In thinking about transmission pricing for a competitive electric industry, we should remember that the fundamental objective of competition is to increase economic efficiency. Improved economic...

## A West Coast View: The Case for Flow-Based Access Fees

by its length to give usage in terms of MW-miles for each line and generator in the system.

MW-Mile Analysis. The WEPEX model results for summer peak conditions in 2000 are presented in Figure 2, which shows, by voltage level, a histogram of MW-mile usage as a function of distribution factor. A significant observation is that MW-mile usage of 69 kV, 115 kV and 230 kV lines are clustered at low distribution factors. In fact, using a DF of 1 percent as a cut-off criterion, %n12%n we observe that:

• 77.4 percent of all 69 kV MW-miles are at DF less than or equal to 1 percent. The corresponding usage for 115 kV and 230 kV are 62.8 percent and 30.9 percent, respectively.

• By contrast, only 1.4 percent of all 500 kV MW-miles is at DF less than or equal to 1 percent.

Therefore, we conclude that there exists a fundamental, generic difference in transmission line usage in WEPEX at voltage levels 230 kV and below and at voltage levels above 230 kV. %n13%n These results were confirmed by similar analyses of winter peak and spring run-off conditions.

The explanation lies in the nature of system development:

• Local, lower-voltage networks ultimately serve loads. The magnitude of DF on lines in these local networks will be directly in proportion to the (small) fraction of total system load they serve. These lines have a local (load-serving) function.

• Utility systems developed historically from low-voltage local distribution networks to high-voltage, regional, interconnected networks. The magnitude of DF on lines in these regional networks will be larger than on local lines since regional lines are fewer in number with each one serving a larger fraction of total system load. These lines have a regional (interconnection) function.

The success of a flow- and distance-based pricing algorithm is fundamentally dependent upon the accuracy of the model used to develop the DF. Considering its application to local lines at 230 kV and below, Figure 2 shows that 30.9 percent of all 230-KV MW-miles are at DF of 1 percent or less. %n14%n This fact implies that the model has to have an accuracy of better than 1 percent in order for it to be a reliable means of allocating transmission access fees. The argument is even stronger at the 115 kV and 69 kV voltage levels. In fact, the accuracy of the underlying data in power flow models does not support such precision.

These observations lead to the major conclusions of the power-flow analysis:

• A flow- and distance-based transmission pricing algorithm for local lines (230 kV) would be impractical in a WEPEX context.

• However, a flow- and distance-based transmission-pricing algorithm is entirely practical for regional transmission lines in WEPEX (lines >230 kV), since 98.6 percent of their MW-mile usage is at DF greater than 1 percent.

1Alfred Kahn, The Economics of Regulation, MIT Press, 1988, Book I pp. 63-86.

2EPRI, Transmission Services Costing Framework, TR-105121-V1, April 1995, p. 9-39.

3William Hogan, "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, 4:211-242, 214, 229 (1992). See also, EPRI, supra, note 2,