at each moment of time, may be estimated. The basic
MUNASINGHE: MODERN ELECTRICITY PRICING 331
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(b)
Fig. 5. (a) Typical annual LE. (b) Forecast of peak power demand.
concepts for calculating strict LRMC are summarized below,
while details of theory and illustrative case studies may be
foundin [311 and [551.
A. Cost Categories and Rating Periods
The three broad categories of marginal costs are: capacity
costs, energy costs and consumer costs. Marginal capacity costs
are basically the investment costs of generation, transmission
and distribution facilities associated with supplying additional
kilowatts. Marginal energy costs are the fuel and operating
costs of providing additional kilowatt-hours. Marginal customer
costs are the incremental costs directly attributable to
consumers including costs of hook-up, metering, and billing.
Relevant operation and maintenance costs (O&M), as well as
administrative and general costs (A&G) must also be allocated
to these basic cost categories. Furthermore, where appropriate,
these elements of LRMC must be structured by time of
use, voltage level, and so on.
The first step in structuring is the selection of appropriate
rating periods. The system load duration curves and generation
schedules, should be examined to determine periods during
which demand presses on capacity and supply costs are
highest. These cyclical critical periods may be due to daily
demand variations (e.g., evening lighting load), or seasonal
variations in both demand (e.g., summer airconditioning peak
load), and supply (e.g., dry season for hydro systems). To illustrate
the principles of structuring and calculating strict
LRMC, we begin with an all thermal system that does not exhibit
marked seasonability of demand, choosing only two
rating periods by time of day, i.e., peak and off-peak. Seasonal
variations in LRMC and the analysis of hydroelectric
systems are discussed later.
B. Marginal Capacity Costs
Consider in Fig. 5(a), the typical system annual load duration