As the generation side of the electric industry becomes increasingly deregulated and transmission migrates toward common carrier status, an easily administered and fairly applied pricing system must be developed. The concepts of "postage stamp" tariffs and "contract paths" lose all logical viability. They possess no totally encompassing tie between the provider of the service and the revenues for that service. Instead, distance-based methods provide that link and will likely emerge as the surviving pricing concepts, since they most closely combine the physics of electricity flow and the precepts of a market economy.
Several approaches have been advanced for distanced-based (often called megawatt-mile, or "Mw-mile") pricing to ensure economically correct transmission user fees in a more open electric energy marketplace. The embedded-cost pricing method calls for uniform rates to be paid by all who actually use the
transmission system and receive similar services.
A Uniform Rate
First we need some definitions and assumptions. The unit used to measure the service provided would be the Mw-mile; i.e., one megawatt of electric power transported over one mile of distance, or one megavolt-ampere of transformation capacity used for a given period of time. Any interval could serve as the time period (em an hour, a day, a month, or a year (em with the rate adjusted accordingly.
Where the power actually flows (em and, thus, which transmission elements are used to support a transaction (em is directed by the physics of the universe, not by