Two power pools (em one existing, the other inchoate (em have announced that they will file tariffs to price electric transmission as the difference in spot prices in the generation and consuming markets. Revenues in excess of embedded costs would be distributed to the holders of firm transmission rights through "transmission congestion contracts" (TCCs).
"Locational pricing" and TCCs may achieve pristine economic efficiency in the generation and delivery of power. However, these concepts lie outside of "cost basis" in the traditional sense; they imply the virtual deregulation of transmission pricing.
While the Federal Energy Regulatory Commission (FERC) has encouraged "innovative"
transmission pricing proposals,1 particularly from pools, it nevertheless clings to the anchor of cost-based rates as historically adopted under the aegis of the Federal Power Act (FPA). In the past, when economic efficiency and the "just and reasonable" standard met, economic efficiency was generally lost. Will the FERC's recent embrace of competitive principles win the new day?
Locational pricing and TCCs lie central to the plans of new competitive power pools proposed by the California Public Utilities Commission (CPUC) and the Pennsylvania-New Jersey-Maryland Interconnection (PJM). These ideas will pose a challenge to the traditional utility ratemaking principles employed by the FERC under the "just and reasonable" standard of the FPA.
California: Comparing Prices
at Source and Load