Flow-based transmission rights and congestion management

Electricity Journal

Volumn 13, Issue 8, 2000, Pages 38-58

  Chao, Hung Po ^a   Peck, Stephen C ^b   Oren, Shmuel S ^b   Wilson, Robert B ^c  

^a ELECTRIC POWER RESEARCH INSTITUTE   (United States)

^b UNIVERSITY OF CALIFORNIA   (United States)

^c NONE

Author keywords

[No Author keywords available]

Indexed keywords

CONGESTIONS MANAGEMENTS; FLOW BASED; RIGHTS MANAGEMENT; TRANSMISSION CONGESTION; TRANSMISSION RIGHTS;

EID: 0034288029     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(00)00146-9     Document Type: Article

References (52)

1. 1. Federal Energy Regulatory Commission, Regional Transmission Organizations, Final Order No. 2000, RM99-2-000, Washington, DC, Dec. 15, 1999.
2. 2. Centralized market organizations often emphasize short-run operational efficiency while maintaining system reliability and security, but neglect the demand-side participation essential for long-term economic benefits.
3. 3. A contract path from node i to node j refers to the transfer of a certain amount of power from node i to node j along a path that is specified administratively without considering the actual flow of power.
4. 4. Hung-po Chao and Stephen C. Peck, A Market Mechanism for Electric Power Transmission, J. REG. ECON., July 1996, at 25-59; Hung-po Chao and Stephen C. Peck, An Institutional Design for an Electricity Contract Market with Central Dispatch, ENERGY J., Jan. 1997, at 85-110; and Hung-po Chao and Stephen C. Peck, Reliability Management in Competitive Electricity Markets, J. REG. ECON., Sept. 1998, at 89-200.
5. 4. Hung-po Chao and Stephen C. Peck, A Market Mechanism for Electric Power Transmission, J. REG. ECON., July 1996, at 25-59; Hung-po Chao and Stephen C. Peck, An Institutional Design for an Electricity Contract Market with Central Dispatch, ENERGY J., Jan. 1997, at 85-110; and Hung-po Chao and Stephen C. Peck, Reliability Management in Competitive Electricity Markets, J. REG. ECON., Sept. 1998, at 89-200.
6. 4. Hung-po Chao and Stephen C. Peck, A Market Mechanism for Electric Power Transmission, J. REG. ECON., July 1996, at 25-59; Hung-po Chao and Stephen C. Peck, An Institutional Design for an Electricity Contract Market with Central Dispatch, ENERGY J., Jan. 1997, at 85-110; and Hung-po Chao and Stephen C. Peck, Reliability Management in Competitive Electricity Markets, J. REG. ECON., Sept. 1998, at 89-200.
7. 5. Chao and Peck (1996), supra note 4.
8. 6. Hung-po Chao and Charles R. Plott, A Competitive Mechanism for the Distribution of Electric Power Through a Network and the Determination of Network Capacity: Experimental Tests and Performance, working paper presented at California Public Utility Commission/ORA Seminar, San Francisco, Feb. 7, 2000.
9. 7. Paul R. Gribik, George A. Angelidis, and Ross R. Kovacs, Transmission Access and Pricing with Multiple Separate Forward Energy Markets, 14:3 IEEE TRANSACTIONS ON POWER SYSTEMS, 1999, at 865-76.
10. Harry Singh, Shangyou Hao, and Alex Papalexopoulos, Transmission Congestion Management in Competitive Electricity Markets, 13:2 IEEE TRANSACTIONS ON POWER SYSTEMS, May 1998.
11. 8. William Hogan, Contract Networks for Electric Power Transmission, J. REG. ECON., Dec. 1992, at 211-42.
12. 9. Shmuel Oren, Economic Inefficiency of Passive Transmission Rights in Congested Electricity Systems with Competitive Generation, ENERGY J., Jan. 1997, at 63-84.
13. 10. Paul Joskow and Jean Tirole, Transmission Rights and Market Power on Electric Power on Electric Power Networks I: Financial Rights andTransmission Rights and Market Power on Electric Power on Electric Power Networks II: Physical Rights, mimeos, Massachusetts Institute of Technology, Cambridge, MA, and Institut d'Économie Industrielle (IDEI), Toulouse, France, Jan. 1999.
14. 11. Hogan, supra note 8.
15. 12. Richard D. Tabors, A Market-Based Proposal for Transmission Pricing, ELEC. J., Nov. 1996, at 61-67.
16. 13. Chao and Peck (1996), supra note 4.
17. 14. Paul R. Gribik and Dariush Shirmohammadi (Perot Systems Corp.), and James Kritikson (California Power Exchange), private communication, Aug. 1999.
18. 15. Energy transfers among the control areas of the interconnection are traditionally scheduled using the contract path method. The limitations of this method are well known. In the past, when the volume of transactions was relatively small and the transactions were mostly between adjacent control areas, parallel flows were tolerable. As a result of deregulation, however, the energy transfers increase in both volume and geographical span, with the result that parallel flows begin to exert serious operational and economic impacts. See NERC, Aligning Transmission Reservations and Energy Schedules to Actual Flows: Proposal to Mitigate Current Problems Associated with Transmission Reservation and Scheduling Practices In the Eastern Interconnection, prepared by NERC Transaction Reservation and Scheduling Self Directed Work Team, Nov. 1998.
19. 16. Scaled marginal losses are used to avoid the surplus that results from application of full marginal losses. That is, just as pricing transmission at the margin produces a surplus (congestion rent) that is paid to a transmission rights holder, losses charged or supplied at the marginal rate of loss would produce a surplus (marginal losses are approximately twice average/total losses). The "scaled marginal loss" approach provides an approximate locational price signal because the forward estimate of marginal rate of loss is scaled down equally at all locations to produce a loss factor that is intended to collect total system losses while maintaining a different loss factor at each location.
20. 17. Michael B. Cadwalader, Scott M. Harvey, William W. Hogan, and Susan L. Pope, Coordinating Congestion Relief across Multiple Regions, Harvard Electricity Policy Group working paper (Oct. 1999); and Shmuel S. Oren and Andrew M. Ross, Economic Congestion Relief across Multiple Regions Requires Tradable Physical Flowgate Rights, working paper, Mar. 21, 2000.
21. 17. Michael B. Cadwalader, Scott M. Harvey, William W. Hogan, and Susan L. Pope, Coordinating Congestion Relief across Multiple Regions, Harvard Electricity Policy Group working paper (Oct. 1999); and Shmuel S. Oren and Andrew M. Ross, Economic Congestion Relief across Multiple Regions Requires Tradable Physical Flowgate Rights, working paper, Mar. 21, 2000.
22. 18. In this article, prices are expressed in $/MWh, the power flows in MW, and the electricity outputs in MWh.
23. 19. These fractions are known as the power transfer distribution factors. Roughly speaking, power flow is inversely proportional to the impedance along the path. Since the path along link 1 → 3 is half as long as the path 1 → 2 and 2 → 3, it has half the impedance. Therefore, the ratio of the power flows between them is 2 to 1.
24. 20. Chao and Peck (1997), supra note 4.
25. 21. For instance, in California the Power Exchange's price is used to settle some grandfathered contracts, and affects payments for recovery of stranded costs. Requiring the incumbent utilities to trade through the PX also makes it easier to monitor market power. In Britain first, and in Alberta still, hedging contracts used to mitigate the incentives of incumbents with substantial market power are based on the exchange price.
26. 22. To hedge against the volatility of the spot price, buyers and sellers of electricity may enter into bilateral hedging contracts at a mutually agreed price. These contracts are financial instruments outside of the system operator's purview and do not affect the real-time dispatch by the system operator. Two common types of hedge contracts are the swap contract (two-way hedge) and option contract (one-way hedge).
27. 23. In California, the adjustment bids may be obtained from the traders in the forward markets for congestion management, while the reserves price schedules may be obtained through separate forward auctions, as described in Hung-po Chao and Robert Wilson, Multi-Dimensional Procurement Auctions for Power Reserves: Incentive-Compatible Evaluation and Settlement Rules, mimeo, Electric Power Research Institute, Palo Alto, CA, and Stanford University, Stanford, CA, 2000.
28. 24. Chao and Peck (1997), supra note 4, and Robert Wilson, Implementation of Priority Insurance in Power Exchange Markets, ENERGY J., Jan. 1997, at 111-23.
29. 25. In an optimally dispatched system the spot value of the two types of rights are mathematically linked via the matrix of PTDF that specifies the fractions of power injected at any particular bus and taken out at a reference bus that flows through each flow gate. Specifically, the value of a point-to-point right from any given bus to the reference bus is the sum of the values of the congested flowgate rights multiplied by the corresponding PTDF. The value of a point-to-point right between any two arbitrary buses is given by the difference of the point-to-point right from the corresponding buses to the reference bus.
30. 26. Gribik, Angelidis, and Kovacs, supra note 7.
31. 27. An example is the Federal Communications Commission's auction for selling spectrum licenses.
32. 28. Chao and Plott (2000), supra note 6.
33. 29. However, if the counterflow is scheduled but not delivered, the seller could be subject to a severe penalty because of the impact on reliability.
34. 30. Chao and Peck (1996), supra note 4.
35. 31. Robert Wilson, Activity Rules for the Power Exchange, Report to California Trust for Power Industry Restructuring, Mar. 14, 1997.
36. 32. Chao and Peck (1996), supra note 4.
37. 33. In NordPool, there is no difference between the energy bids and the adjustment bids. In California, however, the traders can submit adjustment bids different from the energy bids. See Chao and Wilson (1999), supra note 23, for a description of how a reserve auction could provide a supply curve for adjustments.
38. 34. These nodal prices can be easily calculated from the hub price and the flowgate prices using the distribution factors; however, given only the nodal prices, there isn't a unique set of flowgate prices.
39. 35. The allocation of financial risks does not affect market efficiency, but should have a direct effect on the results of the initial transmission rights auction.
40. 36. Steven Stoft, Congestion Pricing with Fewer Prices than Zones, ELEC. J., May 1998, at 23-31.
41. 37. Hogan, supra note 11.
42. 38. Chao and Peck (1996), supra note 4.
43. 39. Edward G. Cazalet and Ralph D. Samuelson, The Power Market: E-Commerce for All Electricity Products, PUB. UTIL. FORTNIGHTLY, Feb. 1, 2000.
44. 40. Paul R. Gribik, Enhancing the Power Exchange's Day-Ahead Markets: Binding Results at 7:00 AM Prior to ISO Congestion Management, Trading of Transmission Rights, Developing Physically Feasible Schedules, Block Trading, mimeo, California Power Exchange and Perot Systems Corporation, June 1999; and Gribik, Kritikson, and Shirmohammadi, supra note 14.
45. 40. Paul R. Gribik, Enhancing the Power Exchange's Day-Ahead Markets: Binding Results at 7:00 AM Prior to ISO Congestion Management, Trading of Transmission Rights, Developing Physically Feasible Schedules, Block Trading, mimeo, California Power Exchange and Perot Systems Corporation, June 1999; and Gribik, Kritikson, and Shirmohammadi, supra note 14.
46. 41. Chao and Peck (1996), supra note 4.
47. 42. Gribik, Kritikson, and Shirmohammadi, supra note 14.
48. 43. Gribik, supra note 40.
49. 44. Federal Energy Regulatory Commission, supra note 1.
50. 45. Federal Energy Regulatory Commission, Capacity Reservation Open Access Transmission Tariffs, Notice of Proposed Rulemaking, RM96-11-000, Washington, DC, Apr. 24, 1996.
51. 46. Scott M. Harvey, William W. Hogan, and Susan L. Pope, Transmission Capacity Reservations and Transmission Congestion Contracts, Harvard University, 1997.
52. 47. William Vickrey Responsive Pricing of Public Utilities, 2 BELL J. ECON. & MGMT. SCI., Jan. 1971, at 1,337-46.