Incremental transmission pricing, the comparability standard, and an alternative to the FERC`s {open_quotes}high of{close_quotes} policy

Journal Article · Thu Dec 01 04:00:00 EST 1994 · Electricity Journal

DOI:https://doi.org/10.1016/1040-6190(94)90039-6· OSTI ID:41683

Sinclair, R A; Greer, D F; Wilson, J W ^[1]

---

1. J.W. Wilson and Associates, Washington, DC (United States)

FERC`s {open_quotes}higher of{close_quotes} policy would result in a one-sided vintage-pricing system. It should also abandon this policy because it fails any fair test of comparability. A better option is a second-price sealed-bid auction, which is neither one-sided nor vintage, and satisfies the comparability standard. One of the main requirements for efficient and effective competition in the electric utility industry is a sound method for providing third-party access to a transmission-owning utility`s transmission grid. Transmission access is crucial to effective regulatory policy because of its effect on the competitiveness of bulk and retail electric markets, the location of generation resources, and the nature and extent of capital investments in generation and transmission facilities. In pursuit of a more competitive electric utility industry, the Energy Policy Act of 1992 provides the Federal Energy Regulatory Commission (FERC) with the authority to compel access to a transmission-owning utility`s transmission grid on a non-discriminatory basis. This paper reviews the FERC`s transmission pricing policy and offers criticisms and suggestions for improvement. After concluding that the method for treating opportunisty costs under the `higher of` policy should be abandoned, the authors propose an alternative pricing method grounded on a bidding process that is superior to the current `higher of` policy and consistent with the FERC`s recently announced Comparability Standard. The alternative pricing method also affects the treatment of expansion costs under the `higher of` policy. Thus, the authors also recommend that regional transmission arrangements be fostered which administrate expansion planning and financing on a more non-discriminatory and efficient basis.

• OSTI ID: 41683
• Journal Information: Electricity Journal, Journal Name: Electricity Journal Journal Issue: 10 Vol. 7; ISSN ELEJE4; ISSN 1040-6190
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
ELECTRIC POWER INDUSTRY
INCREMENTAL-COST PRICING
POWER TRANSMISSION LINES
PRICING REGULATIONS