Discriminatory pricing among consumer classes in power market using the Shapley Value

A classification of consumers in the power market into different classes from a pricing perspective has been a frequent source of controversy between the energy producer and consumer interest groups since electricity is considered to be a commodity product. Although differences of demand elasticity and variation in costs of service among the different classes justify discriminatory pricing, since it is difficult to allocate transmission cost among different consumer classes, utility companies and utility commissions cannot objectively determine how much the rate differential should be. This paper presents the rules for allocating supply to each class of consumers based on an efficient allocation of resource. Classes of consumers being allocated less resource receive monetary compensation from other classes. The price differential is determined by the inter-class compensations which are based on the outcome of a cooperative game among the user classes and the determination of the Shapley Value of each class.