In any power network, the cost of electrical losses constitutes a large component of network operating costs. As a result of introduction of competition under deregulation, it has become much more important to be able to determine a strategy for fair allocation of losses among the stakeholders. This paper suggests a quadratic loss formula with nodal power injections as independent variables. The change in losses obtained by the bilateral or multilateral transactions is expanded in Taylor's series. The computational burden posed by the second partial derivatives is reduced with introduction of a multiplying constant in the expansion without sacrificing the accuracy for each load levels of a 24 hour period. In order to ensure fair loss allocation, the possible negative loss at a bus, obtained by the cross–flows in lines, is corrected by linear interpolation. The method is tested on IEEE 14–bus system with five daily load levels.
Keywords: deregulation, transmission loss, loss allocation, deregulated power systems, counter flows, loss subsidies, electrical losses, power networks, quadratic loss formula, nodal power injections, linear interpolation