The California ISO transmission economic assessment methodology (TEAM): principles and application to Path 26

In response to the novel requirements that restructured power markets place upon transmission planning, a method for assessing the economic benefits of transmission upgrades has been adopted by the California Independent System Operator (CAISO). Economic effects considered include reductions in the cost of constructing and operating power plants along with changes in market prices. The methodology accounts for how transmission upgrades mitigate market power by increasing the size of a supplier's geographic market. The methodology has five key principles: consideration of multiple perspectives (consumers, generators, transmission operators, and society at large); full network representation using a linearized DC loadflow; market-based pricing, accounting for strategic behavior by generators; modeling of uncertainty, including the value of transmission as insurance against extreme events; and recognition of how supply, demand-side, and transmission resources can substitute for each other. An application to a possible expansion of Path 26 in California is summarized. The application shows how a substantial portion of the benefits of transmission reinforcements can derive from their mitigation of market power