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TRANSMISSION/DISTRIBUTION COST APPORTIONING

By C. Rhodes, P.Eng., Ph.D.

INTRODUCTION:
This web page addresses transmission and distribution costs that should be re-apportioned to effectively implement a new non-fossil electricity rate structure within the Province of Ontario.
 

PRINCIPLES OF TRANSMISSION/DISTRIBUTION COST ALLOCATION:
One of the properties of a balanced 3 phase constant resistive load is that its power drain from the grid is constant. Hence, for such a load, the instantaneous power is equal to the average power. This is the most efficient way of coupling to the three phase AC grid and at any particular time should attract the lowest transmission/distribution charges per kWh of energy transferred.

Inefficient use of the transmission/distribution system should be financially penalized. If a customer presents a reactive impedance, harmonic distortion or a fluctuating load to the grid then that customer should be allocated a larger fraction of the transmission / distribution costs.

The higher the uncontrolled fluctuations in power transfer rate, the less efficiently the generation and transmission/distribution systems are utilized. If a customer presents a resistive load that varies from measurement interval to measurement interval that customer should be charged more per kWh for for generation and transmission/distribution than is a customer that draws energy at a constant rate.
 

ALLOCATION OF TRANSMISSION/DISTRIBUTION COSTS:
In order for generation to effectively influence transmission/distribution planning and construction it is crucial that generators pay for their share of the costs of the transmission/distribution network. Generators should pay for connection to transmission/distribution in the same manner as do load customers. The total net power flow through generator connections to transmission/distribution is slightly larger than the total net power flow through load customer connections. If generators pay for their connections to transmission/distribution the existing transmission/distribution rate charged to load customers can be reduced by about a factor of two but the kVA charge to load customers must be increased to give generators the cash flow that they need to pay their share of the transmission/distribution costs.
 

TRANSMISSION / DISTRIBUTION:
One objective of this web page is to set out the cost allocation principles for a practical AC electricity transmission/distribution network consisting of central generators, a high voltage power transmission system, numerous independent local distribution companies (LDCs), distributed electrical loads with energy storage and embedded distributed electrical generation with energy storage. The importance of identifying these principles is that they define the future path for the Independent Electricity System Operator (IESO), the Ontario Energy Board (OEB) and the Ministry of Energy (MOE) for changing Ontario from an electricity system based on a few large central generators owned and operated by a few parties to an electricity system based on a large number of distributed power generation units of varying sizes owned and operated by many parties. Some of the distributed generation will be located behind LDC electricity meters or behind load customer electricity meters.
 

PRINCIPLES:
The proposed distributed electricity network for energy exchange rests on the following general principles:

1. All parties connected to the electricity grid should have equal access. The metering and billing methodology should be the same for all transmission connected parties, and should be the same for all distribution connected parties, regardless of who they are and whether they source or sink energy at any instant in time. Major transmission connected generators must pay for transmission/distribution on the same basis as LDCs and transmission connected loads. Distribution connected generators must pay for transmission/distribution on the same basis as distribution connected loads in order to put all parties on a level playing field. Allocating part of the cost of transmission/distribution to major generators will increase the cost of generation but should reduce end users' transmission/distribution cost allocation by the same amount.

2. At points where a transmission system and a distribution systems interconnect, each system is responsible for the fraction of the other system's costs determined by the kVA meter located at the connection between the two systems.
 

ELECTRICITY GRID:
The electricity grid in Ontario is actually a collection of interconnected distribution systems that are owned and maintained by separate parties. Most of the major generators are connected to the high voltage transmission system that is maintained by Hydro One. This high voltage transmission system is in turn connected to many lower voltage distribution systems that are maintained by Local Distribution Companies (LDCs). Rural Local Distribution Systems are also often operated and maintained by Hydro One. Most end users obtain their electricity from LDCs.

At every point where electricity enters or leaves the high voltage transmission system there is a directional kwh meter. Similarly at every point where electricity enters or leaves a local distribution system there is a directional kWh meter. There are some unmetered loads such as street lighting, but generally the LDCs have accurate records as to the number, size and performance characteristics of the unmetered loads. For the purposes of calculations presented herein these loads can be considered as metered.

The high voltage transmission system can be considered to be a distribution system with generators, LDCs and transmission connected loads as customers that exchange power.

Each LDC is a distribution system with the transmission system which is maintained by Hydro One as one customer and with distributed generators and retail consumers of electricity as the other customers. The LDC's customers exchange energy amongst themselves.
 

DEFINITION OF TERMS:
Cht = total cost that Hydro One must apportion amongst its customers;
Chi = costs directly related to the high voltage transmission system;
Cjt = total costs that LDCj must apportion amongst its customers;
Cji = costs directly related to LDCj;
Ckt = total costs that LDCk must apportion amongst its customers;
Cki = costs directly related to LDCk
 
Pg = central generator output power fed to Hydro One transmission;
Pj = power flowing from Hydro One transmission to LDCj;
Pk = power flowing from Hydro One transmission to LDCk;
Pjt = total power indicated on all LDCj electricity meters;
Pkt = total power indicated on all LDCk electricity meters.
 

TRANSMISSION-DISTRIBUTION COST APPORTIONED TO CENTRAL GENERATORS:
Assume that there is negligible electricity generation within the LDCs.
If transmission loss is neglected, conservation of energy requires that:
Pg = Pj + Pk + ...
If distribution loss in LDCj is neglected, conservation of energy requires that:
Pj = Pjt/2
If distribution loss in LDCk is neglected, conservation of energy requires that:
Pk = Pkt/2

Assume that costs are apportioned amongst customers in proportion to absolute measured power. This is a simplification for demonstration purposes.

The cost billed to Hydro One transmission by LDCj for use of the LDCj distribution system is:
(Pj / Pjt) Cjt.
The total cost billed to Hydro One transmission by LDCb for use of the LDCb distribution system is: (Pk / Pkt) Ckt.
Thus the total cost Cht that Hydro One transmission must apportion amongst its customers is given by:
Cht = Chi + (Pj / Pjt) Cjt + (Pk / Pkt) Ckt + ...
= Chi + (1/2) (Cjt + Ckt + ...)

The total cost Cjt that LDCj must apportion amongst all its customers is given by: Cjt = Cji +(Pj /(Pg + Pj + Pk + ...)) Cht
The total cost Ckt that LDCk must apportion amongst all its customers is given by: Ckt = Cki +(Pk /(Pg + Pj + Pk + ...)) Cht
Thus:
Cjt + Ckt + ...
= Cji + Cki + ... + ((Pj + Pk + ...)/(Pg + Pj + Pk +...) Cht
= Cji + Cki + ... + Cht/2

Substituting this equation into the previous equation for Cht gives:
Cht = Chi + (1/2) (Cjt + Ckt + ...)
= Chi + (1/2) (Cji + Cki + ... + Cht/2)

Rearranging this equation gives:
(3/4) Cht = Chi + (1/2) (Cji + Cki + ...)

Multiply both sides of this equation by (2/3) to get:
Cht / 2 = (2/3) Chi + (1/3) (Cji + Cki + ...)

Hence the cost billed by Hydro One transmission to the central generators is:
(Pg /(Pg + Pj + Pk + ...) Cht = Cht / 2
= (2/3) Chi + (1/3) (Cji + Cki + ...)
 

SUMMARY:
This important result states that, subject to the assumptions that there is negligible generation within the LDCs and that transmission and distribution losses are negligible, the central generators must bear 2/3 of the high voltage transmission system costs and 1/3 of the lower voltage system distribution costs. Hence, end users and distributed generators that are directly connected to LDCs must bear 1/3 of the high voltage transmission system costs and 2/3 of the lower voltage system distribution costs, so that the transmission and distribution systems achieve 100% cost recovery.

At the end of the day the retail user winds up paying for the total power cost. However, the parties along the generation, transmission, storage, re-transmission, distribution path need to be appropriately compensated for their work as it occurs. Note that the transmission-distribution costs must be recovered via the Uncontrolled Electricity Service (UES) rate.
 

This web page last updated February 12, 2017.

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