1
Long-Term Bilateral Contract Pricing with Risks of
Congestion Charge
Yunhe Hou, and Felix F. Wu, Fellow, IEEE
Abstract—The object of this paper is to study the risk of long-
term bilateral contract in the deregulated power system. A model
for long-term bilateral contract pricing with risks of congestion is
presented. The negotiated income, variable fuel cost, investment
depreciation, and congestion payment during the whole contract
period are involved in this model. Based on the principle of no-
arbitrage, the negotiated income is derived. The congestion
payment is modeled as a random variable to take into account
the fluctuation and uncertainties of load demand. For each
operating scenario, the congestion charge is evaluated by AC
OPF approach. A numerical method so-called 2n-concentration
scheme is proposed to obtain the statistical characteristic of
congestion charge instead of Monte Carlo simulation. Comparing
with the Monte Carlo simulation, this method is less computation
time consuming with acceptable numerical precision. Several
numerical examples are given to illustrate the proposed method.
Index Terms-- Bilateral contract pricing, negotiated income,
congestion charge, 2n-concentration scheme, uncertainly
I. INTRODUCTION
D EREGULATION of the electric power industry has
created a competitive open-market environment. The
main objective of power system restructuring and
deregulation is to introduce competition in the power industry
and provide more choices to market participants. Unlike the
situation in the regulated monopoly environment where there
is a guaranteed rate of return, generation companies in the
deregulated environment must take into account the market
risks [1],[2], especially the uncertainties caused by the
fluctuation of electricity price in the market [3]-[5].
In the electricity market, the bilateral contract plays a key
role in the electricity transaction, and it is be regard as a risk
hedging tool to reduce market risk [4]. The need for futures
markets in which a buyer and seller can lock in some fixed
contract price in advanced whatever the spot price [2]. Hence,
comparing with spot market, the risk of long-term electricity
bilateral contract is lower. From economic point of view, the
bilateral contract is a forward contract, in which the maturate
This work was supported in part by the National Key Basic Research Special
Foundation of China (2004CB217900), the National Natural Science Foundation
of China (50337010) and the National Postdoctoral Science Foundation of China
(20060390045).
Y. H. Hou is with National Key Laboratory of Power Systems in Shenzhen,
Tsinghua University, District Guangdong, Shenzhen 518055, China (e-mail:
yhhou@eee.hku.hk).
F. F. Wu is with the Center for Electrical Energy Systems, the University of
Hong Kong, Hong Kong, China(e-mail: ffwu@eee.hku.hk).
1-4244-1298-6/07/$25.00 ©2007 IEEE.
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time is the electricity delivery time [1]. In fact, a majority of
power exchanges is conducted through contracts [6];
therefore, contract pricing have attracted great interest.
Reference [6] pricing the block flexible electricity contracts
based on the principle of no-arbitrage. Woo et al. [7]
determine the forward contract price as the sum of a baseline
price and a risk premium. Bjorgan et al.[8] present flexible
electricity contracts which require the buyer or the seller to
schedule its decision of a certain time interval, and the
scheduling decision is composed of sequential decision-
making processes. Reference [9] analyzes the problem of
setting up contracts on both the supplier and end-user sides to
maximize profits while maintaining an acceptable level of
settlement risk by stochastic programming.
Although long-term contract can hedge the risk of spot
market, there still exists risk to pay for the congestion charges
[3], which depends on uncertain system operating condition
and load profile. In order to approximate the probability of
congestion charge, the Monte Carlo simulation (MCS) is
treated as a powerful tool to give us accurate detail
information, though it is very time consuming [10]. To avoid
MCS, a numerical method so-called 2n-concentration scheme
[11], which is able to get the statistical characteristics with
less computation requirement, was proposed recently. This
method is employed to carry out the probabilistic load flow
and transfer capability analysis of power system [12], [13].
In this paper, a model for long-term bilateral contract
pricing with risks of congestion is presented. In this model,
the negotiated income, variable fuel cost, investment
depreciation, and congestion payment during the whole
contract period are involved. The negotiated income is
derived based on the principle of no-arbitrage, and 2n-
concentration scheme is proposed to obtain the statistical
characteristic of congestion charge instead of Monte Carlo
simulation.
The remainder of this paper is organized as follows.
Section II presents the mathematical model of long-term
bilateral contract with risks of congestion charge. The
congestion charge evaluated by 2n-concentration scheme is
investigated in section III. Section IV illustrates the proposed
method by examples and section V concludes the paper.
II. THE BILATERAL CONTRACT WITH RISKS OF CONGESTION
CHARGE
In this work, with congestion charge, the profit for the
bilateral contract during the whole contract period can be

given as the following:
VTC = RTC − CostTV − CostTI
cong
− Cost T
where T is the contract period, VTC
is the profit for the
bilateral contract, RTC is negotiated income for bilateral
contract during the whole contract period, CostTV denotes the
variable fuel cost during the whole contract period, CostTCong
is the income adjusted caused by congestion during the whole
contract period, and the equivalent investment depreciation of
evaluated generation company during the whole contract
period is denoted as CostTI.
A. Modeling Negotiated Income for Bilateral Contract
Forward prices are directly tied to the spot price models.
They are risk adjusted and net cost adjusted expectations of
the spot prices at forward points in time, but not the
expectation of spot prices themselves. In order to get the
relationship between forward price and spot price, two simple
scenarios on stock are constructed in the following [1]. Under
the no-arbitrage assumption, the value of the two scenarios
must be indifferent.
Scenario A: enter into a forward contract. At the time of
the forward contract expiration, pay the cash that agreed on in
the forward price contract and obtain the stock. Then
immediately sell the stock in the marketplace;
Scenario B: borrow the money from the bank and use it to
purchase the stock today, hold it until the same time as the
forward expiration. At that point, sell the stock and pay the
bank the original principal plus the interest.
Under both scenarios the net cash flow at origination time t
is zero. Under scenario A, at expiration, we pay out the
amount Ft,T for the stock, then get the stock and sell it in the
marketplace for ST. Thus the cash flow at time T can be given
by
S T − Ft ,T (2)
Under scenario B, we sell the stock and pay back the bank
for the principal amount and the interest. In this case, the cash
flow at time T can be given by
S T − S t e r (T − t ) (3)
Where Ste r(T-t)
is both the principal and the interest owned to
the bank, and the interest is compounded continuously at risk
free rate.
Under the no-arbitrage condition, the two cash flows must
be the same. That is
Ft ,T = S t e r (T −t )
where Ft,T is the forward price observed at time t with
expiration at time T, St is the spot price at time t, t denotes the
time of observation, T denotes the time of expiration, and r is
the continuously compounded risk free rate.
Assume the stock earns an expected return µ. Then the
expected price of the stock at expiration time T can be given
by
E[ ST ] = S t e µ (T −t ) (5)
From equation (4) and (5), we can express the forward
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2
price in terms of the expected stock price at the time of
(1) expiration, in which the forward price is in proportion to the
expected stock price but not equal to it.
Ft ,T = E[ S T ]e ( r −µ )(T −t ) (6)
According to the form of long-term electricity contract that
deliver electricity for the whole contract period, an integral
for price Ft,T on each time slot T will be applied to get the
price of the whole contract.
TT TT
RTC = ∑ Ft ,T QT = ∑ E[ST ]e −ησ (T −t ) QT (7)
T =T0 T =T0
where QT is the electricity for delivery at time slot T, T0 and
TT denote the period that contract covers. Equation (7) gives
the value of the electricity contract, which will be the basis for
contract price negotiation.
B. Modeling Congestion Charge for Bilateral Contract
From section A, the value of a long-term electricity
bilateral contract can be priced if the contract can be delivered
completely. Under such a situation, there will be no risk for
generation companies’ profit. But in real power system
operation, since the limitation of transmission capability, not
all the bilateral contract can be satisfied all the time [3]. When
congestion occurs on transmission lines, the ISO will try to
tune the load flow to keep system operating securely. Since
the load on consumer side must be satisfied, the output of
generators will be re-dispatched, and an extra payment for
congestion will be charged for non-economical production
schedule. From OPF point of view, the shadow price for each
bus reflects the extra cost by congestion. Such congestion
charges will change with respect to different operating
conditions and load profile, and the stochastic characteristic
for it will increase the cash flow risk for the bilateral contract.
In order to calculate the nodal price for generators and
consumers, OPF approaches are applied. The generalized
OPF method for calculating nodal price can be described in
the following model [2], [3]:
max C ( x, u )
u
s.t. f ( x, u ) = 0
(8)
h ( x, u ) ≤ 0
where x denotes the state variable, u denotes the control
variable, f( ) is the power flow equations, and h( ) is the
constraints for generator capacity limit, branch capacity limit
(4) and voltage limit. C( ) in objective function is the social
welfare.
In order to solve the optimization problem in equation (8),
the Lagrangian function is given as:
L( Z ) = C ( Z ) + λ[ f (Z )] + µ[h(Z )] (9)
where λ involves the shadow price for each bus.
Denote the nodal prices for generation company i and
consumer j are λi and λj, respectively. Assuming the generator
takes the duty to pay for the congestion charge of the contract.
The extra payment over the negotiated contract price for
consumer can be described as the following, which should be
 3

compensated by Genco because of the bilateral contract. fuel cost can be given as the following, which is present-
λ j QC − VC (10) valued by risk free rate of return:
T
∑ H ⋅ [QC (t ) − ∆q(t )]× P F (t ) × e −rt
where QC is the electricity delivered in contract, and VC is the
CostTV = (19)
negotiated contract price.
t =T0
For generation company side, the inflows based on nodal
price can be described as where PF(t) is the fuel price at time t, Hk describes the heat
λi (QC − ∆q) (11) rate function, QC(t)is the contract delivery at time t, and ∆q(t)
is the output adjusted caused by congestion. Since the
where ∆q denotes the adjusted amount for electricity delivery
adjusted output ∆q(t) is much smaller than the contract output,
caused by congestion.
such ∆q(t) can be neglected. Thus equation (19) can be
Based on equation (10) and (11), the congestion related
rewritten as:
cash flow for a generation company should be:
T
λi (QC − ∆q ) − (λ j QC − VC )
which can be re-arranged as
(12)
CostTV = ∑ H ⋅ QC (t ) × P F (t ) × e −rt (20)
t =T0
[
VC − (λ j − λi )QC + ∆qλi ] (13) Furthermore, assume for the whole contract period, the
The second term of equation (13) described the extra equivalent investment depreciation of evaluated generation
payment that caused by transmission congestion, which is company is denoted as CostIT.
Cost cong = (λ j − λi )QC + ∆qλi (14) To sum up, the profit for the bilateral contract during the
whole contract period defined by equation (1) can be
Comparing with contract quantity QC, the adjusted output calculated from equation (7), (16) and (18).
∆q for a generation company caused by congestion is always Recalling equation (1)
in a small proportion. If ignore the effects from ∆q, the
congestion charge for generation company can be simplified VTC = RTC − CostTcong − CostTV − CostTI
as In the right side of equation, RTC, CostTV and CostTI are
Cost cong = (λ j − λi )QC (15) determinate. However, CostTcong is stochastic with respect to
system operating conditions and load profile, the value of the
In other words, the congestion charge in equation (15) that bilateral contract is also with stochastic characteristic.
paid by the generation company is for buying electricity from
other non-economical generators to satisfy the requirement of III. 2N-CONCENTRATION SCHEME FOR CONGESTION CHARGE
the consumer. FOR BILATERAL CONTRACT
At time slot T, the congestion charge for Genco is
Usually, to get the characteristic of a stochastic system, the
[
Cost Tcong = λ j (T ) − λi (T ) QC (T ) ] (16) Monte Carlo simulation is employed. The advantage of Monte
For the whole contract time period, when congestion Carlo simulation is the accuracy. However, it may very time
occurs, the nodal price for generator and consumer will be consuming because the deterministic OPF has to be required
different and congestion payment will be charged. The extra frequently to evaluate a large number of samples. In this
congestion cost for a generation company during contract section, a method so-called 2n-concentration scheme is
period T can be described as following, which has already employed to approximate the mean value and variance of
been present-valued: congestion charge for bilateral contract. By this method, the
mean value and variance of congestion charge in a system
∑
⎡ TT ⎤
Cost Tcong = E ⎢ C tcong ⋅ e − rt ⎥ with n random loads can be estimated with 2n times
⎢ ⎥ deterministic OPF. Hence, the Monte Carlo simulation can be
⎣t =T0 ⎦ (17)
avoided.
∑ [λ
⎡ TT ⎤
= E⎢
⎢
j (t ) − ]
λ i (t ) Q C (t ) ⋅ e − rt ⎥
⎥
A. 2n-Concentration Scheme [11]
⎣t =T0 ⎦ Let Z denote a random quantity that is a function of n
where r is the risk free discount rate. Considering the property random variables X. That is Z = h(X) = h(x1,x2,…,xn). Let µk,
of expectation operator, (35) can be written as σk denote the mean and standard deviation of xk, respectively.

∑ E{[λ j (t ) − λi (t )]QC (t ) ⋅ e −rt }

TT We just consider that the random variables are independent.
CostTcong = (18) Further, let Mi(xk) denote ith order central moment of xk, and
t =T0 probability density of xk is fk(xk). That is
+∞
C. Modeling the Rest Terms
∫ ( xk − µ k )
i
M i ( xk ) = f k ( x k )dxk (21)
The variable fuel cost for the bilateral contract relates to −∞
the fuel price, and generator heat rate. When congestion and let λk,i denote the ratio of Mi(xk) to σk., then
occurs, the output of GENCO will be adjusted. Considering
λk ,i = M i ( x k ) / σ ki i = 1,2,3 (22)
the effects of congestion for the bilateral contract, the variable

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 4

where λk 1 equals zero, λk 2 equals one, and λk 3 is the n

coefficient of skewness of xk.
Using the multivariable Taylor series expansion, we
E( z) = ∑ ( pk ,1θ k ,1 + p k ,2θ k ,2 ) (33)
k =1
ignore the crossed terms. Then, the multivariable Taylor The variance of Z is
series expansion of h(X) about µk, k=1,2,…n is
L
2

∑( ∑
⎧⎪ n ⎫⎪ ⎧⎪ n ⎫⎪
Z = h( µ1 , µ 2 , , µ n ) Var( z) = ⎨ )
pk ,1θ k2,1 + pk ,2θ k2,2 ⎬ − ⎨ ( pk ,1θ k ,1 + pk ,2θ k ,2 )⎬ (34)
∞ ⎪⎩k =1 ⎪⎭ ⎪⎩k =1 ⎪
∑∑ i! ∂x i (µ1 , µ 2 ,L, µ k L, µ n ) ⋅ ( xk − µ k )i
n
1∂ h i (23) ⎭
+
i =1 k =1 k
B. Congestion Charge Evaluation by 2n-Concentration
The mean value of Z can be calculated as follows Scheme
L
µ Z = E(h( X )) = h(µ1 , µ 2 , , µ n ) Considering the loads fluctuation, the load of each bus is
described as a random variable. To get the statistical
∞ +∞
(µ , µ ,L, µ L, µ ) ⋅ ∫ ( x − µ ) f ( x )dx
n i
1∂h
+ ∑∑ i characteristic of the nodal price under the stochastic loads,
i 1 2 k n k k k k k 2n-concentration scheme is employed. Let X denote the
i! ∂x
i =1 k =1 −∞
= h(µ , µ ,L, µ )
k
column vector of random loads, h(X) is the difference of
1 2 n nodal prices between the generator and load. Then, the
∞
(µ , µ ,L, µ L, µ ) ⋅ λ σ
n
1∂h i proposed method can be performed as follow:
+ ∑∑ 1 2 k n
i
k ,i k 1) Calculate the moments of each load;
i! ∂x i
i =1 k =1 k 2) Calculate the undetermined constants ξk,i and pk,i of each
(24) xk and obtain the locations xk,i i=1,2 according to (29) and (30);
Let x k ,i = µ k + ξ k ,iσ k , where i=1,2, k=1,2,…n, ξk,i are 3) Obtain θk,1 andθk,2 by deterministic OPF and get the
constants to be determined. Let pk,i i=1,2, k=1,2,…n be the results in (31) and (32).
probability concentration at location xk,i. Multiplying equation 4) After performing all the uncertain parameters iteration,
(23) by pk,i with xk = xk,i i=1,2, and summing them up leads to calculate the means, and standard deviations in terms of (33)

∑∑
and (34).
L
n 2
µZ = h(µ1, , µn ) pk,i The 2n-Concentration Scheme can be regarded as a black
k =1 i=1 box algorithm. When the distributions of random parameters
(25)

∑∑
are known, it can be used to estimate the statistical
[ ]
∞ n
L
i
1∂h
+ (µ1, µ2 , , µn ) ⋅ pk,1(ξk,1 )i + pk,2 (ξ k,2 )i σ ki characteristic of stochastic function. For a system with n
i! ∂xi uncertain random parameters, the proposed method performs
i=1 k =1 k
To approximate the mean value of Z expressed in through 2n OPF. Comparing with the Monte Carlo simulation
equation (24) by (25). We can match the moments of xk up to method, this method is able to maintain enough calculation
third order, leading to precision with less computation time consuming.
p k ,1 (ξ k ,1 ) i + p k , 2 (ξ k , 2 ) i = λ k ,i , k=1,2,…n, i=1,2,3 (26) IV. CASE STUDY
Since the sum of concentrations is one, we have
The performance of the proposed method was test on
n 2
∑∑ p k ,i = 1
several systems. In the model of bilateral contract pricing
(27)
presented in section II, only the congestion charges are
k =1 i =1
random variables with the fluctuation of loads. The
By specifying that the sums of concentrations satisfy
congestion charges evaluated by 2n-concentration scheme are
2
∑ pk ,i = n
1 compared with Monte Carlo simulations in this section.
(28)
i =1 A. Case Study on a 9-Bus System
Then, the solution of system equations is given by This case for bilateral contract evaluation with congestion
ξ k ,i = λk ,3 / 2 + (−1) 3−i n + (λk ,3 / 2) 2 , i = 1,2, k = 1,2, L, n (29 charge is based on a 9-bus system with 3 generators and 3
loads. The network data corresponding to this example can be
)
found in [14].The system’s topology is illustrated as Fig 1.
and
1
p k ,i = (−1) i ξ k ,3−i / η k (30)
n
where η k = 2 n + (λk ,3 / 2) 2
Let
L , x ,L , µ
θ k ,1 = h( µ1 , n) (31)
= h ( µ ,L , x ,L , µ
k ,1
θ k ,2 1 k ,2 n) (32)
Therefore, the mean value can be obtained by
Fig. 1. Topology of 9-bus test system

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 5

Assume the contract is assigned between generator on bus 3-6 is decreased from 300MW to 60 MW. The nodal prices
3 and load on bus 7, and the contract quantity for each hour is with different method are shown in Table 2. In this table,
equal to 2/3 of the base case load on bus 7, that is the contract “MEAN” means the loads of bus 5, 7 and 9 that used on AC
quantity is 80MW. In order to simulate the load fluctuation, OPF are 150MW, 120MW and 225MW, respectively, which
the loads changed for each bus are assumed to follow an are mean values of stochastic loads. The MCS means Monte
independent normal distribution. The means of loads on bus Carlo simulation with 2000 trials.
5, bus 7 and bus 9 are 150MW, 120MW and 225MW, TABLE II
COMPARING THE RESULTS IN THE SYSTEM WITH SERIOUS CONGESTION
respectively. And the standard deviations of loads on these
Mean Value Standard Deviation
three buses are 10MW, 12MW and 20MW, respectively. Bus No. ($/MWh) ($/MWh)
To obtain the “true” results for computation accuracy MCS 2nCS MEAN MCS 2nCS
comparison, it is assumed that Monte Carlo simulation with 2 43.495 43.511 42.571 0.862 0.897
2000 trials could catch the stochastic behavior of problem. 3 15.696 15.696 15.694 0.002 0.002
5 49.149 49.130 45.764 4.305 4.340
When the variance of the bus load is setting to a specified
7 46.770 46.751 43.303 4.082 4.167
value, using Monte Carlo simulation (MCS) on AC OPF 9 49.112 49.092 45.769 4.397 4.404
approach, the distributions of nodal prices can be obtained.
The mean values and standard deviations of nodal prices Data in Table 2 show the 2n-concentration scheme performs
obtained from Monte Carlo simulation and 2n-concentration well in the system with serious congestion. Furthermore, the
scheme (2nCS) are summarized in Table I. proposed method can get more precise results than only
TABLE I
COMPARING THE RESULTS OF MONTE CARLO SIMULATION AND 2N-
consider the mean values of stochastic loads.
CONCENTRATION SCHEME From section III we know that the performance of 2n-
Bus Mean Value($/MWh) Standard Deviation($/MWh) concentration scheme is not depend on the distribution of
No. MCS 2nCS MCS 2nCS
stochastic loads. Supposing that the nodal loads on the bus 5,
2 36.439594 36.43959 1.773438 1.767948
7 and 9 are uniformly distributed, i.e. Load5~U(140,160),
3 36.560916 36.56092 1.781971 1.776184 Load7~U(108,132), and Load9~U(205,245). The mean values
5 39.201202 39.2012 2.049342 2.040307 and standard deviations of nodal prices obtained from Monte
7 36.881513 36.88151 1.817399 1.811919 Carlo simulation and 2n-concentration scheme are
9 39.358301 39.3583 2.141297 2.132879
summarized in Table III.
TABLE III
The mean value of congestion price for the contract COMPARING THE RESULTS WITH UNIFORMLY DISTRIBUTED LOADS
between load on bus 7 and generator on bus 3 obtained by Mean Value($/MWh) Standard Deviation($/MWh)
Bus
MCS and proposed method are 0.321266$/MWh and No. MCS 2nCS MCS 2nCS
0.321268$/MWh, respectively. And the standard deviation is
2 36.4429 36.4429 1.0272 1.0117
0.049$/MWh and 0.048$/MWh, respectively. The probability 3 36.5632 36.5633 1.0318 1.0164
density of price between bus 7 and bus 3 by using Monte 5 39.1970 39.1970 1.1827 1.1656
Carlo simulation with 2000 trials and by 2n-concentration 7 36.8834 36.8833 1.0533 1.0373
9 39.3518 39.3517 1.2359 1.2181
scheme are reported in Fig 2.
Furthermore, the mean value of congestion price for the
contract between bus 7 and bus 3 obtained by MCS and
2nCS proposed method are 0.32014$/MWh and 0.32013$/MWh,
respectively. And the standard deviation is 0.0293$/MWh and
0.0289$/MWh, respectively. In the system with uniformly
MCS distributed loads, the proposed 2n-concentration scheme
performs well.
B. Case Study on IEEE 30-Bus System
Fig.2. The density of congestion price between bus 7 and 3 In this case, the IEEE 30-bus system is used to verify the
performance of the proposed method. The data and the
The results show that the 2n-concentration scheme could system topology can be found in [15]. This system has 6
accurately estimate nodal prices even for high uncertainty generators and 20 loads. Assume the contract is assigned
levels of loads. Furthermore, 2n-concentration scheme only between generator on bus 2 and load bus 8, and the contract
need 2n times AC OPF calculation (n is the number of quantity for each hour is equal to 1/2 of the base case load on
random variables). That is to say, in this case, only 2·3=6 bus 8, and the contract quantity is 15MW. In order to simulate
times OPF calculation are needed. However, the Monte Carlo the load fluctuation, the loads on bus 2, 3, 4, 7, 10, 12, 21, and
simulation is much more time consuming. 30 are assumed to follow an independent normal distribution.
To investigate the performance of the proposed method in The means of loads are the same as the load in [15], and the
the system with serious congestion, the upper limit of branch standard deviations of loads on these 8 buses are assumed to

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 6

12% of the base case loads. The results of Monte Carlo from the Monte Catlo simulation, the 2n-concentration
simulation on AC OPF approach with 2000 trials are used as scheme can reach similar resluts with less effort in numerical
computation accuracy comparison. The mean values and computations. The model of long-term bilateral contract
standard deviations of nodal prices on all generator buses and pricing proposed in this paper can be used as a tool to
stochastic load buses with different method are summarized in evaluate the profit of generation asset in the long-term
Table IV. contract market under uncertain operating conditions.
TABLE IV
COMPARING THE RESULTS ON IEEE 30-BUS SYSTEM
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In the deregulated power market, the bilateral contract acts
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contract pricing is presented in this paper. In this model, the
contract price that negotiated between generation companies VII. BIOGRAPHIES
and customers, variable fuel cost, investment depreciation, Yunhe Hou is a postdoctoral fellowship in National Key Laboratory of Power
and the extra congestion payment are considered. According Systems in Shenzhen, Tsinghua University, China, and he is also a postdoctoral
to the principle of no-arbitrage, the negotiated contract price visitorial researcher of Centre for Electrical Energy Systems of University of
Hong Kong. He received the B.E (1999), M.E(2002) and Ph.D(2005) degrees
is modeled in proportion to the forecasted strike price at from the Huazhong University of Science and Technology, China. His research
delivery time. To evaluate the extra congestion payment under interests include theory of power market, power system planning, analysis and
uncertain operating conditions, the loads are modeled as control.
random variables, and a numerical method so-called 2n-
Felix F. Wu (Fellow, IEEE) is the Philip Wong Wilson Wong Professor in
concentration scheme is employed to quantify the statistical Electrical Engineering at the University of Hong Kong, Hong Kong, where he
characteristic of congestion charge. served as Pro Vice Chancellor (Vice President) from 1997 to 2001. He is also a
The proposed method is tested and verified by comparision Professor Emeritus at the University of California, Berkeley, where he has been
on the Faculty since 1974.
with results from Monte Carlo simulations of several systems
and several operating conditions. Comparing with the results

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