Power System & LMP Fundamentals: Eugene Litvinov, Director Business Architecture & Technology Department

Power System & LMP Fundamentals
Eugene Litvinov, Director

Business Architecture & Technology Department
What We Will Cover
• Electrical Network and Its Model

• Contingency Analysis
• Sensitivities
• LMP Calculation
• Marginal Loss Pricing
• Market System Major Components
Power System & LMP Fundamentals – WEM 301 2

© 2008 ISO New England Inc.
Electrical Network and Its Model
• One-line diagram and bus/branch model

• Ohm’s law
• Losses
• Kirchoff’s law
• Power flow calculations (different model idealizations)
• Reference bus

One-Line Diagram and Bus/Branch Model
Line1 Line2
Line2
Sub1 Line1
Sub1
L1
Line4
Line3
Line3 Line4 G1
L1
G1
Line1 Line2
Sub1 Line1 Line2
Sub1-1
Sub1-2
+
Line3 Line4
Line3 Line4 G1
L1 L1
G1

Network Model
• Device – any electrical device like line, transformer,

breaker, etc.
• Node – connection point of two or more devices in one-
line model
• Bus – connection point of two or more branches in the
network model
• Branch – physical or equivalent line connecting to buses
• Injection – flow of power into bus – generation
• Withdrawal – flow of power from bus – load
• Interface – a set of branches that, when opened, split
network into two separate islands

Bus/Branch Model
Bus 1
Branch 0-1
1 Branch 1-3
P1 Injection
0 3
P4
P0
2
Withdrawal
P2

Interface
Positive Direction
Interface contains lines:
0-2, 1-2, 1-3
1
-12
0M
W The flow through an interface
P1
is the algebraic sum of the
50 MW
0
30
3
flows in the lines comprising
M W
P4
interface:
P0
2
P = 30 + 50 - 120 = -40 MW
P2
Negative sign means flow
Interface
against positive direction.

External Interface
• Interface can be between two control areas

(like NE and NY). It contains inter-ties only.
P o s itiv e D ire c tio n
CA1 CA2

Ohm’s Law
U – Voltage
U
I – Current
R – Resistance
I R
The current in the circuit: I = U/R
U
U = U1 - U 2
I R
U1 U2 I = (U1 - U2) / R

Power and Losses
Power: P=UxI
1 2
U1 P12 P12 U2
1 2
I12
P121 = U1 ⋅ I12 = U1 (U1 − U 2 ) / R = R1 (U12 − U1 ⋅U 2 )
P122 = −U 2 ⋅ I12 = U 2 (U 2 − U1 ) / R = R1 (U 22 − U1 ⋅U 2 )
P121 ≠ P122
P121 + P122 = P12 loss = I 122 ⋅ R

Kirchoff’s Law
• All flows into the bus

equal all flows out. In 35
W
other words, the algebraic M
M
W
55
sum of all injections and
withdrawals at the bus 100 MW 75 MW
i
equals 0. W
M
80
• Withdrawal is positive,
injection is negative. 350 MW 515 MW
100 + 80 + 75 + 350 - 35 - 55 - 515 = 0

Kirchoff’s Law (cont.)
This law is also true for any closed area of the network.
100
Area 1 +
100 MW 50
50
W MW +
0M 150
20
-
15 100 MW 150 MW W 150
0M M -
W 0
50 MW 10 150
150 MW ______
350 MW 0
100 MW 150 MW

Kirchoff’s Law (cont.)
This law is also true for the whole control area: sum of
all generation, load and inter-tie flows equals 0.
CA1 CA2
CA3

Powerflow Calculation
• Given: injections and withdrawals at every bus, branch

parameters, network topology
• Find: power flows and currents in each branch and
voltage at each bus
• High voltage electrical networks are three-phase
alternate current circuits.
• The theory of power systems provides ways to perform
calculations with one-line models for symmetric
conditions.
• System losses is a sum of all branch losses in the
system.

Bus/Branch Model in PowerWorld™

Simple Two-Bus System
U1 U2 1
I12
I12 = (U1 − U 2 )
R R
I1 I 2 − I12 = 0 ⇒ I 2 = I12
1
I2
I 2 = (U1 − U 2 )
⎧1 R
⎪⎪ R (U1 − U 2 ) = I 2 − I1 + I12 = 0 ⇒ I1 = I12
⎨ 1
⎪ 1 (U1 − U 2 ) = I 2 I1 = (U1 − U 2 )
⎪⎩ R R
I1 = I 2 = I12
The equations in the system are identical – the system
has infinite number of solutions.
Simple Two-Bus System (cont.)
• This means that we can arbitrarily choose voltage at one

bus and calculate another voltage using only one of the
equations.
• The bus where we specify voltage is called a Reference
Bus.
• Power flow model always solves n-1 equations, where
n-number of buses in the network.

AC Power Flow
• The model described above is a direct current (DC)

model.
• The alternate current (AC) system is calculated using
complex numbers.
• This means that any quantity is described by two
components: real and imaginary or active and reactive.
For example, power S=P+jQ, where S is MVA, P is active
power in MW, and Q is reactive power in MVAR.

AC Power Flow (cont.)
• In addition to resistance R, each branch has reactance X.

Instead of just resistance we use impedance Z = R + jX.
• Voltage has two components as well: U = U’ + jU’’.
• Both Ohm’s law and Kirchoff’s law hold true for AC case.

AC Power Flow – Phase Angle
Any complex number can be presented
as a vector in Cartesian coordinates.
U '+ jU " → U ∠δ U"

|U|
U – Voltage magnitude,
δ - Voltage phase angle. U

Phase angle at the reference bus is
usually set to 0, so all other phase angles
use it as a reference. The flow in any
branch depends only on the difference of δ
the voltages at the ends of the branch, so
no matter which bus is a reference bus, U' U ref
the power flow is the same.

AC Power Flow
• Losses in any branch also depend only on the difference

of the voltages at the ends, so moving reference from
one bus to another does not change system losses.
• As we saw, losses occur in each line that has a
resistance – generators have to cover all the losses in
the network to supply required load.
• Thus, generators have to produce more power than just
required by loads to keep system in balance.
• This means that in the system with losses the algebraic
sum of all injections and withdrawals must be equal to
system losses – conservation of energy.

Reference, Slack and Swing Bus
• We introduced the concept of the angle reference bus as

the reference for voltage vectors.
• In power flow calculations, besides the reference bus, we
have to use slack or swing bus.
• Recall that when calculating power flow, one has to
specify all nodal loads and generation. It is impossible to
guess the total value of losses in the system before the
power flows are calculated.
• Power system engineers resolve this problem by
selecting a location in the network that would balance
any difference between generation and load (generators
have to supply losses in addition to the load)

Reference, Slack and Swing Bus (cont.)
• That location is called a slack or swing bus.

• This concept is very important in understanding
sensitivities and LMP components later
• The reference bus and the slack bus do not have to be
located at the same point of the network, however, in
most cases, they are at the same location.
• That is why these names are being used interchangeably
• In the rest of this presentation, we will be using
“Reference Bus” as a substitution for both reference and
slack. Only when it is important, we will make a
distinction between the two.■

Slack Bus
Total generation without slack:
600 + 30 + 110 + 193 = 933

Slack Bus (cont.)
Total generation without slack:
600 + 25 + 110 + 193 = 928

Slack Bus. Some Observations
• When slack bus location changes, all the flows change

too
• Losses also change with the change of the location of the
slack bus
• Therefore: AC Power Flow is dependent on the location
of the slack bus
• The higher the imbalance between calculated and
“guessed” losses is, the higher the difference

AC Power Flow
• Power flow equations are highly non-linear.

• There are different methods to solve power flow, the
most popular one is the Newton-Raphson method.
• For real time calculations, very often we use different
idealizations of the model to speed up time for solution.
• One of the most popular methods is using DC model.

DC Model
• DC model is based on the linearization of the power flow

equations around certain base point to avoid iterations.
• This allows solving large series of power flows within
reasonable time frame.
• This model is also being used in the economic dispatch
to make it possible to use linear programming technique.

Linearization U i ∠δ i U j ∠δ J
• Sinusoidal function of the flow is
replaced with the linear function.
• In the quite wide range of normal
conditions, the error of
linearization is reasonably small.
• When the loading grows close to
the limit, the errors are getting
high. This is usually far above
the thermal limit of the line.
δ ij = δ i − δ j
U iU j δ
Pij = sin δ ij
X ij

DC Power Flow Model
• The following assumptions are made for DC idealization:

– All branch resistances are equal to zero.
– All voltage magnitudes are constant.
– The differences of phase angles between voltages at the ends of
any branch are within normal loading range (where the errors are
not very high).
• Under these assumptions, there are no losses in the

system (no resistance); active power solution can be
obtained without solving simultaneously for reactive
power.

DC Power Flow Model (cont.)
• For DC model, only active power injections and

withdrawals are given. The result of calculation is just
voltage phase angles.
• This is a system of linear equations and can be solved
very quickly without iterations.
• Very often this model is used for rough estimates of the
system conditions and calculating multitude of different
cases in a very short period of time.

Questions

Contingency Analysis
• Contingency model
• Limiting elements
• Thermal limits
• Stability limits
• Contingency analysis

Contingency Analysis (cont.)
• Contingency Analysis is a process of identifying the

consequences of potential component outages
(contingencies) in the system.
• Contingency could be a line, transformer, breaker,
generator, etc. outage or their combination.
• Each contingency is described by the set of outaged
components.

• The main goal of contingency analysis is to determine

conditions violating operating limits.
• These limits include: branch overloads, abnormal
voltages, interfaces, and voltage angle differences.
• Contingency analysis is done both in real time and in a
study mode.

• The components that could be violated are called limiting

(or monitored) elements – they determine the constraints
on system operating conditions.
• Transfer limits could be thermal and stability.
• A thermal limit is determined by the thermal rating of the
limiting element – the maximum amount of power that
can flow through the element without burning it.

Transmission Line Thermal Ratings
Drastic
Short-time Action Level
Long-time Emergency Must reduce loading
Must reduce to LTE within five (5)
Emergency loading minutes
Normal Can operate in this
to LTE within 15
Line Rating range for several minutes
hours
Can operate in Duration changes
this range with season
forever

Stability Limit
• Stability limit is determined by the consequences of

dynamic (transient) processes in the system.
• Example is the stability of the synchronous generators
that forces certain limitations on the power transfer due
to the overload happening as a result of the short circuit
at a substation.
• Stability limits are usually calculated in off-line studies
that requires significant amount of time.
• There are new tools that may be used in the near future
to calculate stability limits in real time.

• The following steps are performed by most of the

contingency analysis tools:
– Calculate base power flow (state estimator in real time).
– Check all limiting elements for violations
– Screen all the contingencies – this is a process of simulating
each contingency from the given set one by one by DC model-
based quick power flow analysis.
– Check each for potential violations.
– Run all suspicious contingencies through the full AC power flow
analysis.
– Report violations in base case and under contingencies.

Contingency Analysis (branch R-S is open)

Contingency Analysis (branch P-Q is open)

Questions

Sensitivities
• Shift factors
• Loss factors

Sensitivities (cont.)
• Sensitivity is another way of linearization.

• It shows how a power flow variable (flow, voltage, phase
angle, etc.) changes with the change of another value
(injection, flow, etc.).
• Sensitivities are very widely being used in different
industries for real-time control.

Sensitivities (cont.)
• The most-used sensitivities in electric network analysis

are power transfer distribution factors (PTDF) and loss
factors (LF).
• This is a fundamental security analysis tool. It can
answer the questions:
– How will solution change for variations in inputs?
– How must inputs be changed to control the output?

Power Flow and Linear Analysis
Inputs Outputs Answers
Questions
• How do the voltages change with increased load?

• How will branch flows change with the requested transfer?
• Which generators affect the limiting element?
• How will system losses change with the requested transfer?

Power Transfer Distribution Factors
• PTDF determines a change in the power flow at each line

when one (1) MW is transferred from one bus of the
network to another.
• When one MW is transferred from one bus to another, it
affects every single flow in the network!

PTDF’s. Transfer P -> T.

PTDF’s. Transfer P -> S.

Power Transfer Distribution Factors (cont.)
• In addition, depending on location of the two buses, the

transfer causes different losses which are impossible to
predict, so reference bus makes up for losses injecting
additional MWs. That is why it is also called a slack (or
swing) bus.
• This means that PTDFs are dependent on the selection
of the reference bus. However, in the DC model, they
are not dependent on the selection of the reference bus
since there are no losses in DC network.

PTDF
ΔPmn
Δπij
n
Δπmn
α k
ij ΔPij
j
ΔPk
Line k
i
ΔPij α k
mn
m
ΔPmn ■
AC PTDF with Slack Bus at S

AC PTDF with Slack Bus at Q

AC PTDF with Slack Bus at P

Shift Factors
• Shift Factors (SF) are the PTDFs when one of the points
is always a reference bus. In other words, shift factor is
the sensitivity of the line flows to the change in injections
at the buses.
• SF shows how the flow in the branch will change if the
injection at the bus changes by one (1) MW.
• Because the reference bus always makes up for the
change in the injection (to keep balance), shift factor
values are dependent on the location of the reference
bus. This is true even for the DC model.
• By definition, the shift factor at the reference bus equals
to zero (0).

Shift Factors
Xi MW Xm MW
Sik S mk
ΔPk
Line k
i
1 MW
m ■
1 MW
Shift Factors (cont.)

Linearization of the Line Flow
• Shift factors can be used to linearize flow in the line as a

function of bus injections
• The shift factor will reflect the change of the line flow due
to change in the injection
• In a linear model (DC model) we can use superposition
to take into account the change in the line flow due to
change in the injection at all buses

Linearization of the Line Flow (cont.)
• Assuming the injection change at node i being ΔPi the

change in the line l flow would be:
N
ΔPl = ∑ Sli ΔPi
1
• This linear form of the line flow will be used later in the
Economic Dispatch formulation
• The constraints must be linear in order to be able to use
linear programming

Loss Factors
• Loss factor (LF) is the sensitivity of system losses to a

change in the injection at the bus. In other words, a loss
factor at the bus shows how system losses will change if
the injection at the bus is changed by one (1) MW.
• Because the reference bus always makes up for this
additional MW, the values of the loss factors are
dependent on the selection of the reference bus.
• Loss factors are often used in linear analysis to estimate
the effect of different transfers or transactions on system
losses.
• By definition, the loss factor at the reference bus equals
to zero (0).

Loss Factors (cont.)
• The value DFi=1-LFi is called delivery factor.

• The delivery factor shows how much power is going to
reach the reference bus if additional one (1) MW is
injected at the bus i. This means that if one injects
additional MW of power at the bus i, only 1-LFi MW is
going to reach the reference bus, the rest is lost in the
network.
• The inverse of the delivery factor is called loss penalty
factor.

Examples of the Sensitivities
• Shift factor of the line i-j to the bus k SFk=20%.

If we change the injection at k by 10 MW, the flow
on the line i-j will increase by two (2) MW.
• Shift factor of the line i-j to the bus k SFk= -20%.
If we change the injection at k by 10 MW, the flow
on the line i-j will decrease by two (2) MW.
• Loss factors at the bus k LFk=2%. If we change an
injection at the bus k by 10 MW, system losses will
change by 0.2 MW.

Questions

LMP Calculation
• Commercial network model

– Locations
– Node, zone, hub
• Economic dispatch formulation
• Shadow prices
• Location-based marginal price
• LMP components

Commercial Network Model
• Unlike bus/branch network model that is being used in

advanced network applications, the objective of the
commercial network model is to provide pricing locations
for trading.
• Locations provide points in the system where participants
submit offers and bids, markets settle, and LMPs are
calculated.
• Location is not necessarily a physical point in the
electrical network model.

Locations
• Node – corresponds to a physical bus or collection of

buses within the network
• Load zone – aggregation of nodes. Zonal price is the
load-weighted average of the prices of all nodes in the
zone
• Hub – representative selection of nodes to facilitate long
term commercial energy trading. The hub price is a
simple average of LMPs at all hub locations.
• External/proxy node – location that serves as a proxy for
trading between ISO New England (ISO-NE) area and its
neighbors

Network Model Hierarchy
SCADA
One-line
(Nodes)
TP
AC Bus/Branch SE
AC Power Flow
(Buses) (Buses)
Linearization
DC Bus/Branch
(Buses)
SCED
Commercial
(Private p-nodes)
Agregation
Commercial RQM
Settlements
(Locations) (MD/Locations)

NEPOOL Control Area and Pricing Hub
Hub

Characteristics of a Hub
• Prices at the trading hub should move with prices in the

target region.
• There should be very little intra-hub congestion.
• It should not be possible for the hub to be lost from
service or disconnected from the rest of the system.
• Reasonable patterns of congestion should not cause the
hub price to substantially diverge from the prices in the
region.

Location-based Marginal Price (LMP)
• LMP is a cost of optimally supplying an increment of load

at a particular location while satisfying all operational
constraints.
• One can think of the LMP as a change of the total
production cost to deliver additional increment of load to
the location.
• LMPs are usually produced as a result of economic
dispatch.
• LMPs can be calculated looking ahead – ex-ante LMPs,
or after the fact – ex post LMPs. Ex-ante LMPs for
generation locations are also called nodal dispatch rates
(NDR).

Power System Normal Operation Control
• One of the most important power system control

objectives is to keep the balance in the system.
• At any moment, the sum of all generation must meet all
loads, losses and scheduled net interchange.
• There are three processes that achieve this goal under
normal operations: automatic generation control (AGC),
load following, and optimal/economic dispatch.

Load Following vs. AGC
Load
Load
Following
AGC
Time

Balancing the System
• AGC is a fully automatic system that responds to

comparatively small fluctuations of the load. Cycle – 4 sec.
• Load following is the look ahead process of making sure that
the ISO has enough capacity online to meet the load. Due to
characteristics of the units, they cannot instantaneously
respond to the ISO instructions – they are limited by their
response rates. If the load grows too fast, the operator may
not have enough time to follow the load, so some units have to
be started/committed in advance enough to be able to provide
needed dispatch range. This process is also called resource
adequacy analysis (RAA) in the ISO-NE.
• Response rate is the maximum speed at which the unit can
move. It is measured in MW/min.

Economic Dispatch
• It is the least expensive way of supplying load in the

system.
• Dispatching generators means changing their output to
keep the system in balance.
• Economic dispatch is part of the load following control
and is being run every five (5) min in ISO-NE to
re-optimize the generation to meet load at minimum cost.
• The result of the dispatch is unit output levels – desired
dispatch points (DDP) in MW and LMPs at each
generator node – nodal dispatch rates.

Economic Dispatch Formulation
• As any optimization problem, economic dispatch is

formulated by specifying objective function and a set of
constraints.
• In case of economic dispatch, the objective function is
the total cost of producing electricity that has to be
minimized.
• Each unit submits offer that specifies the incremental
cost of producing energy.

Economic Dispatch Formulation (cont.)
• In general, this problem is non-linear and has to be

solved by using OPF – optimal power flow algorithm, but
OPF software is not robust and quick enough to be used
in real-time processes, so linearized version, utilizing
linear programming (LP) technique, is used.

N
Min ∑ Ci ⋅ Pgi , Objective function – total cost
i =1
S .T .
N L
∑P − ∑P
i =1
gi
j =1
lj − Loss = 0, System Balance
∑ ki gi k , k = 1, 2,..., K , Transmission Constraints

S
1
⋅ P ≤ T max
Pgimin ≤ Pgi ≤ Pgimax , i = 1, 2,..., N , Capacity Constraints
Where S ki is a shift factor of branch k to the generator i,

Ci is an incremental price of of energy at the generator i.

• Unlike other constraints, the first constraint is an equality.

It means that the balance in the system must be
maintained at all times.
• Any optimal solution must satisfy this condition.
• All other constraints are limits on branch or interface
flows that reflect reliability criteria in the system.
• This is the simplest form of presenting the formulation –
in real life it looks significantly more complicated.

Economic Dispatch Solution
• As a result of solving LP, the dispatch algorithm

determines desired dispatch points for every
dispatchable generator.
• These values are called primal variables. The prices are
obtained using dual variables – shadow prices.
• Each constraint has a corresponding shadow price, even
the system balance one.
• Each shadow price reflects the effect of relaxing
corresponding constraint by one (1) unit on the value of
the objective function, which means the change of total
cost.
Economic Dispatch Solution (cont.)
• The shadow price λ of the system balance constraint is

one for the whole system (only one system balance
equation).
• Each transmission constraint k has its own shadow price
μk.
• Some constraints may be binding.
• Binding constraint is the constraint that turns into equality
for the optimal solution. For example, a particular branch
has to be operated at its limit.

• The shadow price of the binding constraint is non-zero,

while the shadow price of the constraint that does not
bind is zero (0).
• The system balance constraint always binds, so its
shadow price is never zero. This means that there is
always a price to support system balance.
• If there are no binding transmission constraints, there is
no congestion in the system.

P1 [MW] Load: P1+P2 = 250 MW
Non-binding
@$5/MWh Constraint Cost: 5*P1+10*P2
250
Binding
$1600 Constraint
P1 ≤ 180
180
$1675
150 $1750
P2 ≤ 200
P1 + P2 = 250
P2 [MW]
0 70 100 250 @$10/MWh


Optimal Solution with Non-Binding Constraint

One of the Constraints Binds

Optimal Solution with Binding Constraint
Binding
Constraint

Binding Constraint

Binding Constraint – Mechanical Analogy
Non binding constraint Binding constraint

Economic Dispatch – Two Unit Example
1 Transfer Limit = 150 MW 2 P2

P2max = 250 MW
C1 = $10/MWh
SF2 = 0
P12
P1
PL
P1 max
= 250 MW
C1 = $5/MWh
SF1 = 1
TotalCost : C1 * P1 + C2 * P2 = 5* P1 + 10* P2 − min

s.t.
P1 + P2 = PL - System Balance
1* P1 + 0 * P2 = P1 ≤ 150 MW - Generic Constraint
P1 ≤ 250 , P2 ≤ 250 - Capacity Constraints

(cont.)
P1 P1 ≤ 250
250
Total Cost = 5 * 200 = $1000
200
P1 ≤ 150
Total Cost =
5 * 150 + 10 * 50 = $1250
150
100
P2 ≤ 250
50
0
P2
50 250
(cont.)
5 $ /M W h 1 0 $ /M W h
P 2= 5 0 M W
150 M W
200 M W
P 1= 1 5 0 M W
Total Cost: (5 * 150) + (10 * 50) = $1250
• Let Transfer Limit increase by 1 MW. We can load Gen 1 up

to 151 MW. We will need only 49 MW from Gen 2. Total Cost
in this case will be (5 * 151) + (10 * 49) = $1245.
• The change in cost μ = $1245 - $1250 = -$5 is a shadow price
of the transmission constraint.

LMP Calculation
• LMP at any location is calculated based on the shadow

prices out of LP solution.
• The following fundamental formula is used to calculate
LMPs. For any node i:
K
λi = λ − LFi ⋅ λ + ∑ Sik ⋅ μk ,
k =1
where λ is a shadow price of the system balance constraint.

LMP Calculation (cont.)
• While dispatched, all units will end up in one of three

groups:
– At the maximum limit
– At the minimum limit
– Between minimum and maximum
• The maximum and minimum can be ramp rate
constrained limit, regulation limit, etc.
• The third group of units is called Marginal Units – these
are the units that determine LMPs at ALL locations.

LMP Calculation – Fundamental
Properties
• The price at the location of each marginal unit is always
equal to its offer price.
• n+1 Rule: for n binding constraints, there is at least n+1
marginal units. This does not include equality constraint.
• In the case of no congestion, there is only one marginal
unit.

LMP Calculation – Fundamental
Properties (cont.)
• Any increment of load at a particular location will be
delivered from the marginal units.
• An LMP at any location will be a linear combination of the
LMPs (offer prices) at marginal locations.
• If there is no congestion (all μk equal to zero) and no
losses, the LMP will be the same at each location.
• LMPs at some locations can be higher than the highest
offer price.
• Opening a branch can lower LMPs.
• LMP can be negative at some locations.

Base Case

The Price Can be Higher than the Highest Bid

The Difference Case

Prices Before Opening the Line

After Opening the Line

The Difference

LMP Components
Losses
Energy
Congestion
Each LMP can be split into three components.

LMP Components (cont.)
K
λi = λ − LFi ⋅ λ + ∑ Sik ⋅ μk ,
k =1
Congestion Component
Loss Component
Energy Component
• The energy component is the same for all locations and

equals to the system balance shadow price.
• Congestion components equal zero for all locations if there
are no binding constraints – all μk=0.
• The loss component is the marginal cost of additional losses
caused by supplying an increment of load at the location.

LMP Components (cont.)
• At the reference bus, loss factor LFref = 0 and all shift

factors Srefk = 0.
• This means that both loss and congestion components
are always zero at the reference bus.
• As the result, the price at the reference bus always
equals to the energy component: λref=λ.

LMP and the Reference Bus
• LMPs will not change if we move the reference bus from

one location to another.
• However, all three components are dependent on the
selection of the reference bus (due to the dependency of
the sensitivities on the location of the reference bus).

LMP Components
• The dependency of components on the selection of the

reference bus proves that the value of each component
by itself does not mean much – only the differences have
a meaning and are not dependent on the selection of the
reference bus.
• The only reason we need LMP components is the need
to use them for FTRs and split congestion cost from
energy.

Two Unit Example – LMP Components
λ1c = − $5 / M W h λ 2c = $0 / M W h λ = $10 / MWh
λ1 = $5 / M W h λ 2 = $10 / M W h
μ = − $5
100 M W
150 M W Ref SF2 = 0
150 M W
SF1 = 1 250 M W
λ 2 = λ + λ 2c = 10 + 0 ⋅ ( − 5) = $10 / M W h
λ1 = λ + λ1c = 10 + 1 ⋅ ( − 5) = $5 / M W h
λ1c = $0 / M W h λ 2c = $5 / M Wh
λ1 = $5 / M W h λ 2 = $10 / M W h
λ = $5 / MWh
μ = − $5
100 M W
SF2 = − 1
Ref
150 M W
150 M W
SF1 = 0 250 M W
λ 2 = λ + λ 2c = 5 + ( − 1) ⋅ ( − 5) = $10 / M W h
λ1 = λ + λ1c = 5 + 0 ⋅ ( − 5) = $5 / M W h
LMP Components
K
λi = λ (1 − LFi ) + ∑ Sik ⋅ μk ,
k =1
Congestion Component
Delivered Energy
Component
• Grouping energy and loss components together can be

considered as one component – delivered energy component.
• This component is the marginal price of delivering an
increment of load from the reference bus.
• In fact, the settlement process never needs energy and loss
components separately.

LMP Components – Settlement
System wide, generators are being paid:

− ∑ λi ⋅Pi = − ∑ ( λ − LFi ⋅ λ + ∑ Sik ⋅ μk ) ⋅ Pi .
i i k
System wide, loads pay:

∑ λ ⋅ L = ∑ (λ − LF ⋅ λ + ∑ S
i
i i
i
i
k
ik ⋅ μk ) ⋅ Li .
Total revenue:
−λ ⋅ ∑ ( Pi − Li ) + λ ∑ LFi ⋅ ( Pi − Li ) − ∑ μk ∑ (Pi − Li ) ⋅ Sik =
i i k i
= −λ ⋅ Loss + λ ⋅ Lossm arg − ∑ μk Tkmax .

k

LMP Components – Settlement (cont.)
Loss revenue:
Loss Re v = λ ⋅ ( Lossm arg − Loss ).
Congestion revenue:
Cong Re v = − ∑ μ T k k
max
.
k
Loss is a value based on the Revenue Quality Metering.

LMP Components – Settlement (cont.)
• Both Loss and Congestion revenue depends on the

selection of the reference bus. When moving the
reference, total revenue stays the same, however the
split into congestion and loss fund changes. ■
• This requires correct and consistent modeling of losses
in the system.
• Under this condition, the dispatch and, therefore, μk will
be the same.
• This also means that no matter where you are located,
both payment and credit will stay the same.

Revenue with the Slack at Bus T

Revenue with the Slack at Bus P

Revenue with the Slack at Bus S

Transmission Losses
U1 U2
PG PL
R
PG
PG = PL+ Loss
PL
• Transmission losses cause the power flow in the beginning of

a transmission line to be different than the flow at the end.
• This is due to the dissipation of energy in the wires.
• In order to supply energy to the load, the generator has to
supply more to cover load and transmission losses.
Transmission Losses (cont.)
• Based on the Ohm’s law, the losses in the line A-B, π,

are approximately proportional to the square of the power
flow through the line:
π AB ≈ a ⋅ P , 2
AB
where a is a coefficient that depends on the

voltage and resistance of the transmission
line.

Transmission Losses – Two Bus Example
1 2
110 M W 100 M W
100 M W
110 M W
• Let a = .001. Then the losses in the line 1-2 will be

0.001 x 1002 = 10 MW.
• Generator has to generate 110 MW in order to supply
100 MW of load.
• 10 MW are physical system losses.

Average Losses
• Average losses can be defined as the amount of losses

per MW of transfer (power flow in the line):
π av
AB = π AB / PAB = a ⋅ PAB.
• For the above example, average losses will be
0.001 x 100 = 0.1 MW.
• This means that every MW of load will cause an average
0.1 MW of losses.

Marginal Losses
• Marginal losses are the rate system losses change

with the change of flow. This is being expressed as
a derivative:
∂π AB
π m
= = 2a ⋅ PAB .
∂PAB
AB
• For the two bus example:

π = 2 x 0.001 x 100 = 0.2

Average vs. Marginal Losses
• Comparing average and marginal losses, one can see

that marginal losses are about twice as much as
average.
• These two quantities describe different properties of the
system: marginal effect on losses of increasing
transmission loading vs. average amount of losses per
MW of flow.
• Note that both average and marginal losses are
dependent on the state of the system – flow in the
line A-B.

Two Bus Example – Economic Dispatch
Transfer Limit = 150 MW P2max = 250 MW

1 2 C1 = $30/MWh
100 MW 0 MW
110 MW
100 MW
max
P1 = 250 MW
C1 = $20/MWh
• This example is very easy to optimize.

• Since the flow in the line 1-2 is not higher than the transfer
limit, all load can be supplied by the least expensive
generator, so the system will be dispatched as shown above:
generator 1 will be loaded up to 110 MW (supplying load and
losses), and generator 2 will stay at zero.
• Total cost of production: 110 x 20 = $2200
Two Bus Example – LMP
• Location-based Marginal Price (LMP) at a location is

defined as a change in the total cost of production due to
increment of load at this location.
• We can figure out the values of the LMPs in the two bus
example by adding one MW of load at each bus and
determining the corresponding change in the total
production cost.

Two Bus Example – LMP at Bus 1
• If one (1) MW of load was added at bus 1, there would be

no need to transfer any additional energy over
transmission line – this one (1) MW can be supplied by
the cheapest generator 1 at the price of $20/MWh.
• Additional cost of producing one (1) MW will be
$20 – total cost will be $2220.
• The change in total cost of production will also be $20, so
the LMP at bus 1 will be $20/MWh.

Two Bus Example – LMP at Bus 2
$20/MWh $24/MWh
Transfer Limit = 150 MW C2 = $30/MWh
1 2
101 MW 0 MW
111.2 MW
101 MW
C1 = $20/MWh
• Let us add 1 MW of load at bus 2.

• The flow in the line will become 101 MW, so the losses will be
0.001 x 1012 = 10.2 MW.
• Generator 1 will have to produce 101 + 10.2 = 111.2 MW.
• Total cost will be 111.2 x 20 = $2224.
• LMP at bus 2 will be equal to the change in total cost: 2224 - 2200 =
$24/MWh.
Two Bus Example – LMP
• As we can see, even in the non-congested case, LMPs

are different at different locations.
• This is due to the marginal effect of losses – an
increment of load at any location causes additional
losses that require more energy to be produced by the
generators.
• Note that we have not mentioned any LMP components
so far.
• Have we used loss factors?
• Have we used marginal loses?
• The market can be settled using calculated LMPs.
Two Bus Example – Settlement
• For the last example, generator will be credited:

20 x 110 = $2200.
• The load will pay 24 x 100 = $2400.
• ISO will be left with $200 surplus.
• The surplus comes from the marginal pricing – this
is inherent to location based marginal pricing.

Marginal Pricing
• Loads implicitly pay for physical losses just due to the

fact that generation is higher than load by the amount of
physical losses, so this is coming out of the surplus.
• The surplus of money has nothing to do with payment for
losses – it is the result of marginal pricing.
• If we accept the principles of marginal pricing, the surplus
is inevitable, both with respect to congestion and losses.

Who Paid Extra Money?
• Looking at the LMPs, it is impossible to tell which part is

payment for marginal losses and which is payment for
energy – LMP is the price of energy at a location.
• As soon as we want to split LMPs into components in
order to separate “energy” and marginal loss money, we
have to arbitrarily define a reference (slack) bus.
• Depending on the location of the reference bus, the
values of “energy” revenue and marginal losses revenue
will change, even though the total will not.

Reference Bus
• Energy component of the LMP is a price of energy at the

reference bus – it is the same for all locations in the
system.
• Moving reference bus from one location to another will
preserve all the LMPs.
• This means that the energy component will change and
marginal loss component will have to change as well to
preserve the value of LMP at each location.
• Loss factors are used to split LMP into energy and
marginal loss components.

Loss Factors
• Loss factor is a sensitivity of system losses to the change

in injection at a location.
• There are as many loss factors as locations in the
network.
• The values of loss factors are dependent on the location
of the slack bus because it is the slack bus that has to
balance the increment of injection by consuming
additional increment of load to keep the system balance.

Loss Factors – Example
LF1=0.167 Transfer Limit = 150 MW LF2=0

1 2
100 MW 0 MW
Ref
110 MW
100 MW
• With the reference bus at bus 2, the loss factors will be 0 at 2, and
0.167 at 1.
• Note that loss factor at the reference bus is always zero – there is no
change in power flow (and, therefore, transmission losses) if we
balance the increment of injection at the same bus.
• The change in injection at bus 1 will cause the increase in the
transmission flow and, therefore, system losses.

Loss Factors – Example (cont.)
LF1=0 Transfer Limit = 150 MW LF2=-0.2

1 2
100 MW 0 MW
Ref
110 MW
100 MW
• With the reference bus at bus 1, the loss factors will be 0 at 1, and –
0.2 at 2.
• The change in injection at bus 2 will decrease the flow in the
transmission line and, therefore, system losses – this is why the
value of the loss factor is negative.
• It can be interpreted this way: if 1 MW of generation is added at bus
2, the system losses will drop by 0.2 MW.

LMP Components
• In the system without congestion, an LMP can be split

into two components: energy component and marginal
loss component.
• As we discussed, the term “energy component” is not
very reflective of the meaning – it is the price of energy at
the reference bus.
LMP at bus i: λi = λ − LFi ⋅ λ = λ + λ . i

L
Loss component at bus i: λ = − LFi ⋅ λ.

i
L

LMP Components – Two Bus Example
1. Reference Bus 2
• Energy component: $24/MWh
• LMP at 2: $24 + $0 = $24/MWh
• LMP at 1: $24 - $0.167 x 24 = $24 - $4 = $20/MWh
Was generator penalized for marginal losses?
2. Reference Bus 1
• Energy component: $20/MWh
• LMP at 2: $20 – (-0.2) x 20 = $20 + $4 = $24/MWh
• LMP at 1: $20 + $0 = $20/MWh
Did load pay for marginal losses?
Note that in both cases load paid the same amount and generator was
credited the same amount.
Pre-SMD, No Congestion
$24/MWh Transfer Limit = 150 MW $24/MWh C = $30/MWh
2
1 2
100 MW 0 MW
110 MW
100 MW
C1 = $20/MWh
• In this case, generator 1’s offer is modified by its bus’ penalty

factor: C’1 = 1.2 x 20 = $24/MWh.
• The optimal solution will be delivering all the load (and
corresponding losses) from generator 1 because its effective
offer ($24/MWh) is lower than $30/MWh of generator 2
(penalty factor at 2 equals 1).
• This will set the ECP to $24/MWh at all locations.

Pre-SMD, No Congestion – Settlement
• G1 is being credited: 110 x 24 = $2640.

• Load pays ECP: 100 x 24 = $2400.
• Load pays for physical losses: 10 x 24 = $240.
• Load is charged: $2400 + $240 = $2640.

SMD, No Congestion
$20/MWh $24/MWh
T ra n s fe r L im it = 1 5 0 M W C 2 = $ 3 0 /M W h
1 2
100 M W 0 MW
110 M W
100 M W
C 1 = $ 2 0 /M W h
• The optimal solution produces prices as shown.

• Generators and the load will be paid or pay their
location’s respective LMPs.
• The difference in the LMPs is due to marginal losses.

SMD, No Congestion – Settlement
• Energy component is $24/MWh.

• Loss component at 1 is -$4/MWh.
• Loss component at 2 is $0/MWh.
• Load is being charged: 100 x 24 = $2400.

Pre-SMD with Congestion
$24/MWh $24/MWh
1 2
100 M W 20 M W
110 M W
120 M W
C 1 = $ 2 0 /M W h
• The load is 120 MW, while the transmission capacity is only 100 MW.
• The optimal dispatch will load G1 to 110 MW (including covering
losses) and G2 – to 20 MW.
• G2 will be constrained for transmission producing 20 MW and is
not allowed to set the ECP.
• G1 will set the ECP at $24/MWh.

Pre-SMD with Congestion – Settlement

• G2 is being credited 20 x 24 = $480.
• G2 is also being credited an uplift for being constrained
for transmission: 20 x 6 = $120, so G2 is credited $600
overall.
• The load is being charged 120 x 24 = $2880.
• The load also pays for physical losses: 10 x 24 = $240.
• Load is also charged for uplift: $120, so, altogether, it is
being charged $3240.

SMD with Congestion
$20/MWh $30/MWh
1 2
100 M W 20 M W
110 M W
120 M W
C 1 = $ 2 0 /M W h
• The binding transmission constraint causes price

separation. Both generators become marginal and set
the prices at their respective locations.
• The price at 1 will be $20/MWh.
• The price at 2 will be $30/MWh.

SMD with Congestion – Settlement

• The load is charged: 120 x 30= $3600.

SMD with Congestion – LMP Components
• Let us assume that the reference bus is at 2.

• Then the energy component of the price will be equal to
the price at 2: $30/MWh.
• The loss and congestion components are both equal to
zero at this location.
• The loss component at bus 1 will be:
-0.167 x 30 = -$5/MWh.
• Then the congestion component will be:
20 + 5 – 30 = -$5/MWh.
• So the price at 1 can be decomposed as follows:
$20/MWh = $30/MWh - $5/MWh - $5/MWh.

SMD with Congestion – Settlement
with FTR
• Let us assume that the load at 2 bought 100 MW FTR
between 1 and 2 at the auction.
• Let us also assume that the load paid $1.40/MW, so it
spent $140 at the FTR auction.
• Then the load will be credited an FTR payment
100 x [0-(-5)]= $500.
• So, overall, the load will pay:
$3600 - $500 + $140 = $3240.
• This is the same amount it would pay pre-SMD.

SMD vs. Pre-SMD
No Congestion Congestion
Pre-SMD SMD Pre-SMD SMD
Gen 1 -2640 -2200 -2640 -2200
Gen 2 0 0 -600 -600
Total Gen -2640 -2200 -3240 -2800
Load (w/FTR) 2640 2400 3240 3640(3240)
Total 0 200 0 840(440)

Modeling Losses in the Lossless System
• LP methodology uses DC network model to calculate

LMPs.
• In the DC model, there are no losses in the transmission
lines, but sum of all generation is greater than sum of all
loads by the amount of losses.
• This brings up an issue: if there are no losses in the
network, where to put losses to keep the balance?

Losses in the DC Model
• In a traditional approach, slack bus always makes up for

losses, which means that all system losses are
withdrawn at one bus.
• This may significantly distort the power flow in the
network and, as a result, change LMPs.
• The slack bus that has been selected as a reference for
shift factors determines the location of the losses in the
network.

Two Bus LP Formulation
1 Transfer Limit = 150 MW 2 P2

$10/MWh
P12
P1
L2=250MW
$5/MWh L1=50MW
LP1:
Min 5 P1 + 10 P2
S.T.
P1 + P2 − L1 − L2 − Loss = 0;
Loss = lf1 ( P1 − L1 ) + lf 2 ( P2 − L2 );
sf1 ( P1 − L1 ) + sf 2 ( P2 − L2 ) ≤ 150.

Two Bus LP Formulation with
Distributed Losses
LP2:
Min 5 P1 + 10 P2
S.T.
P1 + P2 − L1 − L2 − Loss = 0;
Loss = lf1 ( P1 − L1 ) + lf 2 ( P2 − L2 );
sf1 ( P1 − L1 − d1 ⋅ Loss ) + sf 2 ( P2 − L2 − d 2 ⋅ Loss ) ≤ 150.

Distributed Slack
• The reference for shift and loss factors does not have to
be located at a particular physical bus.
• If we select a distributed slack, we assign participating
factors for each bus to cover imbalance in the system.

Distributed Slack – Example
Sik
1-x
x
ΔPk
Line k
i
1 MW

Distributed Slack – Example (cont.)
• Let us use distributed bus with the load-weighted

participating factors.
• Let us distribute losses among all load buses as well.

Distributed Slack
Loss distribution factors:

50 1
d1 = = ;
50 + 250 6
250 5
d2 = = .
50 + 250 6
To convert loss sensitivities to refer to a distributed slack:

0.2 − (1/ 6 ⋅ 0.2 + 5 / 6 ⋅ 0)
lf1 = = 0.17241;
1 − (1/ 6 ⋅ 0.2 + 5 / 6 ⋅ 0)
0 − (1/ 6 ⋅ 0.2 + 5 / 6 ⋅ 0)
lf 2 = = −0.03448.
1 − (1/ 6 ⋅ 0.2 + 5 / 6 ⋅ 0)

Distributed Slack (cont.)
To convert shift factors to refer to the same
distributed slack:
sf1 = 0 − 1/ 6 ⋅ 0 − 5 / 6 ⋅ ( −1) = 5 / 6;
sf 2 = −1 − 1/ 6 ⋅ 0 − 5 / 6 ⋅ ( −1) = −1/ 6.
The LP2 solution will be:
Case 5 SF @D LF @ D Generation Load LMP LMP_Energy LMP_Loss LMP_Congestion
Bus 1 0.8333 0.1724 205.1724 50 5 9.16666665 -1.580425 -2.586206916
Bus 2 -0.167 -0.034 125.8621 250 10 9.16666665 0.3160667 0.517241383
Loss 31.034
Lambda 9.1667
Tau 9.1667
Mu -3.103

Distributed Slack (cont.)
The results can be presented as follows:
$5/MWh $10/MWh
205MW 1 Transfer Limit = 150 MW 2
126 MW
150 MW
L1=50 MW 5 L2=250 MW
M W
W M
26
$9.17/MWh
Distributed Slack
Loss=31 MW

LMP with Distributed Slack
When distributed slack participating factors are

selected the same as loss distribution factors:
d1 ⋅ λ1 + d 2 ⋅ λ2 = λ.
This means that the energy component will be the
weighted average of all load locational prices.
For the two bus example:

λ = 1/ 6 ⋅ 5 + 5 / 6 ⋅ 10 = $9.1667 / MWh.

5 Bus Model
Sundance
$40/MWh
E D EcoMax=200
Transfer Limit = 240 MW
Brighton
XED=2.97%
400 MW
$20/MWh
EcoMax=600 XAD=3.04%
XEA=0.64%
A
B C
Alta XAB=2.81% XBC=1.08% XCD=2.97%
$14/MWh Park City

EcoMax=110 $15/MWh
EcoMax=100 Solitude
$30/MWh
300 MW 300 MW EcoMax=500

5 Bus Model: Distributed Slack
Alta ParkCity Solitude Sundance Brighton Loss

Ge ne ration 110.00 100.00 348.59 0.00 463.31 21.91
B us B us B us Ne t LM P
B us Name B us No Ge n Load Loss Inje ctio D W Lf@W SF@W LM P LM PE Los s LM PC
A 1.00 210.00 0.00 0.00 210.00 0.00 0.00 0.0588 0.2554 23.07 31.12 -1.83 -6.22
B 2.00 0.00 300.00 6.57 -306.57 0.30 0.30 -0.0002 0.1045 28.58 31.12 0.01 -2.55
C 3.00 348.59 300.00 6.57 42.02 0.30 0.30 -0.0002 0.0464 30.00 31.12 0.01 -1.13
D 4.00 0.00 400.00 8.76 -408.76 0.40 0.40 0.0003 -0.1131 33.87 31.12 -0.01 2.76
E 5.00 463.31 0.00 0.00 463.31 0.00 0.00 0.0698 0.3674 20.00 31.12 -2.17 -8.95
Shadow
LHS RHS Price
Ene rgy
B alance 1021.91 1021.91 31.12
Loss
B alance 21.91 21.91 31.12
Cons traint
ED 240.00 240.00 -24.36
obj 22764.13
Distributed slack with the following weights is selected:

WB=0.3, WC=0.3, WD=0.4
5 Bus Model: Distributed Slack (cont.)
$33.87/MWh
$20/MWh E D Sundance
Transfer Limit = 240 MW
Brighton
0 MW
240 MW
400 MW
463 MW
187 MW W
9M
223 MW
Distributed
$31.12/MWh
Slack
23 MW
W
M
$23.07/MWh A
7M
7
W
$28.58/MWh
B C $30/MWh
246 MW 61 MW 19 MW
Alta
110 MW Park City
100 MW
Solitude
349 MW
300 MW 300 MW
λ = 0.3 ⋅ 28.58 + 0.3 ⋅ 30 + 0.4 ⋅ 33.87 = $31.12 / MWh

Loss Model with Loss Distribution
• With the appropriate and consistent loss distribution, the

selection of the slack bus/market reference is not
important.
• Under this design, with the change of the slack bus,
LMPs do not change. Moreover, the congestion
component and the sum of energy and loss components
stay the same.
• Loss component of the LMP is never used by itself in
settlements. Even for analysis, only differences of
components between locations make sense to look at.

External Transactions
• External transaction (ET) is a purchase by a participant

of energy external to the control area or a sale of energy
by a Participant that is external to the control area in the
day-ahead energy market and/or real-time energy market
or a through transaction scheduled by a non-Participant
in the real-time energy market.
• Each ET is associated with two locations (not necessarily
different).
• ET always uses proxy node as one of the locations.

External Transactions (cont.)
• Types:
– Fixed and Dispatchable
– Up-to congestion (in DAM only)
• Direction:
– Import and export
– Wheel-through (in RTM only)
• ETs imports and exports look to SPD just like generation

or load respectively.

Proxy Node
• Proxy node is a node outside of the control area that

provides a proxy pricing location for the entities willing to
perform trades between different markets or control
areas.
• The proxy node reflects the price of bringing in, moving
energy out or through control area.
• The price at this node only reflects constraints internal to
the control area of the market.

Proxy Node (cont.)
Border
Control Area
External
Pricing
Location
PT
Neigboring
CA
Network
Model

LMP at the Proxy Node
• The LMP at the proxy node is calculated the same way

as any other internal to the market location.
• The only difference is the calculation of the loss
component – losses in the parts of tie lines outside of the
control area must be excluded.
• This is achieved by modifying loss factors at the proxy
nodes so that they do not include the effect of losses in
the neighboring area.

Seams Issues with External Node Pricing
• Scheduling ETs and calculating prices at the proxy bus is

one of the major sources of seams issues.
• While calculating price at external proxy node, SPD does
not take into account offer and bid prices and constraints
in the neighboring markets.
• This produces inconsistent prices across the border.

Seams Issues with External Node Pricing
(cont.)
• The resolution to that seams issue could be:

– Large RTO with a single dispatch, network model, and market
– Coordinated Markets, where LMPs are coordinated
– Super RTO clearing inter-control area transactions
• There are different possible approaches to coordinate

prices – from very simple approximations to a rigorous
decomposition.

Questions

Market System Architecture and Major
Components
• Unit Commitment (UC)
• Simultaneous feasibility test
• Security constrained UC
• Security constrained economic dispatch
• LMP calculator
• State estimator
• Settlements

Major Business Streams in the ISO
Capability Map
Capturing Data Planning Forecasting

Market-Facing
Capabilities
Operating
Scheduling Dispatching Settlement Billing
Auctions
Publishing Monitoring Serving Managing Analyzing

Information Compliance Customers Disputes Markets
Capabilities
Supporting
Managing the Information Managing

Enterprise Technology Change

SMD System Architecture
Market
Assessment
Operations and
Performance
Monitoring
MUI
Settlements Publishing MUI
FTRs Billing
Accounting

Market Operations
MOI
Supply Offers Day Ahead Unit Hour Ahead

and Demand Bids Scheduling Schedules Scheduling
MOI
MOI
Unit Hourly
Schedules Archiving Targets
(Analysis
System)
Resource Real Time

5-min
Adequacy Scheduling
Targets
Assessment & Dispatch
MOI

Operations. Major Components
FTR
Unit Commitment SCUC
SCED
SFT
SCED Real Time
State Estimator RT LMP Calculator

FTR - Financial Transmission
Rights
Network Model SCADA SCED - Securuity Constrained
Economic Dispatch
SFT - Simultaneous Feasibility
Test
EMS SCUC
EMS -
- Security Constrained
Unit Commitment
Energy Management
System

Unit Commitment
• Unit Commitment is the process of optimizing the total

production cost over comparatively long period of time,
for example 24 hours.
• The result of this process is units’ start/stop schedules.
• Unlike economic dispatch, this problem cannot be solved
by one LP solution, even in the linearized form. In
general, UC is a mixed integer programming problem.

Simultaneous Feasibility Test (SFT)
• SFT, in effect, is a contingency analysis process as

described earlier.
• The objective of SFT is to determine violations in all post-
contingency states and produce generic constraints to
feed into economic dispatch or FTR auction.
• Generic constraint is a transmission constraint that is
linearized for the unit outputs using shift factors in post
contingent states.

Security Constrained Unit Commitment
(SCUC)
• SCUC is a combination of UC, economic dispatch and
SFT.
• For each hourly schedule produced by UC, economic
dispatch determines unit dispatch points to meet hourly
load.
• Each set of dispatch points is then tested by SFT for
violations.
• If any violations are found, new generic constraints are
generated and are fed into dispatch or UC.
• This process ensures that the set of schedules produced
by UC satisfies reliability criteria.

Day-Ahead Scheduling and Pricing
SCUC
Supply Offers
Demand Bids
UC
Virtual Offers & Bids
Schedules
Unit Schedules
DA
Daily
LMPs Publishing
Binding Constraints
Generic Constrraints
Outage SPD
Scheduler
Unit Schedules
Constraints
Schedules
External Transaction Schedules
Generic
Hourly
Constraint
Logger
Security
Analysis
External Transactions

Security Constrained Economic Dispatch
(SCED)
• SCED is an economic dispatch combined with the
contingency analysis.
• CA runs periodically finding violations in post- contingent
states.
• If there are any violations, new generic constraints are
generated. Operator can use constraint logger to
activate (make available to the UDS) any constraints.
• SCED is the process used in the UDS software to
produce desired dispatch points and nodal dispatch rates
in real time.
• In the Day-Ahead Market, it is used to produce LMPs.

Real-Time Dispatch
Unit Availability
EMS Reserve & AGC Dispatch DDP DDP
Requirements
NDR ED NDR DE
CD- Unit Data Unit Data
Security
AOL Constraints
SPD
TTCs
5-min Load
VSTLF Forecast NDR
Constraints LMPC LMPs Publishing
UDS
Hourly Targets
Unit Output
from Hour Ahead
SE
Unit Offers

State Estimator
• State estimator (SE) is a component of the energy

management system (EMS) that calculates the current
state of the system based on raw telemetry from SCADA.
• SE is very similar to power flow except it finds the
solution closest to the metered state.
• SE runs every three (3) min and produces bus/branch
model (topology processing) and solves power flow in the
system.

Ex Post LMP Calculation
• The main idea of ex-post LMP calculation is to determine

LMPs that accurately reflect physical operation of the
system.
• The LMP calculation is formulated as an incremental
optimization problem around the operating point.
• Comparatively narrow limits are placed on unit outputs to
keep system in the close neighborhood of the current
state.
• Based on the performance, each unit and external
transaction is evaluated for eligibility to set the price.

Ex Post LMP Calculation (cont.)
• If unit is not following dispatch instructions, it would not

be able to set the price; moreover, it will be paid only for
the amount, no more than 10% over its DDP.
• The resources that are eligible to set the price are called
flexible resources, so if the unit is found inflexible and
was marginal ex-ante, it will not be able to set the price
ex post. This test is impossible under ex-ante approach.
• Active constraints honored by LMP calculator must be
the same constraints that were used by operator to
dispatch the system.

LMP Finalization
• If operator’s actions during dispatch are close to optimal,

the LMP values at each flexible resource location will be
consistent with its current NDR and offer price.
• If the dispatch selected by operator is not close to
optimal, the LMPs will become inconsistent.
• A special consistency check is done during finalization
process to verify that all marginal resources have their
LMP value equal to its offer price.
• If the LMP value is outside of certain tolerance, the error
is reported and the measures are taken to correct the
price.

Settlements and Market Information
Server
In te rn a l
D a ta
E x te rn a l M a rts
O p e ra tio n s
T ra n s a c tio n s
G a te w a y
G a te w a y
Real Time Data

sp ly Of ids
ta
s
rs
In te rn a l
ta
s
Sup tch Da
fer
B
Dem y Offe
Bid
Day Ahead
Da
Su and
W eb
Data
h
and
c
S e rv e r
pa
pl
pp
at
De
Dis
Di
In te rn a l C o n tra c ts
E x te rn a l T ra n s a c tio n s S e ttle m e n ts S e ttl
em en M a rk e t
M e te r R e a d in g D a ta t
In fo rm a tio n
e
o ic S e rv e r
& In v
l
B il D a ta
B illin g
S e ttle m e n ts
Task
In
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E x te rn a l
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M anagem ent
vo
FTP
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W eb
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In
S e rv e r
S e rv e r
P rin t G e n e ra l
In v o ic e s Ledger
MUI

Questions


Power System & LMP Fundamentals: Eugene Litvinov, Director Business Architecture & Technology Department

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Power System & LMP Fundamentals

Eugene Litvinov, Director

• Electrical Network and Its Model

Power System & LMP Fundamentals – WEM 301 2

• One-line diagram and bus/branch model

Power System & LMP Fundamentals – WEM 301 3

Power System & LMP Fundamentals – WEM 301 4

• Device – any electrical device like line, transformer,

Power System & LMP Fundamentals – WEM 301 5

Power System & LMP Fundamentals – WEM 301 6

Power System & LMP Fundamentals – WEM 301 7

• Interface can be between two control areas

P o s itiv e D ire c tio n

Power System & LMP Fundamentals – WEM 301 8

Power System & LMP Fundamentals – WEM 301 9

Power System & LMP Fundamentals – WEM 301 10

• All flows into the bus

100 + 80 + 75 + 350 - 35 - 55 - 515 = 0

Power System & LMP Fundamentals – WEM 301 11

Power System & LMP Fundamentals – WEM 301 12

Power System & LMP Fundamentals – WEM 301 13

• Given: injections and withdrawals at every bus, branch

Power System & LMP Fundamentals – WEM 301 14

Power System & LMP Fundamentals – WEM 301 15

• This means that we can arbitrarily choose voltage at one

Power System & LMP Fundamentals – WEM 301 17

• The model described above is a direct current (DC)

Power System & LMP Fundamentals – WEM 301 18

• In addition to resistance R, each branch has reactance X.

Power System & LMP Fundamentals – WEM 301 19

U '+ jU " → U ∠δ U"

δ - Voltage phase angle. U

Power System & LMP Fundamentals – WEM 301 20

• Losses in any branch also depend only on the difference

Power System & LMP Fundamentals – WEM 301 21

• We introduced the concept of the angle reference bus as

Power System & LMP Fundamentals – WEM 301 22

• That location is called a slack or swing bus.

Power System & LMP Fundamentals – WEM 301 23

Power System & LMP Fundamentals – WEM 301 24

Power System & LMP Fundamentals – WEM 301 25

• When slack bus location changes, all the flows change

Power System & LMP Fundamentals – WEM 301 26

• Power flow equations are highly non-linear.

Power System & LMP Fundamentals – WEM 301 27

• DC model is based on the linearization of the power flow

Power System & LMP Fundamentals – WEM 301 28

Power System & LMP Fundamentals – WEM 301 29

• The following assumptions are made for DC idealization:

• Under these assumptions, there are no losses in the

Power System & LMP Fundamentals – WEM 301 30

• For DC model, only active power injections and

Power System & LMP Fundamentals – WEM 301 31

Power System & LMP Fundamentals – WEM 301 32

Power System & LMP Fundamentals – WEM 301 33

• Contingency Analysis is a process of identifying the

Power System & LMP Fundamentals – WEM 301 34

• The main goal of contingency analysis is to determine

Power System & LMP Fundamentals – WEM 301 35

• The components that could be violated are called limiting

Power System & LMP Fundamentals – WEM 301 36

Power System & LMP Fundamentals – WEM 301 37

• Stability limit is determined by the consequences of