Industry 101 | Market Settlements: Transmission Settlements
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5.5 TRANSMISSION SETTLEMENTS
Transmission settlements are used for the same purpose as market settlements—to ensure that the supply and demand of power are in sync—but transmission settlements consider this balance from a grid perspective, rather than a consumer one.
Transmission settlements are settled between a transmission operator and a transmission customer, based on the customer’s use of the operator’s grid. Essentially, the transmission customer rents the grid from the operator and other non-competitive ancillary services provided by the operator, such as scheduling and voltage support. The charges for these transmission and ancillary services are based on a FERC-approved tariff, and the funds collected by the independent system operator (ISO) are distributed to the transmission owners or ancillary service providers.
Transmission settlement setups often predate the implementation of the energy market and can even exist in a regulated market. Most ISOs use a monthly invoicing process for transmission settlements, rather than the daily settlements used for market settlements, due to less market volatility and less granular data.
Let’s take an example from a midcontinent independent system operator (MISO) and try to understand their transmission settlement process:
- Market participants’ use of the MISO transmission system and mandated, non-competitive ancillary services such as scheduling and voltage support are financially settled by the transmission settlements process.
- Market participant charges for ancillary services and transmission are determined using the tariff approved by FERC.
- The transmission owners and the providers of the mandated ancillary services receive the collected funds.
- Transmission settlements utilize different applications than the market settlements.
- Transmission settlements predate the market opening and continue to follow the existing transmission settlements schedule.
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