Transmission Spot Pricing Illustrated: Using an Interactive Graphical Tool to Gain Insight on Network Congestion Prices

The goals of transmission pricing are brieey reviewed and discussed. We focus on the goals of short-term operational ee-ciency and of long-term incentives for investment in transmission capital equipment, and on the potential connict between these goals. We ignore the issues of allocation of xed costs and stranded investment. Some of the counter-intuitive aspects of optimal short-term pricing (spot pricing) are reviewed , especially in the context of conversion of expected short-term prices to long-term rights through the operation of nancial futures markets. A simple interactive graphical tool written in the MatLab computer language is shown to provide important insights into these issues. Examples are given showing some characteristics of transmission congestion pricing, as well as the potential of transmission owners to exercise monopoly power owing to the private information they hold concerning line characteristics.