Below are five commonly-used methodologies to allocate and recover costs from transmission customers:[1]
- 1. License plate (LP):
- Each utility recovers the costs of its own transmission investments (usually located within its footprint).
- 2. Beneficiary pays:
- Various formulas that allocate costs of transmission investments to pricing zones that benefit from a project, even if the project is not owned by transmission owners in these pricing zones. TOs then recover allocated costs in their LP tariffs from own customers.
- 3. Postage stamp:
- Transmission costs are recovered uniformly from all loads in a defined market area (e.g., RTO-wide in ERCOT and CAISO).
In some cases (e.g., SPP, MISO, PJM), cost of certain project types are allocated uniformly to TOs, who then recover these allocated costs in their LP tariffs. - 4. Direct assignment:
- Transmission costs associated with generation interconnection or other transmission service requests are fully or partially assigned to requesting entity.
- 5. Merchant cost recovery:
- The project sponsors recover the cost of the investment outside regulated tariffs (e.g., via negotiated rates with specific customers); largely applies to direct current lines where transmission use can be controlled.
References:
- 1. The Brattle Group, "Transmission Investment Needs and Cost Allocation: New Challenges and Mod" December 1, 2009.