Table Of ContentCONTENTS
Acknowledgement
Chapter 1
Prologue 1
Chapter 2
A Survey of the Theory of Public Utility Pricing 15
Chapter 3
The Performance of the Kerala Power System 32
Chapter 4
Reliability Analysis of the Kerala Hydro-Power System 59
Chapter 5
Optimal Peak load Pricing of Electricity under Uncertainty –
Some Welfare Implications 86
Chapter 6
The Optimal STD Prices for Kerala Electric Power System 107
Chapter 7
Epilogue 129
Appendices
Bibliography
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CONTENTS IN DETAIL
Chapter 1
Prologue 1 – 14
1.1 Energy: General Background 1
1.2 Electric Power 2
1.3 The Electric Power utility 2
1.4 Tariffs 3
1.5 Seasonal Time of Day Pricing 4
1.6 General Framework for Implementing STD Pricing 4
1.7 Problems and drawbacks 6
1.8 STD Pricing in Practice 7
1.9 Objectives of the Study 9
1.10 Methodology 10
1.11 Data Base 10
1.12 Plan of the Study 11
1.13 Limitations of the Study 12
Notes 12
Chapter 2
A Survey of the Theory of Public Utility Pricing 15 – 31
2.1 Introduction 15
2.2 Public Utilities 15
2.3 Marginal Cost Pricing 17
2.4 Second Best Dilemma 19
2.5 Monopoly Pricing 20
2.6 Regulated Monopoly Pricing 21
2.7 Ramsey Pricing 21
2.8 Non-Linear Pricing 22
2.9 Load Factor and Pricing of Electricity 23
2.10 Review of the Theory of Peak Load Pricing 24
2.10.1 Deterministic Models 24
2.10.2 A basic peak Load Model 26
2.10.3 Peak Load Pricing Under Uncertainty 27
2.11 Conclusion 28
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Notes 29
Chapter 3
The Performance of the Kerala Power System 32 – 58
3.1 Introduction 32
3.2 The Kerala Power System – An Overview 33
3.2.1 The Growth of the Kerala Power System 34
3.2.2 The Rule of Power Cut 35
3.2.3 The Cost of Low Capacity Utilization 36
3.3 Dissecting the Plight 37
3.3.1 The Inadequate Capacity Additions 37
3.3.2 Unaccountable System Planning 39
3.3.3 The Dismal Financial Front 44
3.3.4 A Legacy of Unaccountability 48
3.4 The Power Sector Reform 50
3.5 Conclusion 52
Notes 53
Chapter 4
Reliability Analysis of the Kerala Hydro-Power System 59 – 85
4.1 Introduction 59
4.2 A Gamble in the Monsoon 59
4.3 The Monsoon Profile 60
4.4 Generation vis-a-vis Precipitation 62
4.5 Shortages and Reliability 64
4.6 System Reliability 65
4.6.1 Availability and Forced Outage Rates 65
4.6.2 Continuous Markov Process 67
4.6.3 Maximum Likelihood Estimation Of Availability 68
4.6.4 Loss of Load Probability (LOLP) 72
4.6.5 Availability and Forced Outage Rates 75
4.6.6 Capacity-Outage Probability and LOLP 78
4.6.7 LOLP 82
4.7 Conclusion 83
Notes 84
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Chapter 5
Optimal Peak load Pricing of Electricity under Uncertainty –
Some Welfare Implications 86 – 106
5.1 Introduction 86
5.2 Seasonal Cost Structure of A Hydro-Power System 87
5.3 Load Duration Curve 88
5.4 The First-Best Prices 89
5.4.1 All-Hydro System 89
5.4.2 Hydro-Thermal System 93
5.5 The Monopoly Prices 96
5.6 The Ramsey Prices 97
5.7 Constrained Monopoly Prices 98
5.8 Outage Costs 101
5.9 Conclusion 105
Notes 105
Chapter 6
The Optimal STD Prices for Kerala Electric Power System 107 – 128
6.1 Introduction 107
6.2 System Growth and Demand Projection 108
6.3 Structuring the LRMC for the System 111
6.3.1 A Pure Hydro-Power System 111
6.3.2 A Hydro-Thermal System 113
6.3.3 Other Parameters in the Price-Structure 114
6.4. The STD Generation Prices 117
6.5 The Prices Adjusted at Voltage Levels 118
6.6 The Outage Costs 120
6.7 Conclusion 122
Notes 122
Chapter 7
Epilogue 129 – 133
7.1 General 129
7.2 Conclusions 129
7.2.1 Financial Performance 129
7.2.2 Capacity Availability 130
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7.2.3 Water Availability 131
7.2.4 STD Prices 131
7.2.4.1 High-Voltage Consumers 132
7.2.4.2 Low-Voltage Consumers 132
7.2.4.3 Transition to the New Tariff 132
7.2.5 Rationing Prices 133
7.3 Qualifications 133
7.4 Extensions 133
Appendix Al
A Chance-Constrained Programming Model of
STD Pricing of Electricity 135 – 144
A.1.1 Global Approach 135
A.1.2. Simulation Models 135
A.1.3 Mathematical Programming Models 135
A. 1. 4 Chance-Constrained Programming 136
A.1.5 The Method Of Z-Substitutes 138
A.1.6 A Chance-Constrained LP Model Of Electricity Pricing 140
Notes 145
Appendix A2
Electric Power Consumption (KWH Per Capita) 146 – 149
Bibliography 150 – 165
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ACKNOWLEDGEMENT
This work is based on a revised and to some extent updated version of my Doctoral
Thesis on Seasonal Time-of-Day Pricing of Electricity under Uncertainty, carried out
at the Department of Econometrics of University of Madras, Madras (now Chennai),
India.
Any work, however privately conceived it is, is a concrete outcome of the collective
consciousness. And hence I remember now with deep gratitude, love and reverence
those kindred spirits who directly helped me through with this project.
The original project was carried out under the supervision of Dr. U. Sankar, then
Professor and Head of the Department of Econometrics, Madras University, (now
Honourary Professor at the Madras School of Economics); my appreciation bows to
him for his enduring encouragement, especially to the heuristic initiative of his students.
Though I had started on an ambitious empirical exercise of a chance-constrained linear
programming (LP) model of the Kerala power system, inaccessibility to a suitable LP
package that time finally drove me to divert my study into a detailed mathematical modeling
of a representative power system and its marginalist derivations along with some illustrative
empirics.
I am grateful to the University Grants Commission for the financial assistance to this project,
awarded through the Junior Research Fellowship (National Eligibility Test) scheme. I was
proud to be the first JRF (NET) to join the University of Madras.
I benefitted during the study period from the accessibility to the libraries at Madras
University, Madras Institute of Development Studies, Economics Departments of Kerala
University and Calicut University, Centre for Development Studies, Trivandrum, Vydhyuthi
Bhavanam, Trivandrum, T.N. Agricultural University, Coimbatore, and Indira Gandhi
Institute for Development Research, Bombay. Discussions with Ms. T Alagumany, then of
the T.N. Agricultural University, on chance- constrained programming helped me a lot. I had
also the benefit of discussions on electricity economics with Prof. P.P. Pillai and Dr. (Mrs.)
P.P. Pillai of Economics Department, Calicut University.
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This moment I also take to remember a few of my teachers: the encouraging brotherly affection,
(late) Dr. C. Radhakrshnan Nair, then at the Department of Economics, Kerala University
showered upon me, is particularly remembered. And my heart is too full for words when I
remember now at a loss my college teacher and one-time god-father, Prof. Abdul Razak
and his family who choked me with affection and compassion unusual to me.
The study would not have been possible but for the kind and encouraging co-operation of
the KSEB. The Board officials and the personnel at the Vydhyuthi Bhavanam, Trivandrum
and at the different power stations in Kerala were so co-operative that many of them went
out of their way to help me in collecting data and other information for the study ─ with
deep gratitude I appreciate their kind service.
A good deal of my grateful appreciation and love is due to my near and dear ones ─ my
younger brother Rajan and his friends, especially Srinivasan and family, patiently bore all the
problems with my accommodation arrangements in Madras; being hyper-allergic to sound, dirt
and indecency, I had to change houses very often. In the absence of any solid
recommendation, the University hostel was inaccessible to me for more than three years, but
my friend Mohanansundaram, another Ph D fellow in the same Department, brought it within
my reach such that I was able to complete formulating the model with all the derivations and
writing the original Thesis during the eight months of my hostel stay. Thereafter my friend
Soumitra Ganguly (then of Philips Company) was so kind to accommodate me for the
remainder of my fellowship period with him after sending his family back home! The
compassionate concern with and loving encouragement to the progress of my study by
Premkumar and his parents, Unni and Amma, Yoosuf, Mohanan, Sisupalan and the other
friends are also gratefully remembered. And then my sisters and brothers, particularly Balannan,
who had taken all the household burden upon himself and let me with the studies; and this I
dedicate to the burning memory of my parents and my sisters Akkan and Ammini with an
unsatiated sense of unfulfilled obligations in the cruel face of untimely exits. And finally my
family now – as Rju as usual smiles away my excuses for my absences from her little
kingdom and Kala resigns herself to my non-corrigible weekend return to family care, I just
seek to balance all, bring all to mind … In balance with this life, this academic pursuit!
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