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CEIC-06-08

"Topological Elements of Transmission Pricing and Planning"

Seth Blumsack, Lester B. Lave, and Marija Ilić

Abstract:
Lagging investment in the North American transmission grid, due in part to ISO/RTO decisions, has increased costs to consumers and eroded system reliability. Regulatory policy distinguishes transmission investments that have primarily economic benefits from those that primarily enhance reliability. Economic investments, which benefit a few generators and customers, are to be handled using market incentives. Reliability investments, which benefit all grid participants, are to remain regulated and the costs spread over all participants. We show that the economic-reliability distinction does not hold and that transmission planning requires an analysis of network topology and demand. One ubiquitous network topology allows investors to profit from harming the network by building lines that cause congestion,. More fundamentally, a clear distinction between reliability and congestion seldom exists; the relationship between the two system attributes depends on the level of demand, as well as network topology. Network investment requires a power flow analysis of current and proposed topology and demand. A subsystem analysis focused on specific beneficiaries neglects the risk-management tradeoffs of congestion and reliability.

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