The allocation of transmission cost provides important references and signals for system expansions and investments. This paper proposes a power tracing based equivalent bilateral exchange (PTEBX) method in which network users are responsible for not only their induced power flows

but also power flows induced by whom they have equivalent bilateral exchanges with. The equivalent bilateral exchanges are recognized based on the power tracing. To evaluate the performance of different methods of allocating transmission cost

seven criteria are put forward that take into consideration characteristics of power systems. Theoretical analysis is then conducted to certify whether the methods satisfy the criteria. The results indicate that only the PTEBX method is able to satisfy all the seven criteria. Numerical examples based on the IEEE-30 system are presented to further demonstrate the applicability of the proposed method.