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
4While the new pricing policy adheres to the Federal Power Act's requirements of just, reasonable, and not unduly discriminatory transmission rates, FERC clearly states that does not mean one transmission price for all. "Second, a utility must allocate among individual customers or classes of customers that portion of the total revenue requirement that is attributable to providing transmission services, in a manner which appropriately reflects the costs of providing transmission service to such customers or classes of customers... Different customers may pay different rates if they use the system in different ways." See, Inquiry Concerning the Commission's Pricing Policy for Transmission Services Provided by Public Utilities Under the Federal Power Act, 59 Fed.Reg. 55031-55045, Nov. 3, 1994, FERC Docket No. RM93-19-000, Oct. 26, 1994 (transmission policy statement). The FERC statement reinforces the principle of cost causation.
5Steven Parsons, "Seven Years After Kahn and Shew: Lingering Myths on Costs and Pricing Telephone Service," Yale Journal of Regulation, Vol. 11, No. 1, Winter 1994, pp. 149-70, 151.
6However, if capacity reservation tariffs or tradable rights are developed, the access fee concept developed in this paper could be readily adapted to conform to these principles.
7The physical nature of generation refers to differences in power plant design with respect to operation. For example, coal and nuclear power plants are designed as base-load facilities and operate at high capacity factors. On the other hand, many natural gas-fired and oil-fired plants are used to follow the load. As a result, these types of plants have much lower capacity factors. To compensate adequately for the physical nature leading to distinctive length of use for these facilities, a seasonal or monthly time-of-use access fee could be used. Instead of a single, annual, flow-based snapshot, multiple snapshots could be used. For example, a monthly access fee could be based on three (peak, shoulder and off-peak hours) flow-based snapshots of usage.
8A variation on this theme would be the siting of a new gas-fired combined cycle power plant. With available transmission, the plant could locate next to a gas pipeline outside the state. By locating there, the new power plant could avoid in-state natural gas transportation costs. Since WEPEX advocates the end user should pay all of the transmission access fee, except for electric transmission losses, the new plant can move its power to the in-state load over electric transmission lines for free. The siting of the power plant depends upon the trade-off between electric transmission losses and foregone intra-state gas transportation rates.
9"[S]ignificant segments of the bulk power transmission system encompassed in the CAL-ISO are presently operated at limit during periods of peak load and periods of peak interchange." Task 1 Draft Report: Current Reliability Criteria for Location-Dependent Ancillary Services for the California ISO Trust Transmission Reliability Study, Report # 32-97, Power Technologies Inc., April 27, 1997.
10The same method of spreading a change in load equally to all load centers is used by WEPEX to assign losses to each generator.
11Distribution factor (DF) = D Line flow due to generator injection of power (MW)
D Generator injection