Settlement Between Electric Transmission Companies under the Point of Connection Tariff or "Postal Stamp" System

This paper discusses how an electric transmission company in a pass-through area should settle the cost of a pass-through with the neighboring transmission companies under the point-of-connection tariff system.



First, the paper shows that if the cost of the pass-through is settled based on the principle that determines the (metered) power transmission fares for ordinary customers (i.e. injectors and withdrawers) of the transmission companies, the fare receipts of the pass-through transmission company can be made to match its power transmission losses. The paper also demonstrates that this method minimizes power transmission losses from a nationwide perspective.



In addition, the paper shows that incentives will be given to construction of the transmission line in the pass-through area if the transmission company in the pass-through area charges its neighboring transmission companies the same basic rates (as opposed to the metered transmission fare) that ordinary injectors and withdrawers face. This structure of a basic rate sets higher injection rates and lower withdrawal rates in upstream areas than in downstream areas. The revenue from this basic rates structure can bear the burden of construction costs of transmission lines in the pass-through areas. Incidentally, this finding justifies the structure of basic rates practiced in Nordic countries.