On the objectives of transmission pricing under open access

In today's integrated electricity supply industry, transmission is seen as an (economic) complement to generation. The generation of power and the service of moving it from one node of the grid to another are bundled into a single product called electricity. Transmission and generation resources are planned and operated by a same entity. As a result, transmission costs, mainly consisting of investment costs, are considered common costs and are recovered under the current cost-based regulatory structure through a single bundled price of electricity, which is based on average costs. Transmission pricing is not used as an active signal to shape the generation and consumption of electricity. Here, the author describes how, as the industry is moving toward full open access, the role of transmission has to be redefined and he discusses the objectives of power transmission pricing under open access.