IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 19, NO.

2, MAY 2004 889

Congestion Management and Transmission Rights in

Centralized Electric Markets
Roberto Méndez and Hugh Rudnick, Fellow, IEEE

Abstract—A new congestion management system is proposed,
applied under nodal and zonal dispatches with implementation
of fixed transmission rights (FTR) and flowgate rights (FGR),
respectively. The FTR model proves to be especially suitable
for congestion management in deregulated centralized market
structures with nodal dispatch, while the FGR is suitable for
decentralized markets. The main contribution of this work is
a nontraditional valuation of FGR under a centralized market,
such as those present in Latin America, that builds a link between
both transmission rights under the same market structure. To ac-
complish that, a computational model is developed, implementing
marginal theory where congestion components are introduced
in the pricing model. An application to the Chilean Central
Interconnected System indicates that FGR presents advantages
over FTR regarding signals on grid use, but its application results
in complications that make its implementation unattractive.
Index Terms—Congestion management, electric markets, nodal
pricing, transmission rights, zonal pricing.
I. INTRODUCTION
electric markets, where the energy and FGR prices are the direct
result of the valuations that agents make of them. These trans-
mission rights pretend to protect market agents against fluctu-
ations in energy prices caused by congestions in transmission
lines. These rights can have physical or financial attributes, but
as will be presented later, in this paper, they will be considered
to have only financial importance. In other words, agents do not
have to schedule energy transactions with transmission rights.
In fact, it is possible to find noncovered transactions or partially
covered transactions in which the transmission user is taking the
risk of differences between LMP among the points of injection
and withdrawal of energy.
A hybrid alternative for both models has been proposed
in U.S. systems [4], [5]. It is based on a hybrid model that
combines the LMP hourly energy market (nodal pricing) with
a forward transmission rights market based on FGR (usually
associated with zonal approaches). It attempts to implement
the efficiency of LMP, plus the accuracy of FGR to identify
the agents involved in every congestion situation through

C ONGESTION management is becoming increasingly

important in deregulated power markets. Two main
approaches to congestion management systems (CMS) can be
the grid. Although there is no unified consent about which
model is more suitable to work with, several systems, like the
Pennsylvania–New Jersey–Maryland (PJM), New England and
found in the literature, nodal and zonal Pricing. The first one is
New York (NY), are working with LMP complemented with
based on the implementation of local marginal price (LMP) of
FTR. Another important fact is that FGR systems have not
energy in every single bus of the electric network. LMP is the
yet been implemented in real systems and studies [6] suggest
direct result of the economic dispatch by the regional transmis-
that their implementation in large grids may not capture most
sion operator (RTO) or the independent system operator (ISO),
of the congestion costs in the system, forcing the operator to
where these bus energy prices can give clear information of the
provide continuous update of the new commercially significant
hourly operation of the system. Usually the information that
flowgates (CSF) traded at the forward market.
the LMP contains relates to generation units, congestion, and
Zonal implementation with FGR is commonly associated
system losses. On the other hand, the zonal pricing approach,
with decentralized markets, in which the agents are responsible
in order to achieve simplicity toward operation and price
for energy pricing of each zone and the units are redispatched
information for the agents of the market, tries to cluster the
based on economic incentives toward creating the necessary
system into zones made up of a number of buses, with common
counter flows to ease the congested lines. Therefore, it does
prices. Nevertheless, it recognizes the efficiency achieved by
not seem very likely that immature centralized markets with no
the LMP at the short- and middle-term operation [1]. There are
experience on CMS, such as the Latin American markets, will
different methods of clustering buses into zones [2], but the
be able to implement successfully a zonal CMS based on FGR,
most common one is based on similarities among LMP bus
as mentioned before. That does not mean that a decentralized
prices within the system.
zonal approach with FGR is impossible to implement, but that it
Each model is complemented by its respective transmission
is necessary to give some time to the electric market to observe
rights, fixed transmission rights (FTR) for nodal pricing under
the behavior of congestion phenomena over the electric grid,
a centralized electric market scheme [3] and flowgate rights
and learn how a transmission market based on FGR should
(FGR) for zonal pricing, usually associated with decentralized
be valued and implemented with a feasible operation of the
system.
Manuscript received July 28, 2003. This work was supported by Fondecyt The main contribution of this paper is the definition of an
Project 1020801. alternative valuation of FGR and their respective congestion
The authors are with the Department of Electrical Engineering, Pontificia
Universidad Católica de Chile, Santiago, Chile (e-mail: h.rudnick@ieee.org). charges directly from zonal locational marginal prices (ZLMP)
Digital Object Identifier 10.1109/TPWRS.2003.821617 under a centralized zonal dispatch, with true physical valuation
0885-8950/04$20.00 © 2004 IEEE
890
of both congestion charges and transmission rights credits, as
will be described later. This zonal dispatch is defined from a
nodal model (LMP with FTR) that takes into account conges-
tion effects that are the bases for defining the flowgate of the
system. Compatibility for implementing FTR and FGR under
the same electric market structure is outlined in the proposal.
II. MARGINAL THEORY AND LMP
As mentioned before, both nodal and zonal models are con-
ceived from the LMP. Marginal theory takes an important role
in understanding the mechanics of the proposed pricing model.
According to spot pricing theory (Schweppe et al. [7]), all it
takes is a single thermal constraint in a line to have all system
bus prices modified. The bus spot price depends on fuel costs,
unit maintenance, revenue reconciliation, quality of supply for
generation and network, and system losses. Because the focus of
this work is the treatment of congestion, only some components
of the spot price will be taken into account, so that the conges-
tion signals are clearly identified through the system LMP.
For a particular hour , the nodal spot price for an agent lo-
cated at bus is given by
where the lambda of the system is given by
where is the marginal fuel component, and is the
marginal maintenance component.1
The second term in (1) is known as the grid’s quality of
supply.
market clearing multiplier
shift factor
The partial derivate of (4) corresponds to the shift factor [8]
over line associated with injection (or withdrawal) of power at
bus .
The second term in (1) relates with the actual operative condi-
tions of the electric grid, in simple words, congestion. Schweppe
presents two ways of valuing congestion, quality of supply cost
model and market clearing model. The second approach is im-
plemented, as presented in (3). Looking closer at (3), it can
be understood why only one congested line can produce vari-
ations over the whole set of bus prices. When line gets con-
gested, becomes different from zero and it increases until
the system is redispatched, so that the line achieves normal flow
levels.
For the simulation process, an iterative algorithm was devel-
oped. It basically makes an economic dispatch based on fuel
cost levels of generation units ( of the system) and on the
1Eventually, this component becomes relevant when unit commitment is in-
corporated into the economic dispatch (dynamic programming), because out of
merit units (more expensive) have to be scheduled to cover the absence of more
economic units being out of dispatch for maintenance [7].
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 19, NO. 2, MAY 2004
market clearing multiplier of each transmission line. It
corresponds to a iteration based on a merit list of
generation units at each node or zone (nodal and zonal pricing
respectively). Figs. 1 and 2 show the algorithm flowchart.
III. TRANSMISSION RIGHTS
As mentioned previously, both transmission rights are con-
sidered as financial entitlements that provide hedge for trans-
mission users against volatility of LMP/ZLMP produced by
congestion problems. It is important to clarify that in this paper
a “transmission user” or “agent” means any electric utility or
important consumer participating in the local electric market
through power transactions. The financial attribute that is given
to both transmission rights (FTR and FGR) in this paper means
that the agent who acquires those rights is entitled to receive
financial compensation (or payment, if the respective power
transaction and transmission right valuation says so, as will
be described later) for each hour for which those rights are
valid. They do not entitle the owner to reserve capacity in the
respective lines or exclude other agents to make use of the
respective transmission facilities [9]. Because in a centralized
market, generator units are restricted to operate according to
(1)
the ISO schedule, it should be the consumer (load) responsible
for paying and hedging against congestion, then choosing the
most convenient energy provider that minimizes the use of
(2) congestion transmission paths and, therefore, reduces the risk
of congestion payments. Generally transmission rights are de-
fined on an hourly basis with a previously defined amount
of transmitted power. They also are associated with points of
injection and withdrawal of energy in the system. In the next
section, a brief description of FTR and FGR will be given
as well as their valuation and congestion charges, where an
(3) alternative FGR valuation under centralized market will be
presented.
A. Fixed Transmission Rights (FTR)
(4)
FTR are considered as point-to-point financial hedges against
congestion and usually are associated with nodal dispatches
(LMP). Their valuation depends directly on the difference
between the LMP of the buses of injection and withdrawal of
energy within a transaction. Given its coverage definition, FTR
can, in some cases, represent extraordinary costs for the agent
who owns them. This phenomena occurs when the energy
transaction is oriented from high LMP to low LMP to create the
necessary counter flows to make possible the implementation
of all the FTR issued by the system operator. That is why
these financial instruments are considered as obligations [10].
The agent owning FTR receives monetary compensation (or
pays if the FTR results are negative) for every hour it acquired
those transmission rights, accordingly to the power and buses
involved in the transaction. This happens independent of
whether the actual transaction took place in the real dispatch or
not. Often, those negatively valued FTR will be compensated
by the load relief of the affected lines, because the agent will
be paid for creating counter flows through the respective area.
In the real world, these rights are traded through auctions
(monthly, yearly, etc.) where the transmission users acquire
MENDEZ AND RUDNICK: CONGESTION MANAGEMENT AND TRANSMISSION RIGHTS IN CENTRALIZED ELECTRIC MARKETS
Fig. 1. Flowchart of nodal dispatch.
Fig. 2. Flowchart zonal dispatch.
the amount of FTR they need to hedge themselves against
congestion charges. Also, there is a secondary market in which
agents can buy and sell their excess of transmission rights for
certain hours of operation.
891
The common valuation method for any hour of operation is
shown next.
a) Congestion charge from bus (generator) to bus (load
being supplied)
(5)
where represents the percentage of power of the
load that is being supplied by generator .
b) FTR credit
(6)
where is the generation level that the agent
wants to cover against congestion at a certain hour.
c) Net charge for congestion
(7)
B. Flowgate Rights (FGR) and Clustering
Flowgates (FG) can be defined as bottlenecks in transmis-
sion lines where congestion often takes place during certain
operation conditions. Flowgate rights are financial entitlements
that provide hedge against congestion charges through the cor-
responding FG. That way, if a transmission user wants to be
completely covered against congestion charges, it would have
to acquire the necessary amount of FGR for each FG affecting
its transaction. Because these transmission rights are defined
only as financial entitlements [9], the transactions between
agents do not have to be necessarily complemented with the
respective FGR. Then, the agent would be exposed to the
volatility of marginal prices resulting from real operation of
the system. Nevertheless, if an agent had acquired FGR and
its respective power transaction is not placed, then it should be
applied a “use it or lose it” rule, where the FGR are delivered
back to the market operator if the agent does not trade them
before the trading deadline in a secondary market; therefore,
market power is avoided [4], [9]. It is important to mention
that because each FG has a limited physical power transfer
capacity, the total FGR emitted for an hour of operation for a
particular FG should not exceed this capacity in the direction
which the FG had been defined, then consistency is achieved
between real operation and financial revenue of FGR. The
amount of FGR that a transaction (injection and withdrawal
of energy) needs in each FG is determined by the shift factors
of the grid. One significant difference from the FTR is that
FGR are defined in only one direction of the flow in the line
and they will never have a negative value (i.e., extraordinary
costs for the agent), because by LMP construction, the price
at the withdrawal end of the FG will be higher than at the
injection point. Participants creating counter flows in this FG
can be given the right to sell FGR in the proportion of their
counter flow, thus these transmission rights are considered as
options [10]. This is the main approach in decentralized sys-
tems for encouraging self-dispatching of power units through
bids that reflect the preferences and priorities of agents to
schedule their transactions [11]. The key factor for a feasible
application of this CMS, is the ability of allocating a small
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number of these bottlenecks, stable in time and which can
cover a large percentage (at least 90%) of the total conges-
tion costs within the system, so that no cross subsidies take
place among transmission users. Those FG, which capture most
of congestion costs, are often called commercially significant
flowgates (CSF), and because at present there is no real system
implementing this type of CMS, there is no consensus about
who should be the responsible of defining those CSF (the
market versus the RTO), and if whether those CSF should be
defined at all, or should instead just use all of the FG arising
from the actual operation.
As mentioned before, the general approach to FG valuation
considers that in a decentralized market, the agents involved in
the energy transaction are able to give the proper value to each
FG depending of the congestion levels. With this approach,
arbitrage will take place but only transiently. That way, the
market will be responsible for the consistency between conges-
tion charges and credit for FGR, any difference between them
would be absorbed by means of new arbitrages until a new
equilibrium is reached [11]. This paper presents an alternative
way of valuating FG under a centralized market structure. This
is achieved implementing LMP differences between the buses
at which the FG is defined. This approach was presented by
R. Tabors [12] to the Alliance Market Development Advisory
Group as an alternative for uplifts to deal with intrazonal
congestion treatment.
This paper takes Tabors definition of commercial distribution
factor and outlines a FG valuation directly from the differences
of ZLMP (zonal dispatch) in the respective interzonal interfaces
introducing real physical signals to both credit valuation and
congestion charges. The valuation model proposed for a partic-
ular hour of operation is presented below.
a) Commercial distribution factor (CDF) for FG between
buses and among transaction of agent (gen-
erator) and agent (load)
(8)
where is the shift factor of line i-j respects to bus X.
b) Congestion charge
(9)
where corresponds to the power delivered from
the generator at a certain hour.
c) FGR reservation at among transaction of agent
(generator) and agent (load)
(10)
where is the previous amount of power flow
that the transmission user is willing to acquire to hedge
against congestion at . The multiplier stands
for the percentage of maximum power that the can
accept through it in respect to the total power reservation
made by the agents on the respective FG, so that the total
amount of FGR reserved is not larger than the capacity of
the FG.
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 19, NO. 2, MAY 2004
d) Valuation of FGR
(11)
e) Net charge for congestion
(12)
It is important to clarify that the model proposed for valua-
tion of FGR is intended for a short-term operation, that means
day-ahead and hour-ahead market. Then agents participating in
FGR transactions will try to match as close as possible their
FGR coverage with the actual real operation of the system. In
the case of long-term contracts, where the supply of energy is
relatively stable in the short-term operation, there is no problem
of mismatch between load and supply of energy. But in the case
of transactions involving economically dispatched units for the
short-term operation, the corresponding agents will have to par-
ticipate in the secondary market to try to match their FGR cov-
erage with the real dispatch.
For implementing (8) to (12) in a centralized market with
FGR, some rules have to be defined. First and most important,
only agents contributing in the same direction as the flow gate
was defined would be able to make transactions with FGR.
Counter flows would not be economically rewarded at the
present moment, basically because with a ZLMP centralized
approach, there is no need for incentives to self-dispatching
units; this task is taken by the RTO in a centralized manda-
tory system. Another interesting condition for an agent to
participate in the FGR market is that its CDF obtained from (8)
should be positive, that means the net result of the transaction
(injection at bus k and withdrawal at bus L) should produce
a net flow in the direction in which the FG is defined. In (9),
the CDF are used to obtain the real fraction of power supply
that should be considered in the congestion charges of any
transaction for the hour of operation. Then, a clear signal is
given of the real physical use that the agents do of the grid.
Similarly, in (10), the FGR power that the agent is willing to
acquire to hedge against congestion charges has to depend on
how the transaction affects the respective FG. In relation to
the multiplier (percentage of power from generator K
supplying load L) for both FTR and FGR, it is important to
clarify the following: for generators economically dispatched
for the short-term operation, an alternative to determine this
factor would be to prorate through the different agents whose
power-supply output for that particular hour of operation had
been reduced or increased for different reasons (imprecise
forecasted demand, sudden generator, and line outage, etc.).
However, the aim of this paper is not to give an answer to that
issue. For the FGR market design, it would be also convenient
to define a minimum threshold of utilization of a particular FG
for a given power transaction. This would reduce the amount
of FGR transactions, creating then a less complicated CMS for
both the operator of the system and the agents. In the simulation
exercise, this threshold was fixed at 5% of the flow capacity in
the respective FG. That means participation at the FGR market
MENDEZ AND RUDNICK: CONGESTION MANAGEMENT AND TRANSMISSION RIGHTS IN CENTRALIZED ELECTRIC MARKETS 893

will only take place if the transaction uses at least 5% of the

respective FG.
As mentioned above, the FGR are commonly applied in zonal
pricing systems. In this paper, valuation of FGR depends directly
on the zonal LMP (ZLMP) result. These ZLMP are obtained
similarly from the nodal case, but the ZLMP corresponds to
zonal marginal prices. For dispatch, each zone is composed
by a number of nodes that are treated as one main node,
aggregating generation capacity and load where every bus
inside a particular zone is governed by the respective ZLMP.
As mentioned before, the clustering approach presented here is
based on differences between LMP and the nodal dispatch. Then, Fig. 3. Flow pattern in zonal dispatch.
for clustering nodes into zones, it is necessary to run a nodal
TABLE I
dispatch and implement criteria usually based on percentage GRID CHARACTERISTICS
difference between LMP nodes. It is often recommended that
the difference among nodal prices be small (i.e., between 5%
to 2%), then the intrazonal congestion would be considerably
reduced and subsidies among agents in the same zone would
be minimized. In the simulation exercise, a 2% difference was
used between the average prices of the nodes inside a zone
and the next node to be included in it. For real operation, the
definitions of zones should at least be defined for the middle
term to give certainty to the long-term power transactions toward
the FGR needed to cover congestion charges. Nevertheless a both transactions regarding generator 1 and 2. According to the
constant evaluation of the real operation LMP of each single grid topology, the CDF for each transaction are given by (8)
bus of the system should be performed by the ISO to check
that the zones previously defined are consistent with the real
operation of the grid. In cases where the operation of the
system is considerably modified for a significant lapse of time
(hydrological conditions, permanent and significant changes in Then congestion charges for both transactions are given by
load patterns, new power units, etc.), zones should be redefined (9)
to have correlation with the real-time operation. Because of
the clustering construction, lines affected by important levels
of congestion always were lines between zones. The way to
obtain ZLMP is to run a dispatch, similar to the one
used for traditional LMP, but considering zones as clustered
nodes.
With the definitions for congestion charges and credit de-
scribed above, it is possible to have consistent implementations Then if the transmission user L wants to have a perfect hedge
between the two CMS previously defined, under a centralized against the congestion costs, which is paying 0($) for congestion
market that is compatible with the Latin America transmission charges, according to (10), the following FGR levels are needed:
pricing models (i.e., mandatory system with pooled generation
capacity).

C. Simple Example
Concepts outlined in this work regarding valuation of FGR
are illustrated in a simple system (Fig. 3 and Table I). It is dis-
patched by a central operator, in response to congestion levels
in line 2–3, defining it as a FG. Two zones are defined with their
respective ZLMP, clustering buses 1 and 2 in zone 1 and bus 3
in zone 2. The more expensive generator 3 has to be dispatched
to produce the necessary counter flows in the respective line, re-
sulting in difference of zonal prices.
Because of the high demand levels that produced congestion
in the system, the transmission user L would get in the day ahead
market the necessary FGR in line 2–3 (the defined FG) from
If, for example, the capacity of the FG happens to be reduced
in real-time operation to 150 MW, then the amount of FGR
would be prorated according to (10) with
. It is always important to re-
mark that real operation of the system often differs from the
operation forecasted in the day ahead market, so differences
between congestion charges and transmission right credits will
not match. Those differences should be minimized and compen-
sated periodically, for example, as done monthly in the PJM.
IV. SIMULATION EXERCISE
A simulation is done with the Chilean Central Interconnected
System SIC, a hydrothermal system with a pooled generating
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TABLE II
WATER VALUATION FOR SIMULATION EXERCISE
capacity of 6500 MW. Hydraulic units located at the south of the
system provide 60% of this generating capacity. The remaining
units use conventional fuel like natural gas, diesel, and coal.
More important is the radial and practically isolated topology
that the system presents. The mechanics of the different trans-
mission rights (FTR and FGR) that are defined in this work
under a centralized approach are compared, getting a critical
point of view for both implementations under hypothetical op-
eration conditions.
The optimization model to solve the dispatch algorithm
follows:
(13)
(14)
(15)
(16)
where
total variable generation costs of generator G;
energy dispatched by generator G;
active power flow through line i;
, active power generated and demanded at bus j;
reduced reactance matrix, where column and row
of reference bus have been eliminated;
voltage angle vector.
The SIC is represented by a reduced model composed by 23
buses. Because of the importance of the hydro component for
the system, valuation of the water has to be made. For purpose
of simplification, small hydro units have been considered as run
of river hydro units (i.e., no opportunity costs associated). On
the other hand, hydro units with important dams were associated
with water valuation. To introduce the opportunity cost of water
in the model, four different hydro scenarios were defined, as
shown in Table II.
Different demand levels were simulated. Based on the load
forecast made by the National Energy Commission for 2002,
equivalent to an annual 33 396 GWh, four scenarios were de-
fined with the hydro conditions presented before. Those sce-
narios consisted in imposing total demand levels equivalent to
60%, 80%, 100%, and 120% of the forecasted average demand.
These demand levels were distributed among the different loads
of the SIC system accordingly to a given load distribution. Then
for each hydro scenario, the four different demand levels will be
applied, resulting in 16 different simulations for nodal and zonal
pricing models.
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 19, NO. 2, MAY 2004
Fig. 4. Total variable costs of generation over nodal and zonal dispatches.
The assumptions made for the simulation exercise are briefly
listed below.
• The dispatches were carried out with dc power flow.
• Both the LMP/ZLMP and the FTR/FGR are evaluated for
one hour of the system operation.
• Static model approach for an hour. That means no unit
commitment and not future valuation of water was con-
sidered at this stage. Then the effects of congestion would
be more visible at the LMP/ZLMP.
• No losses were considered in the LMP/ZLMP.
• Inelastic and nondisturbed demand. Redispatches are
managed through generators; no transmission load relief
(TLR) is necessary while the grid is above its n-1 security
criteria.
• Constant demand distribution in the electric grid.
• Agents take complete hedge against congestion (i.e., they
acquire the necessary transmission rights to cover their
load).
• Arbitrary short-term contracts among agents (generators
and loads) have been defined to create energy transactions
that can be clearly applied to the CMS modeled.
With this kind of implementation, it should be clear that
the effects of congestion within the LMP/ZLMP and the
transmission rights could be applied with consistency among
the system. The following section presents the results of the
simulation exercise.
V. SIMULATION EXERCISE RESULTS
The first interesting result, comparing the nodal and zonal
dispatch, is in opposition to what Yoon and his task force [2]
indicate about the suboptimality of clustered systems. Fig. 4
shows the results on total variable costs of dispatch among the
different scenarios defined. In some cases, the zonal approach
was more economic than the nodal dispatch. This unexpected
result is due to the cost structure presented by the SIC generation
units and the dispatch over a simplified zonal representation
of the grid. The noncontinuous offer curves force the dispatch
to create merit lists for each node or zone. Then, the marginal
kilowatt-hours of the system were always supplied by the
cheapest possible marginal unit at each node or zone. In the
case of zones, the set of generators in each zone was larger
(more nodes, then more generators), with the possibility of
MENDEZ AND RUDNICK: CONGESTION MANAGEMENT AND TRANSMISSION RIGHTS IN CENTRALIZED ELECTRIC MARKETS
Fig. 5. ZLMP under very dry scenario.
Fig. 6. ZLMP under very dry scenario.
providing a cheaper combination of generators for the same
level of demand, resulting in some cases, in cheapest dispatches.
Also, the simplification of a zonal grid representation relaxes
the optimization model (less constrained) than providing a
faster convergence and, therefore, a possible more economic
dispatch.
With regards to congestion itself, the most important conges-
tion levels took place during the dry scenarios, causing the LMP
at the south of the system to rise drastically (most of the hydro
units are located at the south), as shown in Figs. 5 and 6 where
nodes are enumerated from north to south. It is probable that
if unit commitment is to be implemented in the dispatches, the
difference of LMP/ZLMP presented before would increase. De-
mand levels did not modify the congestion pattern and only im-
plied an uplift to them.
Especially during dry scenarios, important levels of trans-
mission rights credits were acquired by the agents, as high
congestion levels were reached at those conditions. Neverthe-
less, one important difference arises from the results shown in
Figs. 7 and 8.2 During middle and high levels of demand with
a dry hydro scenario (i.e., scenarios with important congestion
levels), FGR presented greater congestion credit than the
FTR in the same conditions. That means FGR were more
2In Figs. 7 and 8, transaction Tj means transaction j between a particular gen-
erator and load. FG(i-j) stands for FG defined between nodes i and j.
895
Fig. 7. FTR credit under 120% of average demand.
Fig. 8. FGR credit under 120% of average demand.
active instruments against congestion during stages in which
congestion is really the key player in the resulting ZLMP.
While FTR needed numerous transactions independent of the
system condition (including those regarding extraordinary
charges for FTR with negative valuation), FGR reduce the
number of transactions in the presence of small congestion
levels and that is to be taken into account because agents would
exercise important number of congestion transactions only
when important levels of congestion in the system arise for
them, making a more light transmission rights market.
Another interesting result is that both FTR and FGR credits
did not grow indefinitely as demands levels were incremented.
At 120% of the system average demand, transmission rights
credits were reduced compared with those obtained at 100% of
the average demand. This result is consistent with the empirical
information obtained at PJM, where it was found that important
levels of congestion are not necessarily produced by high levels
of demand, but also when the grid does not present a uniform
distribution of load through the system and when there are not
enough generation units to create the necessary counter flows
needed to relieve the electric network.
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TABLE III
FLOWGATES DEFINED IN THE SIC
Table III shows that under different hydro scenarios, the
number of FG defined3 were reduced and stable under different
demand conditions. This result is of great importance because
it gives certainty to the market agents about CSF that could
be implemented in middle- and long-term transmission rights
contracts. However, the definition of zones under the marginal
cost difference criteria was not stable and introduced additional
complication regarding the economic dispatch. These facts
could introduce incompatibilities in the long-term operation of
implementation, because the FG defined previously will not be
able to manage the price gradients of new zones defined under
different hydro and demand scenarios.
Finally, if a hybrid CMS is to be implemented at the SIC, the
FG defined for the zonal dispatch would not be able to capture
the necessary congestion costs of the system under a nodal (i.e.,
LMP pricing model) dispatch.
VI. CONCLUSION
A static simulation model is proposed and developed for
nodal and zonal dispatching implementing marginal theory to
incorporate CMS under FTR and FGR. The transmission rights
systems are defined under a centralized electric market, with the
main contribution of this work being the FGR valuation, which
is directly obtained from the centralized ZLMP differences
contained in the respective FG defined from the nodal dispatch.
3FG were defined in the algorithm as those lines who presented power-flow
limit violation under more than 50% of the iterations needed for the algorithm to
converge. Then by construction, those FG become CSF because the difference
of ZLMP among the respective nodes became important.
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 19, NO. 2, MAY 2004
Then, compatibility in implementation between FTR and FGR
are defined, so that both financial instruments against price
congestions are evaluated for a possible implementation under
the same market structure. Although the FGR model outlined
in this work presents certain advantages in relation to the FTR,
the instability of zonal definition and the poor performance
of a hybrid CMS, made unattractive the zonal price modeling
complemented with FGR, as compared to a nodal model with
FTR, where there is experience in actual implementation. The
proposal is of interest in centralized dispatch pool markets.
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Roberto Méndez received the B.Sc. and M.Sc. degrees in electrical engineering
from Catholic University of Chile, Santiago, Chile.
Currently, he is a Researcher with the Power Group at the Catholic Univer-
sity of Chile. His research interests include power markets and transmission
regulation.
Hugh Rudnick (F’00) was born in Santiago, Chile. He graduated as an elec-
trical engineer from the University of Chile, Santiago, Chile. He received the
M.Sc. and Ph.D. degrees from the Victoria University of Manchester, Man-
chester, U.K.
Currently, he is a Professor at Catholic University of Chile, Santiago, Chile.
His research activities focus on the economic operation, planning, and regula-
tion of electric power systems.