Comparative Assessment of Transmission Sunk Cost Allocation Methods for Point of Connection Transmission Pricing Philosophy

The evolution of deregulated power markets has seen a parallel evolution in transmission pricing methods and philosophies. All the transmission pricing schemes can be broadly classified into two main philosophies: point-to-point and point-of-connection (PoC). PoC philosophy charges a single rate per MW depending upon the point of connection. The philosophy though apparently simple, easy to implement and understand, implies the difficult task of fixing up PoC rates. This paper aims solely at the recovery of sunk cost, being the largest part of transmission rates and the most difficult one to allocate. The paper compares 4 different methods of sunk cost recovery viz. Power tracing, marginal participation factors, postage stamp and hybrid method.