An integrated framework for cost allocation in a multi-owned transmission system

This paper describes a methodology for allocating transmission costs among users of a centralized transmission service. In the proposed approach, the share of each participant is proportional to its impact on power system transmission investment requirements. This allocation rule provides incentives for all participants to remain in the pool and ensures revenue reconciliation. It is shown that, under some simplifying assumptions, the proposed scheme reduces to a modified MW-mile rule, thus providing some insight on that method´s economic basis. Other issues such as credits for “counterflows” and distortions due to economies of scale are also addressed. The methodology is illustrated in case studies with the Brazilian power system