Perspective

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When we build transmission and spread the costs, we lose the market signal of the real cost of power.

As we move beyond the "whether" to the "how" of large regional transmission organizations, many critical decisions appear in defining and implementing the standard market design. One theme that recurs is the type and extent of "socialization" of costs of infrastructure investment and market operations.

Federal Energy Regulatory Commission Chairman Pat Wood recently acknowledged the debate in the context of transmission interconnection: "Frankly, I haven't made up my mind long-term on this issue of socializing (transmission-interconnection) costs...." ¹ Similar matters arise in other areas of pricing and cost allocation.

A standard argument for socializing-by spreading costs across everyone, rather than assigning costs to those who benefit-is that the cost of interconnection, or transmission expansion, or congestion management, or ancillary services, or whatever, is small compared to the total cost of electricity. In the interest of so-called simplification, in order to move forward with the broader benefits of a restructured electricity market, the proposal is to treat the cost like "peanut butter." Spread it out in small amounts, so the argument goes, and everyone would win in the long run.