Evaluation of transmission tariff methods in restructured power markets

This paper compares two methodologies to assign to the users that portion of the regulatory authorized income of a transmission company, that is not covered by the income generated by the use of locational marginal prices (transmission surplus) plus the connection charges. This uncovered portion is known as the "complementary charges", which can be negative but are usually positive and large. The main methodologies compared for the calculation of the complementary charges are nodal-use and nodal-distance. Both methodologies produce different prices for different nodes in the system (hence the name nodal). However the first methodology relies on load flows and power distribution factors, while the second uses physical location information. The comparison of the methodologies is based on the level of compliance with six selected tariff objectives.