ABSTRACT
The wire segments of the electricity sector—transmission and distribution—will continue to be regulated (as we saw in Chapter 6). Regulation, of course, is not a new issue in this industry, but most regulation before restructuring has been devoted to setting the electricity rates that users pay. With restructuring, power prices will be set by the market, with prices users pay directly or indirectly including those power prices plus the regulated charges for delivering electricity from the generator to the customers’ premises. This chapter first discusses methods for setting rates for transmission and distribution, describing both traditional “rate-of-return” regulation and new “incentive-based” methods that could lead to lower costs and more efficient operation.
Although these principles apply to both distribution and transmission, the latter presents difficult problems. A generator may have to go through lines owned by several utilities in various states. Transmission prices might best be set by broad geographical regions and independent of distance, or perhaps should include charges that increase with distance or the number of times the path crosses a state line or uses a different utility’s facilities. An even more complex set of questions related to pricing and incentives is associated with the possibility that transmission lines may be congested.
