Econonomics of Energy and Environmental Policy

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A Primer on Transmission Benefits and Cost Allocation

The cost of transmission facilities must be allocated to those within the transmission planning region that benefit from those facilities in a manner that is at least roughly commensurate with estimated benefits." (FERC, 2010, p. 91) Benefits include reliability, economic and public policy related impacts. Turning the principle into a workable policy is important as a support for restructured electricity markets. A challenge is to make the different measures of benefits commensurable, and to find approximations that honor the principle without imposing a standard of perfection. A framework for such cost allocation uses examples from existing models and transmission investment studies to describe how the cost allocation principle could apply within the limits of available analytical capabilities.
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JEL Codes:L51: Economics of Regulation, L94: Electric Utilities, Q41: Energy: Demand and Supply; Prices

Keywords: Transmission, electricity, benefits, costs, allocation, distribution

DOI: 10.5547/2160-5890.7.1.whog

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Published in Volume 7, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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