Finding core allocations for fixed cost games in electricity networks

Abstract

We discuss the cost allocation problem faced by a network operator, where the fixed (residual) cost of the network has to be allocated among its users. Usage-based methods, such as the postage stamp rate method and the MW-mile method, are easy to understand and compute, but may yield cost allocations for which some transactions are subsidizing others. Formally, this is equivalent to allocations outside of the core of the corresponding cooperative cost game. Our main contribution is to present a method, similar to a well-known method for computing the nucleolus, by which several usage-based methods may be combined in order to produce allocations that are in, or as close as possible to, the core. The method is illustrated using a model of an AC power network.