Transmission congestion management in competitive electricity markets

This paper studies the management of costs associated with transmission constraints (i.e., transmission congestion costs) in a competitive electricity market. The paper examines two approaches for dealing with these costs. The first approach is based on a nodal pricing framework and forms the basis of the so-called pool model. The paper also provides an analysis of financial instruments proposed to complement nodal pricing and includes illustrative test results on a large scale system. The second approach is based on cost allocation procedures proposed for the so-called bilateral model. The paper explains the basis for this model including a game-theoretic evaluation of some of its aspects. Both the pool and bilateral models have been at the center of the electric utility restructuring debate in California.