The
reason is that the reverse power flows reduce the burden on
the line and reliefs congestion [22]. Power flow imposed on
the circuit i, by the user k, P
i
k
,

is treated based on the following
condition,
P
i
k
= Positive (+) for direct power flows,
&
P
i
k
= Negative (-) for reverse power flows.
III. POSTAGE STAMP METHOD
A postage stamp rate of transmission service may calculated
by summing up all transmission cost and divide it by system
peak demand thus producing flat amount per MW[2]. In this
problem after allocating the costs to all the users using the
above approaches of power flow based MW-Mile method, the
total transmission costs will not be fully recovered. The reason
behind is that the lines will not be utilized up to their
capacities. In addressing the residual cost in this problem an
approach can be utilized namely the postage stamp approach
or method [6]. Using the postage stamp approaches, the
residual costs will be apportioned to each user based on its
load level [6], [7]. The residue to each individual user k, is
calculated by using

P
P
TC.
R
LT
LK
k
= (2)
Where,

R
k
: Residue to each individual user k,
P
LK
: Load of user k,
TC: Difference or total unremunerated charges,
P
LT
: Total load of all users.
IV. COMBINED EVALUATION METHOD
The total cost allotted to load bus or each individual user k,
TC
k,
is calculated by using
TC
k
= C
k
+ R
k
. (3)
The methodology used in the allocation of transmission tariff
or use of system charge to the users of the transmission
network are discussed in this section. The tariff algorithm flow
chart is explained in fig.1.There are four main steps
2011 IEEE PES Innovative Smart Grid Technologies India

involved in combined evaluation of three different approaches
of power flow based MW-Mile with postage stamp method.
The MW-Mile method is insufficient to recover the total
revenue as defined by ARR for the transmission network.


























Figure1. Algorithm Flow Chart
A. DC Power Flow Analysis
DC power flow analysis is done using the Matlab
simulation in Mat power, by considering the system
at peak load condition. The output will be the base
case power flow.
The impact of each demand customer on the system
is obtained by setting zero value for the demand at
each bus, in simulation for each new condition. In
each case the line flow is determined subjected to
fulfillment of the constraint generation equal to
demand. This is achieved by assuming that all
generators are decreased on a prorata basis to match
the new demand and maintaining the minimum
generation level of those generators which are non
swing generators for economically optimal
generation to reduce the cost of generation. The
power flow imposed by each demand on a specific
circuit i, is calculated by the difference between the
base case power flow and the flow in the new
condition.
B. Determine Cost per Km of Each Circuit
Fixed annual Revenue requirement is allocated to
individual circuit on the network.
For recent cost per km for each individual circuit is
calculated.
C. Calculate Tariff to Each Demand Customer
Transmission costs to each demand customer are
determined using Matlab simulation, for the three
power flow based MW-Mile approaches.
Transmission residual charges are determined by
postage stamp method.
D. Determination Payment Cost & Average Tariff
Cost per unit to each demand customers in the
network is determined by summation of energy
charges and residual charges as determined in step c.
Payment costs annually for each load bus is
determined.
Average tariff is calculated for each combination which
is being helpful in determination of transmission tariff for
more complicated network with multiple zones each with
multiple numbers of transmission lines.
V. SIX BUS SYSTEM
The system used is shown in Fig.2 [10]. The maximum
generation capacity is 530MW and the peak Demand is 477
MW.




















Figure 2. Six Bus Network Test System

Table 1and 2 shows the line data and bus data respectively
for 6 bus system .Buses 1, 2 and 3 are generator buses
showing power injected in MW. Power is being extracted at
load buses 4, 5, and 6 by users k
1
, k
2
, k
3
respectively. Table 3,
shows total system capital cost including maintenance and
operational charges is Rs 14,100 million. ARR of transmission
facility is obtained Rs 2299.24 million.
G3
BUS 3
BUS 6
L3
BUS 5
L2 BUS 4
L1
BUS 1
G1
BUS 2
G2
DC Power Flow Analysis
Identify Cost of Each Circuit
Transmission Tariff Algorithm
Evaluation of Charges MW-Mile Approach
Evaluation of Charges Postage Stamp Method
Evaluation of Transmission Tariff
Evaluation Payment cost & Average Tariff
2011 IEEE PES Innovative Smart Grid Technologies India

TABLE I. LINE DATA
TABLE II. BUS DATA
TABLE III. LINE LENGTH, LINE CAP. & CAPITAL COST
VI. RESULTS AND DISCUSSION
Two cases of demand variation simulated and studied.
Results obtained and discussion is made for these two loading
cases on a six bus system. Power flow P
i
k
MW, imposed on
circuit i, by user, due to its demand at bus k is calculated by
the difference between the base case power flow and the flow
in the new condition. ARR of circuit i, predetermined unit cost
F
i
(reflecting the cost per km length of circuit i, in Rs million
/km) determined from table III. The results obtained are
displayed for each case of demand. Buses 1, 2 and 3 are
having, no transmission charges applied as it is assumed that
the load customer pays the 100% cost of transmission to the
transmission utility. The postage stamp tariff is developed in
order to get complete recovery of ARR for each case. The
transmission tariff to each individual user also determined.
A. Case1(Demand 240 MW)
TABLE IV. DEMAND 240 MW
Bus
No.
Generation
MW
Demand
MW
Q MVAR Voltage
KV
1 90 0 0 220
2 70 0 0 220
3 80 0 0 220
4 0 95 0 220
5 0 65 0 220
6 0 80 0 220
Total 240 240 0 -
TABLE V. MW-MILE CHARGES (RS MILLION/MW/YEAR)
Bus
No
Load
MW
Absolute
Approach
Dominant
Approach
Reverse
Approach
1 0 0 0 0
2 0 0 0 0
3 0 0 0 0
4 95 5.027566 5.0275662 5.027566
5 65 4.978850 4.7040996 4.429349
6 80 4.906268 4.5278178 4.149367
TABLE VI. POSTAGE STAMP CHARGES (RS MILLION/MW/YEAR)
Bus
No
Load
MW
Absolute
Approach
Dominant
Approach
Reverse
Approach
1 0 0 0 0
2 0 0 0 0
3 0 0 0 0
4 95 4.6062271 4.8067888 5.0073506
5 65 4.6062271 4.8067888 5.0073506
6 80 4.6062271 4.8067888 5.0073506
TABLE VII. TRANSMISSION TARIFF (RS MILLION/MW/YEAR)
Bus
No
Absolute
Approach
Dominant
Approach
Reverse
Approach
1 0 0 0
2 0 0 0
3 0 0 0
4 9.633793235 9.834354973 10.03491671
5 9.585077068 9.510888459 9.436699849
6 9.512495416 9.334606598 9.156717780
TABLE VIII. REVENUE RECONCILIATION (RS MILLION /YEAR)
Bus
No
Absolute
Approach
Dominant
Approach
Reverse
Approach
1 0 0 0
2 0 0 0
3 0 0 0
4 915.2103573 934.2637224 953.3170875
5 623.0300094 618.2077498 613.3854902
6 760.9996332 746.7685278 732.5374224
Total 2299.240000 2299.240000 2299.240000
Sr. No. Circuit i
R X
from Bus to Bus
1 1 2 0.1000 0.2000
2 1 4 0.0500 0.2000
3 1 5 0.0800 0.3000
4 2 3 0.0500 0.2500
5 2 4 0.0500 0.1000
6 2 5 0.1000 0.3000
7 2 6 0.0700 0.2000
8 3 5 0.1200 0.2600
9 3 6 0.0200 0.1000
10 4 5 0.2000 0.4000
11 5 6 0.1000 0.3000
Bus
No.
Generation
MW
Peak
Demand
MW
Q MVAR Voltage
KV
1 147 0 0 220
2 150 0 0 220
3 180 0 0 220
4 0 174 0 220
5 0 130 0 220
6 0 173 0 220
Total 477 477 0 -
Bra
nch
Circuit
Description
Li
km
Line
Cap
MW
Circuit
cost
Rs million.
i from
Bus
to
Bus
1 1 2 100 120 1500
2 1 4 50 120 750
3 1 5 80 120 1200
4 2 3 50 120 750
5 2 4 50 120 750
6 2 5 100 120 1500
7 2 6 70 120 1050
8 3 5 120 120 1800
9 3 6 20 120 300
10 4 5 200 120 3000
11 5 6 100 120 1500
2011 IEEE PES Innovative Smart Grid Technologies India

TABLE IX. AVG.TRANSMISSION TARIFF (RS MILLION /YEAR)
Sr. No. Absolute
Approach
Dominant
Approach
Reverse
Approach
1 9.577121906 9.5599500 9.542778113
B. Case2(Demand 287 MW)
TABLE X. DEMAND 287 MW
Bus
No.
Generation
MW
Demand
MW
Q MVAR Voltage
KV
1 100 0 0 220
2 90 0 0 220
3 97 0 0 220
4 0 110 0 220
5 0 77 0 220
6 0 100 0 220
Total 287 287 0 -
TABLE XI. MW-MILE CHARGES (RS MILLION/MW/YEAR)
Bus
No
Load
MW
Absolute
Approach
Dominant
Approach
Reverse
Approach
1 0 0 0 0
2 0 0 0 0
3 0 0 0 0
4 110 4.8717356 4.8717356 4.8717356
5 77 4.8460865 4.4912467 4.1364068
6 100 4.5914138 4.0831044 3.5747950
TABLE XII. POSTAGE CHARGES (RS MILLION/MW/YEAR)
Bus
No
Load
MW
Absolute
Approach
Dominant
Approach
Reverse
Approach
1 0 0 0 0
2 0 0 0 0
3 0 0 0 0
4 110 3.2441082 3.5164204 3.7887326
5 77 3.2441082 3.5164204 3.7887326
6 100 3.2441082 3.5164204 3.7887326
TABLE XIII. TRANSMISSION TARIFF (RS MILLION/MW/YR)
Bus
No
Absolute
Approach
Dominant
Approach
Reverse
Approach
1 0 0 0
2 0 0 0
3 0 0 0
4 8.1158437 8.388156 8.6604682
5 8.0901947 8.0076671 7.9251394
6 7.8355220 7.5995248 7.3635276
TABLE XIV. REVENUE (RS MILLION /YEAR)
Bus
No
Absolute
Approach
Dominant
Approach
Reverse
Approach
1 0 0 0
2 0 0 0
3 0 0 0
4 892.74281 922.69716 952.6515
5 622.94499 616.59036 610.23574
6 783.5522 759.95248 736.35276
Total 2299.240000 2299.240000 2299.240000
TABLE XV. AVG.TRANSMISSION TARIFF (RS MILLION /YR)
Sr. No. Absolute
Approach
Dominant
Approach
Reverse
Approach
1 8.013853 7.998449 7.983045

Postage stamp tariff for each load is obtained, which is
fixed for a particular methodology used i.e. absolute, dominant
and reverse MW-Mile method. The un-remunerated cost for
various Mw-Mile approaches is unequal. In common
evaluation postage stamp tariff is unequal for its different
MW-Mile combinations. Total payment made by each user in
Rs million /year for this modified approach in order to revenue
reconciliation is determined and shown in the result table. The
average transmission tariff to each individual user (Rs
(million) /MW/year) is also determined if needed. Comparison
of Tariff in combined evaluation approach is shown in fig.
3and fig.4, with bar charts which clears that the tariff for
combination of absolute power flow based MW Mile method
with postage stamp is highest and the tariff for combination of
reverse power flow based MW-Mile method with postage
stamp is lowest.
7.5
8
8.5
9
9.5
10
Bus 4 Bus 5 Bus 6
A C1
D C1
R C1
A C2
D C2
R C2



Figure3. Comparison of Tariff (Rs million/MW/year)

7.5
8
8.5
9
9.5
10
Case1 Case2
Absolute
Dominant
Reverse


Figure 4. Average Tariff (Rs million/MW/year)
2011 IEEE PES Innovative Smart Grid Technologies India

VII. CONCLUSION
Among the combinations of three approaches of MW-Mile
methods, absolute MW-Mile approach is the most popular as
there is some certainty that it will provide sufficient revenue to
the transmission owner. The results of the above analysis
reveal that, any one among the three charging schemes of the
MW-Mile method is not sufficient to recover the total
transmission system cost. To cover the total transmission
system cost, it is necessary to share among the users the cost
associated with unused capacity is considered as a combined
approach of transmission tariff evaluation. In this the postage
stamp coverage is used to distribute this unremunerated cost
among the users in sharing with each MW-Mile Approach.
These analyses proved that the proposed transmission tariff
allocation using combined approach is simple and practicable
to be implemented on different percentage allocation
transmission cost of services among the different transmission
facility users. The approach with reverse MW-Mile variant
with postage stamp combination is providing strong economic
signal as far as fair and transparent transmission tariff is
concern.
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