Interruptible Physical Transmission Contracts for Congestion Management Santosh Raikar Marija Ilic, Fellow, IEEE Energy Laboratory, Massachusetts Institute of Technology, CambridgeMA02139 Abstract: This paper presents a novel congestion management protocol applicable for both pure-bilateral and hybrid market structure. The mechanism is based on an Interruptible Physical Transmission Contract, which guarantees physical access to the transmission network users and provides financial incentives for the bilateral contract holders to forfeit the physical access to the transmission network. The contract specifies a financial reimbursement payable to the insured if the system operator dispatch requires a curtailment of a bilateral contract involving an injection into and withdrawal of power at a specified set of nodes. The insurer is compensated in the form of an insurance premium for providing the service. The contractis structuredsuch that the reimbursement payable to the insured party equals the actual loss incurred so that the insured party is “made whole” with the insurance payment. Similarly, when the insurer is the System Operator itselfi it tries to dispatch the generators such that the aggregate insurance reimbursements payable to the insured parties is minimized. In this way, the transmission contract mechanism ensures that a near optimal curtailment policy coincides with the efficient dispatch in the system. Keywords: Transmission Congestion Management, Financial Transmission Rights, Forwards, Options, Flowgate Rights, Strike Price, and Callable Forward I. INTRODUCTION It is generally agreed upon that an effective transmission congestion management system should provide adequate economic signals for an efficient use of the transmission grid in a simple manner [5]. In addition, the congestion management system should be able to accommodate long-term firm and non-firm bilateral contracts along with the real-time spot market. Different transmission congestion management protocols have been suggested so far based on these guidelines. The most notable among these include the Financial Transmission Rights or Transmission Congestion Contracts (TCC) [7], Flowgate Rights [4], and Usage based Physical Transmission Rights [2, 16]. In the TCC based approach, congestion management is performed through a bid-based centralized optimal power dispatch and the transmission rents are calculated ex-posf as the nodal spot price differences. This approach yields the most optimal short-term dispatch solution, Combination of Location Based Marginal Price (LBMP) for spot congestion pricing and availability of long-term TCC based FTRs enable near optimal dispatch and bundled transmission and generation implementation of short-term reliability. However, only the holders of ‘TCCSare risk neutral with respect to any unexpected equipment outages, This risk is automatically born by the Transmission Providers and/or consumers in case the sold TCCS are not simultaneously feasible in the actual system operation. In the flowgate based approach, the System Operator defines and allocates a limited number of physical transmission rights that reflect the maximum power flow capacity across the transmission lines or groups of transmission lines [4]. The market participants who are interested in delivering electricity tlom one point in the electric power system to another are required to acquire a portfolio of such flowgate rights to back their energy transaction. An efficient secondary market is then developed for these flow- based rights, which could help the System Operator achieve optimal allocation of the transmission capacity. The approach has several advantages or features. For example, the flowgate rights can be assigned independent of the power flows and only the congested links require financial settlement, Moreover, the value of a flowgate right is never negative. However, although the decentralized nature of the flowgate rights based congestion mechanism is attractive, the approach suffers from several drawbacks. First, the number of flowgate rights that must be defined for allocation to interested parties may be significantly high [8]. Second, the transaction and information cost to traders may be very high [5]. Third, markets for these rights may be thinly traded and therefore efficient price discovery may be difficult. Finally, the traders may tirtd it difficult to make informed decisions regarding their energy transactions since the flowgate rights are defined and allocated on a link basis whereas the traders are interested in point-to-point transactions only. In the earlier approach presented in [2, 10] proposed a more general method for congestion management in which the Transmission Provider (TP) and system users are free to determine the terms of transmission provision and pricing iteratively over time, The transmission contracts presented in this paper could be easily implemented using this framework. 0-7803-7031-7/01/$10.00 (C) 2001 IEEE 0-7803-7173-9/01/$10.00 © 2001 IEEE 1639