2042 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 29, NO. 5, SEPTEMBER 2014 Improving the MW-Mile Method Using the Power Factor-Based Approach for Pricing the Transmission Services Syarifuddin Nojeng, Mohammad Yusri Hassan, Member, IEEE, Dalila Mat Said, Member, IEEE, Md. Pauzi Abdullah, Senior Member, IEEE, and Faridah Hussin, Member, IEEE Abstract—The MW-Mile method is an embedded cost pricing method, which is widely used to determine transmission pricing. The method is formulated based on the distance and active power flow in each line of the transmission network. This method may be considered as the first pricing strategy proposed for recovering the fixed transmission cost, based on the actual use of the trans- mission network. However, this method suffers from the provision of unfair charges to the users, since it ignores the quality of the load in allocating the transmission cost. This paper proposes an improved MW-Mile method by considering not only the changes in MW flows but also the quality of the load, i.e., the power factor. In this study, the IEEE 14-bus system was used to illustrate the con- tribution of the proposed method in allocating transmission cost to the user in a fair manner. Index Terms—MW-Mile method, power factor, transmission pricing. I. INTRODUCTION T HE electric supply industry has been changing rapidly throughout the world as a consequence of the implemen- tation of deregulation. Under deregulation, the user subscribing the interconnection network has to pay the cost of the transmis- sion service, and this cost is determined based on the utiliza- tion of the transmission line. Many methods have been used and proposed to evaluate the cost of transmission services. These methods are categorized into three types of cost: embedded cost, incremental cost and marginal cost [1]. The embedded cost method is commonly used throughout the utility industry. This method offers several benefits, e.g., it is practical and fair to all parties, easy to measure and provides an adequate remuneration of transmission systems. There are four types of embedded cost methods extensively used to allocate the transmission transaction cost namely; postage stamp, con- tract path, distance-based MW-Mile and the power flow-based MW-Mile method [2]. Manuscript received March 26, 2013; revised March 27, 2013, June 13, 2013, August 01, 2013, and August 28, 2013; accepted January 26, 2014. Date of pub- lication February 10, 2014; date of current version August 15, 2014. This work was supported by the Centre of Electrical Energy Systems (CEES), Faculty of Electrical Engineering, Universiti Teknologi Malaysia and Universitas Muslim Indonesia (UMI), South Sulawesi, Indonesia. Paper no. TPWRS-00367-2013. The authors are with the Centre of Electrical Energy Systems (CEES), Universiti Teknologi Malaysia, Johor, Malaysia (e-mail: syarifuddinnojeng@ yahoo.co.id; yusrih@fke.utm.my). Digital Object Identifier 10.1109/TPWRS.2014.2303800 The MW-mile method is more widely used since it has been shown to be more reflective of the actual usage of the trans- mission system in allocating the transmission cost. However, this method often fails to consider the power factor of the load, though it is one of the factors associated with the transmission transfer capability. In general, the power factor does not change the active power, but can affect the power quality [3]. Poor power factor will cause a decrease in electrical power delivery capability because it can lead to the increase of current injection and voltage drop in the lines. One of the factors that contribute to the decrease in the quality of the power factors is the use of reactive loads, such as induction motors and lamp typed high intensity discharge (HID), which are widely used in the industry. As reported in [4], most electricity companies in the USA charge a penalty (additional cost) to users who have a low power factor, below the standard ( ). In [5], Taiwan Power Company provides a promotion of the rules, which is based on a power factor of 0.8. The State Electricity Company (PLN) in Indonesia has also established a reference for a power factor of 0.9. An additional fee will be charged to users who have a power factor less than the reference power factor [6]. National Electricity Market Manage- ment Company (NEMCO) of Australia dictates that generators should provide a power factor in range of 0.9 lagging to 0.93 leading. Meanwhile, Norway, Sweden and Denmark provide a power factor range of 0.92 lagging to 0.98 leading [7]. Some study papers have tried to consider the power factor by using reactive power parameters [7]–[9]. For instance, an MVA+MVAr Miles charging methodology is proposed through a separating of the network cost due to the real and reactive power flows for each user [8]. In [10], the authors proposed a strategy to determine the transmission cost through the use of proportionality-based real power tracing to find out the network usage for each constituent, whereas [11] and, [12] proposed a point-to- point method. The authors in [13] proposed an approach based on monetary flow methods, and [14] proposed transmission pricing based on electricity tracing and long run average incremental cost. As far as we are concerned, there is still no work proposed in the literature about transmission cost methodology that includes the load power factor in pricing the transmission services, thus this is the main motivation of this paper. This paper is organized as follows: Section II describes the problem structure of the MW-Mile method. Section III presents 0885-8950 © 2014 IEEE. Personal use is permitted, but republication/redistribution requires IEEE permission. See http://www.ieee.org/publications_standards/publications/rights/index.html for more information.