where $ C(\bullet) $ is the cost of the optimal resource plan corresponding to the desired services.

## (iv) Allocating fixed costs

The above discussion focuses on allocating costs that are incremental to the use of transmission services. Allocating the fixed costs of transmission -- costs that are not sensitive to demand, is also required. An RTG could have wide latitude to allocate these costs among its members. There could be a cost for joining the group, a fixed charge for each transmission service (postage stamp pricing), or non-linear charges. These charges do not relate to allocating scarce transmission resources to their highest-value uses, but rather to spreading the fixed costs of the network.

The RTG could use a variety of measures to allocate capacity in the short-run. One possibility is the use of node pricing (see C). Another would be to rely on administrative measures to deal with congested paths. However, it is unlikely that pricing would be effective as the primary instrument to allocate transmission access, coordinate its use, and plan for new resources. The bulk power grid is technically complex. It can be reasonably argued that even its current owners do not fully understand apparently simple concepts such as “capacity.” Recent studies in the power engineering literature indicate the difficulty of planning in a competitive environment (Adamson, et al., 1991; McCalley, et al., 1991). An advantage of the RTG is that it would not be limited solely to prices as a means for allocating transmission resources. The RTG could specify conditions for access, consistent with the provisions of the Energy Policy Act. The extra flexibility to use non-price conditions for access could lead to increased efficiency.

### B. Centrally-Mandated Prices

A centralized determination of the cost of transmission services has the problem that it is difficult to account for individual circumstances. The FERC has recognized that transmission services provided by a utility for third parties have opportunity costs. Moving from the principle of recognizing these costs to the practice of estimating their magnitude for pricing purposes is a substantial step. At one extreme, a liberal view of lost opportunities can result in very high estimates of an appropriate transmission price. The practical result of such estimates may be very little in the way of actual transactions. This kind of approach may result in substantial limits for third party users. Without the ability to have low cost access to the network, market share for the utilities is maintained.

At the opposite extreme, a verifiable standard for identifying opportunity costs may be so strict as to deny their reality in practice. A compromise solution that would recognize opportunity costs, yet allow access, would be to price access at long-run incremental cost (LRIC). Yet LRIC for firm transmission would be too high in many circumstances. The actual cost that a transmission user imposes on a system may be much less than the cost of expanding the system to satisfy that user's demand. In other situations, LRIC may be less than the true cost that a user imposes on the system. For example, LRIC might not account for siting constraints and delays that