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FERC should consider a two-part tariff to boost transmission investment.
Fortnightly Magazine - October 1 2003

investors, commensurate with the security of the expected megawatt-hour-mile charge. The LMP would ensure the best allocation of transmission lines at any time. The revenues from the two tariffs would be sufficient to cover expenses and give investors their desired return. If the total traffic or expenses were slightly different from the estimates, the rates would be adjusted at year-end or made up the next year. The RTO would have the responsibility of determining what investments are needed to upgrade or extend the transmission network.

If the RTO wanted to make too many investments, too few investments, or put the investments in the wrong places, the generators and customers would have a strong incentive to protest (through the regulatory body supervising the RTO), since they would have to pay the LMP and transmission tariff.

This work was supported in part by the Alfred P. Sloan Foundation and the Electric Power Research Institute through the Carnegie Mellon Electricity Industry Center.

  1. NERC annual system disturbance reports, accessed June 23, 2003, from
  2. North American Electric Reliability Council (NERC) Transmission Loading Relief (TLR) Procedure Logs, accessed Aug. 21, 2003, at
  3. U.S. Energy Information Administration Annual Energy Review 2001, Table 8.2a "Electricity Net Generation: Total (All Sectors) 1949-2001," accessed Feb. 28, 2003, from
  4. Cambridge Energy Research Associates, Electric Transmission Advisory Service, 2000, as reproduced in
  5. U.S. data from T. Short, Reliability Indices, presentation at T&D World Expo 2002, Indianapolis, May 7-9, 2002. U.K. data as quoted in Submission on Commerce Discussion Paper on Review of Asset Valuation Methodologies, available at


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