The Costs of Wheeling and Optimal Wheeling Rates

Wheeling is the transmission of electrical energy from a buyer to a seller through a transmission network owned by a third party. This paper provides a theoretically sound, yet practical to implement, basis for setting wheeling rates. These wheeling rates are based on marginal costs (determined by losses and effects of line flow and voltage magnitude constraints) adjusted up or down as necessary to account for embedded capital costs (i.e. revenue reconciliation). Simple numerical examples are provided to illustrate interesting phenomena such as negative wheeling rates which yield positive net revenue. Comparisons with present day wheeling rates show that major differences exist. The wheeling rates of this paper yield a "no lose" situation for the buying, selling and wheeling utilities.