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Loss Modeling in T&D Systems: Is $25 Billion Worth Losing?

Energy players can lose a lot more than their shirt if they fail to model transmission losses properly.
Fortnightly Magazine - August 2002

significant economic value, and they require additional generation capacity to compensate for them. The losses, as defined earlier, amounted to 379 billion kWh in 1999. This is equivalent to 43,000 MW of generating capacity, or five percent of the presently installed generation capacity in the United States.

Even small improvements to the efficiency of the transmission and distribution system will have an immediate impact on energy markets. With significant increases, however, energy traders will still be well advised to understand how losses are modeled in the markets in which they do business. The dollars associated with losses on any single deal might not raise many eyebrows, but the fact that these negative financial implications are avoidable is reason enough to incorporate accurate loss modeling into the trader's IT systems. As competitive markets evolve, margins get thinner and arbitrage opportunities grow scarcer, the ability to account for losses precisely will become increasingly important to the trader's bottom line.

  1. It is also important to distinguish between the losses that occur physically within the distribution system and the losses that are associated with inaccurate metering of energy, but this article will not focus on this distinction.

Wholesale electric power markets use a variety of methods to model transmission losses. Following is a summary of the major U.S. markets' methodologies. Market participants doing business in a given market should have the capacity in their IT systems to shadow the calculations performed by the ISO/RTO, to have a precise understanding of what losses are costing them.

California ISO

The California ISO uses Tie Meter Multipliers (TMM) data, along with the final hourly schedules to compute the dynamic loss factors that are applied for a particular bilateral transaction or import transaction into California. Once the TMM is identified, then the market participants, known as Scheduling Coordinators, are charged the incremental cost of energy at that location to cover the cost of losses. This means if the TMM is two percent and the import transaction into California is 100 MW, the cost of providing the two percent losses will be charged at the marginal cost of energy for two MW at the delivery location. The TMM for each hour in each location are posted on Cal ISO's OASIS site.

West Connect (formerly Desert STAR)

West Connect plans to handle losses with concurrent energy payback. Concurrent energy payback is a scheme (more predominant in the Eastern Interconnection than the West) whereby the customer of the control area is required to provide for the loss megawatts at the same time the transaction is scheduled. The customer has the option of: a) providing for the loss megawatts themselves; b) buying the loss megawatts from a third party power marketer; or c) choosing to buy the loss megawatts from the transmission provider itself. However, financial compensation for losses is not allowed.


T&D losses are the responsibility of the Qualified Scheduling Entity (QSE) representing the competitive retailer's load. The QSE has the responsibility to schedule the necessary megawatt amount of energy to cover the retailer's load plus applicable T&D losses. The ERCOT ISO