CONGESTION IN THE ISO-NE ELECTRICITY MARKETS

BY

ANNA BARBARA IHRIG

THESIS
Advisor: Prof. George Gross

Submitted in partial fulfillment of the requirements for the degree of

“Diplom-Wirtschaftsingenieur, Fachrichtung Elektrotechnik”
of Darmstadt University of Technology, Germany

University of Illinois at Urbana-Champaign, 2002

i
 FOREWORD

This technical report is a reprint of the thesis written by Anna Barbara Ihrig as the

“technische Studienarbeit”, a partial fulfillment of the requirements for the degree of

“Diplom-Wirtschaftsingenieur, technische Fachrichtung Elektrotechnik” at Darmstadt

University of Technology, Germany.

G. Gross

Thesis Advisor

June 2002

ii
 ACKNOWLEDGEMENTS

I would like to first thank my thesis advisor, Professor George Gross, for his

knowledge and helpful guidance during my studies. Doing research with him was an

invaluable experience.

I would also like to thank all my friends at the University of Illinois for their support,

especially Mary and my fellow students in the Power Group. Finally, I would like to

thank my family and Niels for constantly encouraging me and being there when I needed

them.

iii
 ABSTRACT

The restructuring of the electricity industry in the U.S. has made the problem of

transmission congestion increasingly significant. It frustrates the smooth functioning of

competitive markets and typically high costs are associated with it, which have to be

eventually borne by the consumers. This thesis aims to investigate the impacts of

congestion on the electricity markets in one of the major power systems of the northeast,

the New England system. We give a brief review of the structure of the New England

system and the entity in charge of operation and control, the ISO-NE. We describe how

the ISO-NE administers the energy market and manages congestion. A general definition

of congestion is provided and the congestion metrics and market power mitigation

procedures used in New England are discussed. The main effort lies in the analysis of

congestion data over a 26-month period. Congestion quantities and costs are analyzed in

detail and examined for discernible monthly and hourly patterns. A high volatility is

found in both metrics and no distinct seasonal or hourly patterns can be detected. The

geographic characteristics of the New England transmission area are discussed with

respect to the distribution of congestion across the various transmission areas in the

region. Three major congested areas are identified and examined. The role of generation

availability as a factor in causing congestion is analyzed; no significant correlation was

found. In addition, the impacts of the ISO-NE’s market power mitigation on the

congestion costs are also reviewed. The thesis concludes with a set of recommendations

for future work.

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 TABLE OF CONTENTS

1. INTRODUCTION ...................................................................................................... 1

1.1 The problem of congestion ..................................................................................... 1

1.2 Brief review of the previous work .......................................................................... 3

1.3 Scope and contribution of this thesis ...................................................................... 5

2. THE NEW ENGLAND POWER SYSTEM............................................................... 7

2.1 A brief history of the New England markets and the ISO-NE ............................... 7

2.2 The transmission-unconstrained market ............................................................... 10

3. CONGESTION ......................................................................................................... 19

3.1 A workable definition ........................................................................................... 19

3.2 The Congestion Metrics used by the ISO-NE....................................................... 26

3.3 The ISO-NE Market Power Mitigation Procedures.............................................. 29

4. CONGESTION DATA ANALYSIS ........................................................................ 35

4.1 Data Description ................................................................................................... 35

4.2 Analysis of monthly and hourly patterns .............................................................. 36

4.3 The geographic distribution .................................................................................. 67

v
 4.4 Selected transmission regions ............................................................................... 73

4.5 Impacts of market power mitigation ..................................................................... 75

4.6 Impacts of generation availability......................................................................... 78

5. CONCLUDING REMARKS.................................................................................... 84

REFERENCES ................................................................................................................. 88

APPENDIX A................................................................................................................... 91

APPENDIX B ................................................................................................................... 95

APPENDIX C ................................................................................................................... 97

vi
 LIST OF FIGURES

Figure 2.1: The geographic scope of the New England system.......................................... 7

Figure 2.2: Time line of ISO-NE energy market operations ............................................ 11
Figure 2.3: Information flow in the ISO-NE energy market ............................................ 11
Figure 2.4: The supply curve constructed from the offers................................................ 14
Figure 2.5: Determination of the ECP for Example 1 ...................................................... 15
Figure 2.6: Determination of the ECP for Example 2, Set 1 ............................................ 16
Figure 2.7: Determination of the ECP for Example 2, Set 2 ............................................ 17
Figure 3.1: Unconstrained 2-bus system of Example 3a .................................................. 20
Figure 3.2: Constrained 2-bus system of Example 3b ...................................................... 20
Figure 3.3: Unconstrained 5-bus system of Example 4a .................................................. 22
Figure 3.4: Constrained 5-bus system of Example 4b ...................................................... 24
Figure 3.5: The supply curve with out-of-merit-order dispatch incorporating offer E..... 27
Figure 3.6: The supply curve resulting in a lower ECP with transmission constraints
considered ................................................................................................................. 27
Figure 3.7: Example of ISO-NE calculation of congestion costs ..................................... 29
Figure 3.8: ISO-NE market power mitigation procedure ................................................. 34
Figure 4.1: Monthly congestion for May 1999 – June 2001 ............................................ 37
Figure 4.2: The overall upward trend of the monthly congestion for May 1999 -
April 2000 ................................................................................................................. 38
Figure 4.3: The overall downward trend of the monthly congestion for May 2000 –
June 2001 .................................................................................................................. 39
Figure 4.4: Seasonal behavior of monthly congestion for May 1999 – June 2001 .......... 40
Figure 4.5: Daily and monthly average congestion for May 1999 – June 2001............... 41
Figure 4.6: Congestion duration curve for May 1999 – June 2001 .................................. 42
Figure 4.7: Congestion duration curve for March 2000 ................................................... 44
Figure 4.8: Congestion duration curve for April 2000 ..................................................... 44
Figure 4.9: Congestion duration curve for May 2000....................................................... 45
Figure 4.10: Monthly mitigated congestion costs from May 1999 – June 2001 .............. 46

vii
Figure 4.11: Monthly congestion and mitigated congestion costs for May 1999 –
June 2001 .................................................................................................................. 47
Figure 4.12: Daily mitigated congestion costs and the monthly averages for May 1999 –
June 2001 .................................................................................................................. 49
Figure 4.13: Mitigated cost duration curve for May 1999 – June 2001 ........................... 50
Figure 4.14:Mitigated cost duration curve for March 2000.............................................. 51
Figure 4.15: Mitigated cost duration curve for April 2000............................................... 52
Figure 4.16: Mitigated cost duration curve for May 2000................................................ 52
Figure 4.17: Monthly per MWh mitigated costs for May 1999 – June 2001 .................... 54
Figure 4.18: The general upward trend of the monthly per MWh mitigated costs for
May 1999 – April 2000............................................................................................. 54
Figure 4.19: The lack of a definite trend in the monthly mitigated costs per MWh for
May 2000 – June 2001.............................................................................................. 55
Figure 4.20: Seasonal behavior of the monthly per MWh mitigated costs for May 1999 –
June 2001 .................................................................................................................. 56
Figure 4.21: Daily per MWh mitigated costs and monthly averages for May 1999 –
June 2001 .................................................................................................................. 57
Figure 4.22: Per MWh mitigated cost duration curve for May 1999 – June 2001............ 58
Figure 4.23: Per MWh mitigated cost duration curve for May 1999 – April 2000........... 59
Figure 4.24: Per MWh mitigated cost duration curve for May 2000 – June 2001............ 60
Figure 4.25: Average hourly system load for May 1999 .................................................. 61
Figure 4.26: Average hourly congestion for March, April and May 2000 ....................... 62
Figure 4.27: Average hourly congestion for August and November 2000....................... 62
Figure 4.28: Average hourly system ECP and load for May 1999................................... 63
Figure 4.29: Average hourly per MWh mitigated costs and ECP for August 2000.......... 64
Figure 4.30a: Average hourly per MWh mitigated costs and congestion for March 2000 .. 65
Figure 4.30b: Average hourly normalized mitigated congestion costs for March 2000 .. 65
Figure 4.31a: Average hourly per MWh mitigated costs and congestion for April 2000 .. 65
Figure 4.31b: Average hourly normalized mitigated congestion costs for April 2000 .... 65
Figure 4.32a: Average hourly per MWh mitigated costs and congestion for August 2000 .. 66
Figure 4.32b: Average hourly normalized mitigated congestion costs for August 2000 . 66

viii
Figure 4.33: Distribution of congestion in MW within transmission areas....................... 67
Figure 4.34: The contribution of transmission areas to the monthly congestion for
May 1999 – June 2001.............................................................................................. 68
Figure 4.35: Distribution of mitigated costs within transmission areas............................ 70
Figure 4.36: Per MWh mitigated costs and total mitigated costs for each area for
May 1999 – June 2001.............................................................................................. 70
Figure 4.37: The contribution of the transmission areas to the total monthly mitigated
congestion costs for May 1999 – June 2001............................................................. 72
Figure 4.38: Unmitigated and mitigated monthly congestion costs for May 1999 –
June 2001 .................................................................................................................. 76
Figure 4.39: Percentage of reduction of monthly unmitigated costs by mitigation.......... 77
Figure 4.40: Daily outaged capacity for September 1999 – June 2001 ............................ 80
Figure 4.41: Daily congestion versus daily outaged capacity for September 1999 –
June 2001 .................................................................................................................. 83

ix
 LIST OF TABLES

Table 2.1: The New England transmission areas................................................................ 8

Table 2.2: Offer set for Example 1 ................................................................................... 13
Table 2.3: The two offer sets in Example 2 ...................................................................... 16
Table 3.1: Offers and demand quantities for Example 4 .................................................. 22
Table 4.1: Frequency information for congestion over the May 1999 – June 2001
period ........................................................................................................................ 43
Table 4.2: Frequency information for daily mitigated congestion costs over the
May 1999 – June 2001 period................................................................................... 50
Table 4.3: Frequency information for daily per MWh mitigated congestion costs over the
May 1999 – June 2001 period................................................................................... 58
Table 4.4: Number of days with per MWh mitigated costs in certain range over the
May 1999 – June 2001 period................................................................................... 71
Table 4.5: Months with significant correlation between congestion and outages ............ 81

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 1. INTRODUCTION

In this chapter we review the nature of congestion and its impacts on electricity

markets. We discuss the state of the art of the literature in congestion and present a brief

summary of the previous work that was conducted in this field. In the last section, we

outline the objectives, the scope and the contributions of this thesis.

1.1 The problem of congestion

The restructuring of the electricity industry in the US has created a new regime with

many new players. The myriad changes brought huge shifts in the planning, operations

and management of power systems. The introduction of competitive markets did not only

bring benefits, but also made the industry face unprecedented problems. Unlike other

markets, the electricity market has salient characteristics, which make the operation of

competitive markets a major challenge. The lack of major storage capability, the just-in-

time-manufacturing nature of electricity and the central role the transmission and

distribution network plays are some of the principal complexities in electricity.

A problem that is becoming more and more significant nowadays is transmission

congestion. With the increasing number of market participants, the number of desired

transactions between the various players is growing. Each transaction requires energy to

be transferred from a sending point to a point of receipt. The sellers and buyers of energy

rely on the transmission network for the transportation of their goods as sellers and

buyers in other markets rely on trucks or trains. In the days before restructuring, the

1
power grid used to be operated by vertically integrated utilities, who had control over

both generation and transmission facilities. Since the unbundling of generation and

transmission and the advent of more decentralized decision-making, it has become a

challenge to coordinate and operate the system. The current transmission networks were

not originally planned for trading in a competitive market. In addition, one of the key

characteristics of the electricity market is that the good that is traded, energy, will not

necessarily take the direct route from the sender to the receiver, but will travel across the

transmission system according to the laws of physics and is -- especially in a highly

interconnected network -- likely to result in loop flows and affect various parts of the

system. If market participants intend to undertake a high number of transactions to

transfer energy between various points in the network, the realization of all schedules

might lead to violations of one or more limits of the transmission system. This situation is

called transmission congestion. Whenever this is the case, not all of the desired

transactions can be realized. The market players value the transmission of energy

differently and the fact of not being able to realize certain transactions can have severe

impacts and cause high additional costs. Energy that cannot be purchased from the

supplier who offers it at the lowest price because the current state of the transmission

system does not allow the transfer, has to be purchased from an alternative resource at a

higher price. The situation is especially severe if an area with high demand does not

posses sufficient generation and relies on the import of energy from neighboring systems

to serve the network load. In this case, congestion on the tie lines between the two

regions can significantly endanger the ability of the system to meet its demand.

2
 Since the opening of the transmission grid to independent market players, different

power market systems and congestion management schemes have been developed in the

U.S. to administer competitive market operations and at the same time maintain system

reliability at the desired level. After some years of restructuring, operating rules and

procedures are still constantly changing. The main effort lies in providing an effective

market design for the restructured environment. One of the key requirements for the

implementation of competitive markets is an effective management of congestion.

1.2 Brief review of the previous work

Several studies have explored the impacts of congestion and different transmission

and congestion management approaches. The study in [1] discusses three transmission

management models that are implemented today and their impacts on the economics of

the energy market: the optimal power flow model found in the United Kingdom and parts

of the United States, the price area congestion control model used in Norway and Sweden

and the U.S. transaction-based model. The work in [2] reviews different congestion

management schemes and the associated pricing mechanisms in several countries and in

some states of the U.S., and provides a unified framework for the study of various

congestion management schemes implemented in different jurisdictions. Metrics are

developed to assess the efficiency of the various schemes and the effectiveness of the

market signals provided to the market participants. The paper in [3] provides background

on the market structure in California and discusses the role of the California Independent

System Operator as the facilitator of its congestion management process. In [4] the author

3
conducts an analysis of transmission congestion in the PJM market (Pennsylvania, New

Jersey, Maryland, Delaware, D.C., Virginia) and discusses the method of flowgates as a

market-based model to manage congestion.

A key impediment to the functioning of competitive markets is the existence of

market power. The occurrence of congestion can create the potential for certain market

players to exercise market power for their own profit and thereby lower the benefits to

consumers. This is asserted in the study of [5], which finds that transmission capacity

limits have significant effect on outcomes of market gaming and that relieving

transmission congestion can discourage the exercise of market power. The work in [6]

critically discusses the existence of market power in electricity markets and presents a

method to test for the exercise of market power examining optimal generator behavior by

taking price as a given exogenous input. The study in [7] assesses the New England

Electricity Market in comparison with California and PJM in terms of competitiveness.

The study measures market performance by estimating the difference between actual

prices and prices that would result if no market power were exercised. Congestion is

considered as a situation that is conducive to the exercise of market power.

The problem of congestion is recognized in federal circles and has prompted a

number of studies. The Federal Energy Regulatory Commission (FERC) conducted a

study on the various effects of transmission congestion in the U.S. [8]. Major

transmission bottlenecks throughout the country were identified and the costs arising

from congestion assessed. A study conducted for the Department of Energy recently

investigated the transmission system in the U.S. and identified measures to eliminate

transmission bottlenecks [9]. A number of recommendations were provided on the federal

4
role of assessing constraints and encouraging new transmission investment. Supportive

papers discuss, for example, transmission planning and siting, transmission technologies

and alternative business models for transmission investment.

1.3 Scope and contribution of this thesis

In this thesis we study the nature and impacts of congestion in one of the major

northeastern power systems -- the New England system. This system was one of the early

ones in the US to implement restructuring by opening its transmission grid and

harnessing the competition in wholesale electricity markets. Our objectives are to obtain

a better understanding of the congestion in the New England system, to explore the

impacts and ramifications of congestion on the New England markets and to quantify the

effects of mitigation. The scope of our work focuses on the 26-month period of May 1999

to June 2001. We discuss the two metrics for congestion: total energy quantities and the

associated costs. Congestion data are analyzed over the 26-month period and the

identifiable characteristics, including temporal patterns, are explored. We study the

possible causes and explanations for the observed congestion situations. We discuss

regional characteristics of congestion in the New England power system. We analyze the

impacts of market power mitigation on congestion costs in New England. In addition, we

investigate the role of generation availability as a factor in causing congestion.

Our study gives a detailed assessment of the occurrences of congestion in the New

England market and the resulting costs during the 26-month period of study. This can

5
provide a basis and encouragement for further efforts to improve the efficiency of

congestion management schemes.

The thesis has three more chapters. Chapter 2 gives an overview over the background

of the New England markets, the ISO-NE and the functioning of the transmission-

unconstrained market. In Chapter 3, we provide a generic definition of congestion and the

measures for congestion used in New England. We also describe the market power

mitigation procedures applied by the ISO-NE. In Chapter 4, we study the congestion data

in detail to analyze the principal characteristics including the presence of monthly and

daily patterns. We present the findings on the geographic distribution of congestion in the

distinct transmission areas of the New England system and discuss the importance of

three specific areas in detail. We show the impacts of market power mitigation on

congestion costs and investigate the implications of generation availability on the amount

of congestion. The last chapter summarizes the key findings and points out directions for

future work.

6
 2. THE NEW ENGLAND POWER SYSTEM

In this chapter we provide an overview of the New England power system. We briefly

review the characteristics of the region, the organizational structure and the different

markets. In the second section, we explain the functioning of the transmission-

unconstrained energy market and give an example on strategic bidding behavior in which

no transmission constraints are considered.

2.1 A brief history of the New England markets and the ISO-NE

In 1971, the electric utilities in the six New England states Connecticut, Maine,

Massachusetts, New Hampshire, Rhode Island and Vermont formed an association called

NEPOOL or the New England Power Pool, covering an area of 66,672 square miles. The

New Hampshire
Vermont
Maine

Massachusetts
Rhode Island

Connecticut

Figure 2.1: The geographic scope of the New England system

7
objective was to establish a single regional network and centrally dispatch the generating

units of the Pool [10]. NEPOOL operates as a “tight” power pool, in which Pool

members coordinate their planning and the network monitors and directs the operations

of virtually all the generating facilities.

Today the Pool generation system comprises 350 generating units with a total

capacity of 28,500 MW. To meet load requirements, the New England system must

import power from its neighboring systems New York, New Brunswick and Quebec [7].

The 6.5 million customers are served using more than 8,000 miles of transmission lines.

On August 9, 2001, New England experienced its record peak load of 25,038 MW. A

map of the region is shown in Fig. 2.1.

The New England transmission region is split into twelve transmission areas. These
are shown in Table 2.1.

Table 2.1: The New England transmission areas

name of area description

EAST East

WEST West

NORTH North

SOUTH South

VT Vermont

W MASS West Massachusetts

CONN Connecticut

SW CONN Southwestern Connecticut

SEMA/RI Southeast Maine / Rhode Island

MAINE Maine

NEMASS/BOST Northeast Massachusetts / Boston

ME/NH 345 & 115 KV Maine / New Hampshire

8
 On July 1, 1997 the Independent System Operator New England (ISO-NE) was

established as a private, not-for-profit organization by transferring staff and equipment

from NEPOOL. This was done in response to Orders 888 and 889 issued by the Federal

Energy Regulatory Commission (FERC) in 1996 requiring open access to transmission

systems in order to allow a competitive wholesale electricity market. For further

information, a history of the restructuring of US electricity markets is given in Appendix

A.

Since May 1, 1999, the ISO administers, as required by FERC’s Order 888, the

“NEPOOL Open Access Transmission Tariff” [11] according to the “Interim Independent

System Operator Agreement” with NEPOOL [12]. ISO-NE operates and controls the

region’s power grid, provides operational planning services and administers the

wholesale electricity markets. The fact that ISO-NE both controls the transmission grid

and decides about transactions in the market makes it a very powerful entity.

ISO-NE operates the following six markets [13]:

• real-time energy market

• reserve markets:

o ten-minute spinning reserve

o ten-minute non-spinning reserve

o thirty-minute operating reserve

• automatic generation control

• installed capability

The market for operable capability was eliminated in March, 2000.

9
 The ISO-NE is at the moment developing a new market design and planning to join in

the formation of a regional transmission organization (RTO) in the northeast, that would

encompass the New York ISO, the ISO-NE and PJM.

The market for energy in New England is a residual market. Market participants, who

generate power in excess of the demand of their customers, may sell it in the wholesale

market to other participants. Participants, who do not generate sufficient power to serve

the demand of their customers, may buy it in the market. In this way, only the residual

amounts are traded in the market. To give a feeling of the scope of this market, the

percentage of energy traded in this market rose from 16% of the total energy usage in

New England in 1999-2000 to 24% in 2000-2001 [14].

2.2 The transmission-unconstrained market

The New England energy market is a single real-time market operated typically every

five minutes. Other regions as, for instance, the PJM (Pennsylvania, Jersey, Maryland

and Delaware) region and California trade energy in more than one single market. PJM

administers two distinct day-ahead and real-time markets. The time line in Fig. 2.2 is

used to explain the sequence of operations in the energy market performed by the ISO-

NE. Fig. 2.3 shows the information flow in the market. In this section we discuss the

transmission-unconstrained market.

10
 publish forecast
schedule
month
hour 12:00 00:01 24:00 end

generator day-ahead update

offers and scheduling forecast
real-time monthly
bilateral schedule
dispatch settlement
contracts
statement

schedule day up to
day ahead
a month

Figure 2.2: Time line of ISO-NE energy market operations

bilateral
transactions

generator updated system

offers status

ISO-NE

dispatching

real-time dispatch,
energy clearing prices

Figure 2.3: Information flow in the ISO-NE energy market

11
 According to ISO-NE Market Rules and Procedures [13], all generator offers1 and

bilateral transactions information for the next day have to be submitted by the trading

deadline, which is 12 noon. An “offer” is defined as all the information related to price,

quantity, technical parameters and timing of offers to provide special services. An offer

must contain prices for the range of output from 0 MW to a certain upper limit2. The

output may be provided in more than one segment (block), each with its own distinct

price. Since NEPOOL is a mandatory pool, each generator that has an available capacity

of more than 5 MW is required to submit an offer.

After the day-ahead trading deadline, the ISO determines and publishes the forecast

schedule based on its load forecast, reserve requirements, offer and bilateral contracts

information and generator and transmission constraints. Generators must submit

redeclarations of their offers any time an offer variable or parameter changes due to

changing generator status. A redeclaration may contain changes related to the physical

capabilities of a unit, but may not change any prices past the trading deadline. The ISO-

NE performs at least five forecast schedule updates throughout the day based on actual

system conditions and generator redeclarations.

The schedule day is the 24-hour dispatch period starting at midnight. The ISO

reviews the forecast schedule and updated system information hourly during the day.

Dispatch points for generators are typically calculated once every five minutes, taking

1
Note that the ISO-NE in its publications and its web site [10] is incorrectly using the term “bid” for what is in fact a generator’s offer
to supply power at a specified price. In this thesis, wherever the term “bid” is used, it is done in compliance with ISO-NE
terminology; the reader should keep in mind that generators are on the supply-side of the market and they submit offers to sell
their power. In general, we try to use the term offer.
2
The upper limit is the higher of the high operating limit or the claimed capability; the definition of these variables are given in
“NEPOOL Market Rules and Procedures” [13].

12
into account the following system conditions: the NEPOOL Area Control Error (ACE)3,

forecast demand, reserve requirements, offer parameter redeclarations, up-to-the-minute

generator outputs and transmission constraints. Generators must obey the ISO’s dispatch

instructions and are required to immediately notify the ISO if certain requests cannot be

implemented. Hourly energy prices are determined as the average of the real time

marginal prices of the five-minute dispatch intervals.

In the following we give a basic example of how energy prices are determined in the

transmission-unconstrained market. In Example 1 we consider one hour of dispatch. The

offered quantities are given in terms of energy per hour, denoted by MWh/h or, for short,

MW. The set of offers is given in Table 2.2.

To minimize total production costs, we consider lowest price offers first. Dispatching

units in an ascending offer order is called merit order dispatch. In our example, the lowest

offer is A, offering to serve 30 MW at a price of 5 $/MWh. The next higher offer is B over

50 MW at 10 $/MWh, then C over 25 MW at 15 $/MWh, D over 20 MW at 20 $/MWh and

finally E over 55 MW at 30 MWh. Fig. 2.4 shows the aggregated supply curve of offers A

to E.

Table 2.2: Offer set for Example 1

offer quantity price
(MW) ($/MWh)
A 30 5
B 50 10
C 25 15
D 20 20
E 55 30

3
The area control error is “the instantaneous difference between net actual and scheduled interchange, taking into account the effects
of frequency bias including a correction for meter error” [13].

13
 $/MWh

E
55 @ 30
D
C 20 @ 20
B 25 @ 15
A 50 @ 10
30 @ 5
MWh/h

Figure 2.4: The supply curve constructed from the offers

Consider a fixed system load of 100 MW. The least-price dispatch for this load

consists of the dispatch offers A and B and 20 MW of offer C to meet the demand. As

seen from the supply curve in Fig. 2.4, this dispatch corresponds to the merit order

dispatch constructed from the offers. We say that offers A, B and C are dispatched in

merit order.

The market clearing price is determined by the equilibrium point at which supply

equals demand. Therefore suppliers willing to sell at or below this price are able to sell

all of their offered quantity to the bidders who are willing to buy at or above this price.

All quantities bought and sold are priced at the uniform market clearing price. The

corresponding quantity sold and bought is called the market clearing quantity. The

interpretation of the market clearing price is the marginal price of energy in the market.

The ISO-NE defines the energy clearing price (ECP) to be the market clearing price

established with all offers in the merit order. Therefore the ECP is defined as the price of

14
one additional MW4, which may be dispatched in merit order, should the load be

increased by one MW.

In our example offer C is dispatched at 20 MW, but offered to serve 25 MW.

Therefore the next MW of generation would be supplied by offer C, determining the ECP

to be C’s offer price of 15 $/MWh. We illustrate this in Fig. 2.5.

$/MWh

E
55 @ 30
D
C 20 @ 20
ECP 15
B 25 @ 15
A 50 @ 10
30 @ 5
MWh/h
100

Figure 2.5: Determination of the ECP for Example 1

Costs are proprietary information and each generator may freely choose its offer

price. Due to this fact the price for energy is affected by the bidding strategies of the

market participants. In the following we give a basic example of how strategic bidding

behavior can have a significant impact on the energy clearing price. We assume two sets

4
The ECP is the time weighted average of the real-time marginal prices during an hour. “NEPOOL Market Rules and Procedures”
Section 5.3.2 [13] defines the real-time marginal price under “normal system conditions” as the “next least expensive MW that
may be dispatched above the Desired Dispatch Points”. “Under capacity deficiency conditions the Real-time Marginal Price
(RTMP) is the price of the last most expensive MW … Under Excess Generation conditions, the RTMP is the price of the last
least expensive MW …” In this thesis, we assume “normal system conditions” and assume the real-time marginal price to be the
price of an additional MW.

15
of offers for Example 2, Set 1 and Set 2, given in Table 2.3. We display the supply curve

resulting from offer Set 1 in Fig. 2.6, starting with A offering to supply 30 MW at a price

Table 2.3: The two offer sets in Example 2

SET 1 SET 2
quantity price quantity price
offer offer
(MW) ($/MWh) (MW) ($/MWh)
A 30 5 A’ 30 5
B 50 10 B’ 40 10
C 25 15 C’ 25 15
D 10 30 D’ 10 30

of 5 $/MWh, B offering 50 MW at 10 $/MWh, C offering 25 MW at 15 $/MWh and a small

offer D over 10 MW at 30 $/MWh. With a system load of again 100 MW, offers A, B and

C will be considered. We notice that offer D will not be needed to serve the system load.

offers B and D come from the

same company

$/MWh
D
10 @ 30

C
ECP 1 15
B 25 @ 15
A 50 @ 10
30 @ 5
MWh/h
100

Figure 2.6: Determination of the ECP for Example 2, Set 1

16
 Now we assume that offers B and D come from the same company. The offers B and

D may be outputs of two different generating units or two different blocks of the same

unit. In Set 2 we consider the case, where in trying to maximize their profits, the

company engages in strategic bidding, declaring only 40 MW in offer B, instead of 50

MW. This reduction results in the need for an additional 10 MW to serve the system load.

To accomplish this goal, offer D will also be considered. Fig. 2.7 shows the new situation

and the resulting new energy clearing price.

The new energy price being paid to all units dispatched in merit order is the offer

price of the next MW that would be dispatched in merit order, were the load raised by one

MW. D offered to sell 10 MW and is currently dispatched at 5 MW. At an increase of

load, D would supply the next MW. Therefore, offer D determines the energy clearing

price and its value changes to 30 $/MWh.

price of offer
$/MWh D determines
D 30 the energy
ECP 2 clearing price
10 @ 30

C
ECP 1: 15
B 25 @ 15
A 40 @ 10
30 @ 5
MWh/h
100

Figure 2.7: Determination of the ECP for Example 2, Set 2

The strategic bidding behavior of offer B, in which 10 MW of capacity is withheld,

doubles the system-wide price for energy from 15 $/MWh in the base case to 30 $/MWh.

17
 This example is useful in illustrating the great influence a particular offer has on

shaping the ECP. Note that with a small block of generation, offer D can establish the

uniform price paid to all the suppliers.

18
 3. CONGESTION

This chapter provides a workable definition of congestion, which we use to quantify

its impacts. We describe the transmission-constrained market in New England and the

metrics used by the ISO-NE to measure congestion. In addition, the market power

mitigation procedure used by the ISO-NE in connection with the occurrence of

congestion is explained.

3.1 A workable definition

So far we discussed the dispatch of generation and the determination of energy prices

in the transmission-unconstrained market. Due to various considerations with many

primarily of a reliability nature it is not always possible to use the dispatch determined in

the transmission-unconstrained market. In fact, the requirement to explicitly consider

certain constraints leads to the redispatch of generation.

Congestion occurs whenever one or more constraints are violated under which the

system operates in the “normal” state or in any of the contingency cases in a list of

specified contingencies. These constraints can either be physical limits like thermal or

voltage limits or specified limits to ensure system security and reliability [1,2].

We illustrate the basic notions of congestion with respect to the simple 2-bus system

of Fig.3.1 in Example 3a. The system has a seller at bus 1 and a seller at bus 2. A buyer

intending to buy 150 MW is located at bus 2. The seller at bus 1 offers to sell power at a

price of 5 $/MWh and the seller at bus 2 offers power for 10 $/MWh.

19
 no line flow limit

bus 1 bus 2
Seller 1 ~ Seller 2 ~
5 $/MWh 10 $/MWh
150 MW 0 MW Buyer
150 MW

Figure 3.1: Unconstrained 2-bus system of Example 3a

The transactions are determined as in Examples 1 and 2 for the transmission-

unconstrained market (Section 2.2). Seller 2 offers more expensive power than seller 1

and will therefore not be dispatched. Seller 1 sells 150 MW to the buyer at bus 2. Thus the

total costs per hour are $750.

Now, we assume a more realistic situation in Example 3b where we impose a limit on

the power transfer on the line between bus 1 and bus 2. Suppose the limit is 100 MW as

illustrated in Fig. 3.2. The optimal dispatch point to minimize total costs is still the same

as in the previous example: the seller at bus 1 at 150 MW and the seller at bus 2 not

dispatched. But in this case a transaction of 150 MW between the seller at bus 1 and the

buyer at bus 2 is not feasible, since it would result in a line overload of 50 MW.

limit of 100 MW

bus 1 bus 2
Seller 1 ~ Seller 2 ~
5 $/MWh 10 $/MWh
100 MW 50 MW Buyer
150 MW

Figure 3.2: Constrained 2-bus system of Example 3b

20
 To eliminate this overload, we reduce the sale from seller 1 by 50 MW and instead

dispatch the higher priced power of seller 2. With this new dispatch, total costs amount to

$1,000. The additional constraint on the transmission line led to congestion and an

increase in system costs by 33%.

We can basically measure congestion in two different metrics. Congestion is, on the

one hand, the difference in megawatts of the power scheduled to flow on a transmission

line and the actual transfer which is allowed on the line without violating any constraints.

On the other hand, we can determine congestion costs as the difference in the costs for

securing power to serve the system load without having to consider any constraints and

the costs to serve the load without violating existing limits.

In the 2-bus system in Example 3b, congestion in the amount of 50 MW5 occurs,

resulting in congestion costs of $250.

Transactions in a 2-bus system like the one we illustrated in Example 3 are

straightforward. However, real systems are much more complex and require a higher

effort to analyze. To go only one step further from the previous example, we want to

illustrate the case of a power system with five buses, five sellers and three buyers. Fig.

3.3 shows the network for the 5-bus system of Example 4a and Table 3.1 gives the

quantities requested by the buyers and the prices at which the sellers are willing to sell.

We assume a lossless system. The buyer with the highest demand is at bus 5, intending to

buy 450 MW. The seller offering for the highest price, 40 $/MWh, is also located at bus 5.

Seller 4 has the lowest price offer with 5 $/MWh. The following scenarios are simulated

with PowerWorld software using its Economic Dispatch and OPF functions [15].

5
As mentioned in Chapter 2, congestion is measured in units of energy; since we focus on one hour of dispatch, we use MWh/h, or,
for short, MW.

21
 Figure 3.3: Unconstrained 5-bus system of Example 4a

Table 3.1: Offers and demand quantities for Example 4

quantity (MW) seller’s offer

bus
requested by buyer price ($/MWh)
1 - 20
2 100 30
3 300 20
4 - 5
5 450 40

In the first case of Example 4 we consider the transmission-unconstrained system and

again determine the optimal dispatch as in Examples 1 and 2 of Section 2.2. The result is

22
straightforward. Only the generator that offers to sell power for the lowest price will be

dispatched (assuming a high enough output limit). In this case, all transactions will take

place between the buyers and the seller at bus 4. The seller at bus 4 will sell in total 850

MW, resulting in hourly total system costs of $4,250.

The values on the lines in Fig. 3.3 show the respective line loading. To accommodate

the transactions between seller 4 and buyers 3 and 5, the transmission lines connecting

bus 4 with buses 3 and 5 experience a higher power flow than the other lines, carrying

395 MW and 455 MW, respectively, as compared to 5 MW, 32 MW and 64 MW on the

remaining lines.

Next, we consider the line flow limits of 100 MW on each line of the network for

Example 4b. We use the optimal power flow function of the PowerWorld software,

which minimizes total system costs subject to transmission constraints. We expect the

power flow of the system to change, because the flows on two lines in the transmission-

unconstrained solution violated the line limit of 100 MW. The results of the optimal

power flow for the 5-bus system of Example 4b are shown in Fig. 3.4.

The pie charts show the percentage of line flow on each line according to its limit. As

we can see, each line except that between buses 1 and 2 has flows exactly at the limiting

values. The dispatch differs significantly from the transmission-unconstrained case in

Example 4a, since seller 4 cannot be the only one selling its power, but also sellers with

higher offer prices have to be considered.

The new costs per hour are $19,000, which is more than four times those of the case

without transmission constraints.

23
 Figure 3.4: Constrained 5-bus system of Example 4b

We see that the presence of congestion can substantially change the dispatch within

the system, forcing inefficient and expensive units to run. This results in significantly

higher costs of securing the power needed to serve the system demand.

Assume we try to purchase power from one or more sellers with the lowest offer

prices to minimize our total costs of serving the system demand. If sufficient transmission

facilities connecting the sellers with the buyers do not exist, line limits will be violated, if

we keep the intended dispatch. If, on the other hand, there were sellers who offer power

at low prices located close to the buyers, we would not need high transmission capacity to

serve the system demand. Therefore, the problem of congestion lies in insufficient

24
transfer capability of the transmission system. We can see that generation and

transmission are substitutable. Congestion is caused by the simultaneous lack of

sufficient transmission capacity and economical generation.

The problem of controlling operations at the lowest cost so that the system remains

secure (no limits are violated), was present before restructuring. Why is congestion more

significant now in the restructured system? Before restructuring, utilities were vertically

integrated, owning and controlling both generation and transmission [1]. A utility

minimized costs by optimally dispatching generation, knowing all the constraints in the

transmission system. Conflicts between security and economics could be solved by one

decision-making entity. The method used for the solution of the problem is the optimal

power flow tool6. It resulted in a “first-best” solution by maximizing the social surplus or

minimizing the total production costs [2]. In a competitive market, however, where

transmission and generation are unbundled, many market players offer to sell power and

make use of the transmission grid. With a growing number of independent competitors, it

is a challenge for the transmission system operator to maintain system reliability while

minimizing costs. To ensure system reliability without being able to rely on a single

entity with control over all facilities, efficient rules must be established to coordinate the

actions of all market participants.

Congestion management is concerned with approaches for dealing with this problem.

Various schemes have been adopted by the system operators in the U.S. regional systems

and in other jurisdictions [2].

6
An explanation of the optimal power flow method can be found in any standard textbook, e.g. see Wood and Wollenberg [16].

25
3.2 The Congestion Metrics used by the ISO-NE

To understand how ISO-NE measures congestion, we have to first explain the

concept of out-of-merit-order dispatch. We started the explanation with the merit order

dispatch under which the system dispatches generation blocks in the order of ascending

offer prices in Section 2.2. Due to reasons of reliability requirements, it is not always

possible to maintain such dispatch. To avoid any violations of the network constraints

either in the “normal” state or in any of the contingency cases in the list of specified

contingencies, the ISO must redispatch the outputs of units. Since this necessitates the

use of some of the offers of higher priced units to serve load and overcome the limitations

due to network constraints, such an output pattern is termed out-of-merit-order dispatch.

The energy clearing price is the offer price of the generating block that would serve

an additional MWh of energy when merit order dispatch is used. The prices of the

generating blocks that are dispatched out of merit order so as to relieve congestion,

cannot contribute toward the determination of the energy clearing price. All blocks with

offer prices above the ECP are paid the price for which they offered to sell.

We illustrate the effect of out-of-merit-order dispatch in Example 5. Consider the

system of Fig. 2.4 with the same set of offers as in Example 1 in Section 2.2 (Table 2.2).

The difference is that now offer B cannot be considered due to transmission constraints

not allowing B’s power to be transported over the lines connecting it to the load. Assume

we need to dispatch offer E to relieve the congestion and serve the system load. The new

dispatch is shown in Fig. 3.5.

26
 $/MWh
E
55 @ 30

15
C
ECP
20 @ 15
A
30 @ 5
MWh/h
100

Figure 3.5: The supply curve with out-of-merit-order dispatch incorporating offer E

It is important to distinguish between the in-merit status of offer A and C and the out-

of-merit status of offer E. Since E is only dispatched so as to prevent violation of the

power transfer limit, its price cannot be used in the determination of the energy clearing

price. The ECP is still at 15 $/MWh, as it was in the transmission-unconstrained example.

An interesting side effect of the determination of the ECP is that in certain cases the

transmission-constrained ECP may be lower than the unconstrained ECP. In Example 6

illustrated in Fig. 3.6, consider the case that the power transfer limit constrains the ISO to

$/MWh
E
55 @ 30

10
B
ECP
A 25 @ 10
30 @ 5
MWh/h
100
Figure 3.6: The supply curve resulting in a lower ECP with transmission constraints
considered

27
accept only half the block of offer B and no part of C. Then, as before, offer E is

dispatched out of merit order. The transmission-constrained ECP is determined by the

price of offer B to serve an additional MWh of demand using in merit order dispatch. The

ECP is reduced from 15 $/MWh to only 10 $/MWh.

The ISO-NE uses two congestion measures to quantify congestion. We illustrate the

use of the two measures with respect to Example 5 illustrated in Fig. 3.5. One measure of

congestion is the measure of the energy/hour (MWh/h) that must be redispatched from

higher priced blocks so as not to violate transmission constraints. It is customary to

express this quantity in MW rather than MWh/h. The New England system defines

congestion as the amount of energy supplied by the out-of-merit-order blocks used in

order to ensure no violation of transmission constraints. In Example 5 illustrated in Fig.

3.5, there is consequently congestion of 50 MW, which is the dispatched capacity of the

out-of-merit-order block of offer E.

The second measure is congestion costs. These are defined as the costs of the energy

produced by blocks dispatched out of merit order. These costs arise due to the higher

prices for the energy generated by the out-of-merit order blocks; these blocks are paid the

offer prices.

The ISO-NE refers to these costs as congestion uplift costs. The formula for the total

costs is given by

uplift costs = ∑ [(offer priceb - ECP)* κ b ]

b

where κ denotes the capacity of block b used in out-of-merit-order dispatch and the

summation is over all the out-of-merit blocks b in the redispatch [17].

28
 In Example 5, the offer price of the generation dispatched out of merit order is 30

$/MWh and the ECP is 15 $/MWh. With 50 MW of congestion, this results in congestion

costs of $750 (Fig. 3.7).

50 MW
$/MWh offer price : 30
E

congestion costs
C [(30-15)*50] = 750

20 @ 15
A ECP: 15
30 @ 5
MWh/h
100

Figure 3.7: Example of ISO-NE calculation of congestion costs

Section 24 of the “NEPOOL Open Access Transmission Tariff” [11] requires that the

total congestion costs be allocated to all market participants in proportion to their share of

the network load. This socialization of costs is controversial, since all consumers are

billed for congestion, even those who are not located in the congested area.

3.3 The ISO-NE Market Power Mitigation Procedures

The main purpose of restructuring the electricity system into a competitive market is

to increase benefits to consumers. But replacing the regulated rates for electricity by

competitive prices also raises the problem of market power. Definitions of market power

29
can be found in the literature [6,18,19]. The exercise of market power denotes the ability

of a supplier to charge prices above competitive market levels for sustained periods. This

is precisely the opposite of perfect competition where each participant is a price taker. An

entity with market power is a price setter. In general, a high concentration of the

ownership of resources can facilitate the exercise of market power. However, the

transmission network plays a vital role in the functioning of competitive markets. In fact,

it is possible for market participants to exercise market power without a dominant

position of market concentration, but solely because of the occurrence of congestion [20].

If an area is isolated from low priced energy supply due to congestion, local suppliers

may have the potential to exploit this situation for their own benefits. Any exercise of

market power interferes with the competitiveness of markets and can thereby

significantly reduce the benefits to consumers that are the goal of introducing competition

to electricity markets.

Since the beginning of operations in 1999, the ISO-NE practiced market power

mitigation by monitoring the offers of generating units that are necessary to relieve

congestion and may therefore have the potential to exploit this situation and exercise

market power by significantly raising their offer prices. Whenever the ISO-NE assumed

that a supplier exercised market power, the respective generating unit did not receive the

full offer price for its energy, but a reduced price determined by the ISO-NE. These

actions were taken to foster competition by monitoring and, if necessary, modifying any

behavior that is deemed anti-competitive or otherwise interfering with efficient market

operations.

30
 FERC found that the existing market rules allowed the ISO-NE too much discretion

in determining when market mitigation will be imposed and required the ISO-NE to

disclose clear criteria for market power mitigation actions. The ISO-NE then proposed

the Revised Market Rule 17 of “NEPOOL Market Rules and Procedures” [13], which is

in effect since May, 2001. We ignore the mitigation procedures undertaken before this

date and we focus on the Revised Market Rule. It provides the ISO with a clear

framework used for detecting and mitigating the exercise of market power. The two basic

ways of exercising market power are physical and economic withholding. Physical

withholding is the act of falsely declaring resources as unavailable or submitting

operating parameters, which will prevent the block from being dispatched, although

absent such false declarations the block would be dispatched in economic merit order. A

prime example is the scheduling of maintenance: sellers can exercise market power by

strategically planning outages [7]. The ISO-NE has promulgated regulations that require

the sellers to provide certifiable reasons for generation outages and that require that

current and historical data be compared to detect and analyze changes in the resource’s

availability. Economic withholding occurs, if a resource’s offer price is deliberately

raised to such a high level as to effectively remove it from the merit order dispatch.

The interaction of offers with the consideration of transmission constraints also

provides market participants with the opportunity to exercise market power. Consider a

so called load pocket – a region which is connected to inexpensive generation by

transmission lines, but where one or more local generating units are physically required

to serve the load in this area. Since the sellers of the area’s generation know that their

offers are dispatched irrespective of their prices, nothing prevents them from submitting

31
high-priced offers to maximize their profits. Consider again the five-bus example of Fig.

3.4. The seller at bus 5 can raise its offer price to any value, since the transmission

constraints allow a limited amount of power imports and this amount is less than the load

requirements of the bus.

According to the regulation in Market Rule 17 of the “NEPOOL Market Rules and

Procedures” [13] each out-of-merit-order block be subject to two market power screens --

a structural and a price screen. The ISO-NE must first apply a structural screen to

determine if all requirements could have been met without the block in question. If this is

the case, the blocks of alternative resources are identified. The rules require the

identification of three or more independently controlled competing bidders that would

satisfy the transmission constraints. The ISO may raise this number to five bidders, if the

constraint is “reasonably foreseeable”7. This screen therefore ensures that the block has

passed to receive its offer price. If the block is unable to pass this screen, an additional

price screen must be applied by the ISO-NE. This second screen distinguishes between

blocks of resources that are generally dispatched in merit order and those that seldom are

in merit order. In either case the offer price of the block is compared with a screen price,

which is a percentage of a reference price whose level depends on the number of hours

the block was operated out of merit order during the past 90 days. The reference price is

the weighted average of the in-merit offers during the most recent 30 days. If the block’s

offer price lies below the screen price, it may receive its offer price. Otherwise, the offer

price must be replaced by the particular screen price, or under certain cases by a price

negotiated by the offerer and the ISO. The costs resulting from the prices actually paid to

7
“NEPOOL Market Rules and Procedures”, Section 17.3.2.1 c. It is not explained in any greater detail as to under which
circumstances a constraint would be classified as being “reasonably foreseeable”, leaving room for disputes to arise.

32
the out of merit order blocks are the mitigated congestion costs calculated with the

formula given by

uplift costs = ∑ [(offer priceb′ - ECP)* κ b ]

b

where offer price’ denotes the price actually paid to the out of merit order blocks.

Note that we call the costs resulting from the total mitigated uplift costs in one hour

divided by the total amount of congestion in the respective hour the per MWh mitigated

costs of congestion; the formula is given by

∑ [(offer price′ - ECP)* κ

b b ]
uplift costs = b

∑κb
b

During some months the mitigation measures reduced congestion payments after the

fact by 50% of the initial costs. Bushnell and Saravia claim that the competitiveness of

the New England markets was definitely improved by the mitigation procedures of ISO-

NE, as can be found from comparison with other markets with less intense market power

mitigation actions [7].

A summary of the ISO-NE mitigation procedures and screening processes is provided

in Fig. 3.8.

We see that the ISO-NE is aiming at mitigating possible market power by applying

the described mitigation procedure. However, this does not mean, that necessarily each

entity whose offers are mitigated by the ISO-NE has really been engaged in exercising

market power. Likewise there is no guarantee that the ISO-NE screening processes detect

all cases of exercise of market power by market players.

33
 • identify out-of-merit
order blocks
• define the particular
constraint
• identify alternative
blocks

STRUCTURAL
SCREEN TEST no
Could the requirement
have been met without
running the selected
resource?

yes

resource Were there 3 or more

will independently controlled
receive its competing bidders that
offer price yes could satisfy the
requirement?

no

PRICE
SCREEN TEST
Is the offer price of the
resource smaller or equal
yes the screen price?

no

resource receives either

applicable screen price or
price negotiated with
ISO-NE

Figure 3.8: ISO-NE market power mitigation procedure

34
 4. CONGESTION DATA ANALYSIS

In the previous chapters we have described the New England power system and the

key roles of the independent system operator, the ISO-NE. We also discussed the market

operations in the transmission-unconstrained market and the nature and measure of

congestion. We next focus on the study of the congestion data in the New England

system. To start with, we describe the available data that we use in our study. Using the

two metrics discussed in Chapter 3, we quantify the congestion. Our analysis consists of

the detection of monthly and hourly patterns of congestion quantities and costs. We

examine the distribution of congestion across the twelve transmission areas of New

England and the impacts of the ISO-NE’s market power mitigation on the congestion

costs. Our investigation of the relationship between generation availability and

congestion is also discussed.

4.1 Data Description

All the data used in this study are taken from congestion reports published by ISO-NE

[21]. Each report consists of a spreadsheet that provides the following data:

• total MW8 of congestion;

• total, marginal and per MWh congestion costs; and,

• the type of the constraint.

The data are available in daily and hourly forms. Each daily value is the sum of the 24

hourly values and the computation is made for the total congestion and the total

8
The footnote 5 of Chapter 3 applies to all the discussion and plots of congestion in this chapter.

35
congestion costs. In addition, the daily average values of the congestion costs per MWh

are given. The values of the unmitigated costs and the mitigated costs are given. The

information about the type of congestion is very generic and not closer specified and

therefore it does not provide satisfactory details on the reasons of particular congestion

occurrences.

The congestion reports are available for the twelve separate transmission areas of the

New England system presented in Table 2.1. For three of these areas -- MAINE,

NEMASS/BOST and ME/NH -- only daily but no hourly data are reported. All other

areas have both daily and hourly data available. All the data available at the time of this

study from the beginning of the operation of the ISO-NE in May, 1999, to June, 2001,

were analyzed. A sample congestion report can be found in Appendix B.

4.2 Analysis of monthly and hourly patterns

In this section we analyze data on monthly and daily congestion quantities, monthly

and daily mitigated costs and monthly and daily per MWh mitigated congestion costs.

The New England Power System experienced 9.3 million megawatts of accumulated

congestion in the 26 months from the beginning of the restructured markets in May,

1999, until June, 2001.

We used the daily congestion reports to compute the monthly congestion metrics over

the period of the analysis. We give the monthly congestion quantities in MW in the chart

of Fig.4.1.

36
 monthly congestion in 1,000 MW
900
800
700
600
500
400
300
200
100
0
May-99

May-00

May-01
Sep-99

Nov-99

Sep-00

Nov-00
Mar-00

Mar-01
Jul-99

Jan-00

Jul-00

Jan-01
Figure 4.1: Monthly congestion for May 1999 – June 2001

The analysis of the plot allows us to make the following findings:

• the monthly average is 360,000 MW of congestion and the range is from

19,000 MW to 770,000 MW;

• the highest values were attained in March, April and May, 2000 (620,000

MW, 720,000 MW and 770,000 MW, respectively), some lower high values

occurred in December, 1999, June, 2000, August, 2000, and June, 2001

(above 500,000 MW);

• during the first four months of operation (May to August, 1999) monthly

congestion stayed below 100,000 MW, being as low as 19,000 MW in July;

these small values may be indicative of the fact that trading in the new

markets was in its incipient stages and participants still had to become

accustomed to the competitive environment.

37
We analyze the changes in congestion in the 26 months of the observed period in the

graphs in Fig. 4.2 and 4.3. Fig. 4.2 shows the monthly congestion in the first 12 months

from May, 1999, to April, 2000, and Fig. 4.3 shows the values for the following 14

months from May, 2000, to June, 2001.

900
monthly congestion in 1,000 MW

800
700
600
500
400
300
200
100
0
May-99

Aug-99

Sep-99

Nov-99

Feb-00

Mar-00

Apr-00
Jun-99

Jul-99

Jan-00
Dec-99
Oct-99

Figure 4.2: The overall upward trend of the monthly congestion

for May 1999 - April 2000

During the first year of operation the monthly congestion amounts were growing, as

can be seen in Fig. 4.2. Fig. 4.3 shows that during the second year, which started out with

the peak month of the 26-month period (May, 2000), the monthly values were decreasing.

The last two of the observed months, May and June, 2001, experienced an increase in

monthly congestion again, but data for the following months would be necessary to detect

further developments.

38
 900
monthly congestion in 1,000 MW 800
700
600
500
400
300
200
100
0
May-00

May-01
Aug-00

Sep-00

Nov-00
Jul-00

Apr-01
Jun-00

Dec-00

Jan-01

Feb-01

Mar-01

Jun-01
Oct-00

Figure 4.3: The overall downward trend of the monthly congestion

for May 2000 – June 2001

The peak months of congestion occurred in winter, spring and summer. To compare

the seasonal behavior in each year of the 26-month period, we show the MW quantities of

congestion in each month of the observed period in Fig. 4.4.

The winter months December, January and February experienced similar amounts of

congestion in each year. This can be seen from the closeness of the lines showing the

congestion amounts during the different years. The months of spring, March, April and

May, however, show high congestion with more than 600,000 MW each month in 2000,

but relatively lower congestion with less than 400,000 MW in 2001. The summer months

June, July and August also experienced very different amounts of congestion in each

year. In 1999 congestion during the summer was very low, ranging below 100,000 MW.

In 2000, congestion in summer was not especially low with values between 450,000 MW

39
and 560,000 MW each month, but summer was not the peak period of congestion during

that year.

Figure 4.4: Seasonal behavior of monthly congestion for May 1999 – June 2001

900
monthly congestion in 1,000 MW

800
700
600
1999
500
2000
400
2001
300
200
100
0
May

Aug

Sep

Nov
Apr
Jan

Feb

Mar

Jun

Jul

Dec
Oct

From this analysis of the seasonal behavior of the congestion quantities during the

observed 26 months we can find no indication for a concentration of congestion on a

particular season of the year.

Next we examine the daily data. We illustrate the daily congestion amounts together

with the monthly averages in Fig. 4.5.

The study of the daily congestion values leads to the following findings:

• the average daily amount of congestion is 11,770 MW and the range is from 0

MW to 51,799 MW;

• the highest value was attained on June 27, 2001, with 51,799 MW, some lower

high values (each above 30,000 MW) occurred during December 8, 1999,

40
 March 13, April 27 and 28, May 1, 2, 4, 10, 11 and 16, 2000, August 9, 2000

and June 28, 2001;

• during the first four months of operation (May to August, 1999) daily

congestion stayed below 10,000 MW with the exception of May 2, 1999, when

10,871 MW of congestion occurred; three days experienced 0 MW of

congestion; these small values may be indicative of the incipient stages of the

markets as described for the monthly values above.

60
congestion amounts in 1,000 MW

50

40

30

20

10

0
1-May-1999

1-May-2000

1-May-2001
1-Sep-1999

1-Sep-2000
1-Nov-1999

1-Nov-2000
1-Jul-1999

1-Mar-2000

1-Jul-2000

1-Mar-2001
1-Jan-2000

1-Jan-2001

daily total amount monthly average congestion

Figure 4.5: Daily and monthly average congestion for May 1999 – June 2001

41
 In order to examine how the daily congestion quantities account for the monthly

amounts, we analyze the frequency of the daily congestion values for the 26 months of

the studied period and separately for the three highest congested months, March, April

and May, 2000. Such a discussion requires the introduction of a new curve. We define the

congestion duration curve to be the rearranged plot of the congestion amount from the

highest to the lowest value. Such a curve has a nice interpretation in terms of probability

distribution if the ordinate is interpreted as a percentage of the total period under study.

60
daily congestion in 1,000 MW

50

40

30
A

20

10

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 10 0%
percentage of days in the May 1999 - June 2001 period

Figure 4.6: Congestion duration curve for May 1999 – June 2001

For example, we rearrange the daily congestion plotted in Fig. 4.5 as the congestion

duration curve for the 26-month duration, shown in Fig. 4.6. The 100% on the x-axis

means the entire 26-month period. The point A on the curve indicates that daily

congestion was at or above the 20,000 MW level about 15% of the days of the 26-month

period.

42
 The flatness over most of the congestion duration curve indicates a rather limited

variability: for over 80% of the days in the 26-month period the congestion is below

20,000 MW. For the remaining 15% there is a considerable volatility making the

congestion vary between 20,000 and 50,000 MW. In Table 4.1 we divided the daily

congestion quantities into sections of 10,000 MW. We provide the percentage of days that

fall under each section within the given period of time.

Table 4.1: Frequency information for congestion over the May 1999 – June 2001 period

percent of days with congestion

period
below 10,000 between 10,000 between 20,000
above 30,000 MW
MW and 20,000 MW and 30,000 MW

May 1999 – June 2001 48 36 13 3

March 2000 0 58 36 6

April 2000 0 17 70 13

May 2000 6 16 52 26

We also studied the volatility of daily congestion quantities in the three highest

congested months. Fig. 4.7 to 4.9 show the duration curves of the daily congestion

amounts during March, April and May, 2000. For these months, the curves also exhibit

flatness over most of the period: for nearly 70% of the days in May, 2000, and for over

80 % of the days in March and April, 2000, the congestion is between 10,000 and 30,000

MW. We can further explain the high accumulated amounts of congestion during these

months by comparing the frequency of daily congestion values in each month with that

during the entire observed period. While 48% of the days in the time between May, 1999,

43
 60

50
daily congestion in 1,000 MW

40

30

20

10

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in March 2000

Figure 4.7: Congestion duration curve for March 2000

60

50
daily congestion in 1,000 MW

40

30

20

10

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in April 2000

Figure 4.8: Congestion duration curve for April 2000

44
 60

50
daily congestion in 1,000 MW

40

30

20

10

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in May 2000

Figure 4.9: Congestion duration curve for May 2000

to June, 2001, experienced less than 10,000 MW of daily congestion, no day during

March and April, 2000, and only 6% of the days in May, 2000, experienced an equally

low amount of congestion. The percentage of days that had more than 20,000 MW of

daily congestion is substantially higher during the three highly congested months than

during the observed 26 months, as can be seen in Table 4.1. Especially the percentage of

days that experienced daily congestion of more than 30,000 MW is substantially higher in

these months, ranging from 6% in March, 2000, to 26% in May, 2000, as opposed to only

3% in the entire period of study.

We next turn our attention to the study of congestion costs. Total mitigated

congestion costs accumulated to $233 million during the observed 26-month period from

45
May, 1999, to June, 2001. We give the monthly mitigated congestion costs in the chart of

Fig. 4.10.

The analysis of the plot allows us to make the following findings:

• the monthly average is $9 million of mitigated congestion costs and the range is

from $360,000 to $21.9 million;

• the highest values were attained in March, April and May, 2000 ($21.9 million,

$19.8 million and $20.3 million, respectively), some lower high values occurred

in December, 1999, June, 2000, December, 2001, and June, 2001 ($11 to $14

million);
monthly mitigated congestion costs in million $

25

20

15

10

0
May-99

May-00

May-01
Sep-99

Nov-99

Sep-00

Nov-00
Jul-99

Jul-00
Jan-00

Mar-00

Jan-01

Mar-01

Figure 4.10: Monthly mitigated congestion costs from May 1999 – June 2001

• during the first four months of operation (May to August, 1999) monthly

mitigated congestion costs stayed below $1.1 million, being as low as $360,000 in

46
 July; these small values may be indicative of the same fact as described for the

monthly congestion quantities above.

The mitigated congestion costs show roughly the same changes over the studied 26-

month period and seasonal behavior as the amount of congestion in MW that we

investigated in the previous section. This can be seen from Fig. 4.11, which plots monthly

mitigated congestion costs and monthly congestion quantities on the same chart.

The analysis of the mitigated congestion costs allows us to make equivalent findings

as from the analysis of the monthly amounts of congestion.

mitigated costs in million $ per month

monthly congestion in 1,000 MW

25 900
800
20 700
600
15
500
400
10
300
5 200
100
0 0
May-99

May-00

May-01
Sep-99

Nov-99

Mar-00

Sep-00

Nov-00

Mar-01
Jul-99

Jan-00

Jul-00

Jan-01

monthly mitigated costs monthly congestion

Figure 4.11: Monthly congestion and mitigated congestion costs

for May 1999 – June 2001

47
 During the first year of operation the monthly mitigated congestion costs were

growing, then decreasing in the second year. The last two of the observed months

experienced increasing costs, but no assumptions about further development of the costs

can be made from the available data. Note that the month that experienced the highest

mitigated congestion costs is March, 2000, while the month with the highest congestion

quantity is May, 2000. We discuss this observation in the following section on daily

mitigated congestion costs. Similar to the monthly congestion quantities, we can find no

indication for a concentration of high monthly costs on a particular season of the year.

In the next section we examine the daily data. We illustrate the daily mitigated

congestion costs together with the monthly averages for the studied period in Fig. 4.12.

The study of the daily mitigated congestion costs leads to the following findings:

• the average daily mitigated congestion costs are $300,500 and the range is

from $0 to $1.6 million;

• the highest value was attained on March 13, 2000, with $1.6 million, some

lower high values occurred during June 27, 2001 ($1.5 million), February 28,

2000 ($1.4 million) and March 6 to 10 and 14, 2000 (each between $1.0 and

$1.4 million);

• during the first four months of operation (May to August, 1999) daily

mitigated congestion costs stayed below $0.2 million, three days experiencing

$0 of congestion costs; these small values may be indicative of the same fact

as described above.

48
 1.8

1.6
mitigated congestion costs in million $

1.4

1.2

0.8

0.6

0.4

0.2

0
1-May-99

1-May-00

1-May-01
1-Sep-99

1-Nov-99

1-Sep-00

1-Nov-00
1-Jul-99

1-Jul-00
1-Jan-00

1-Mar-00

1-Jan-01

1-Mar-01
mitigated daily costs monthly average

Figure 4.12: Daily mitigated congestion costs and the monthly averages
for May 1999 – June 2001

We similarly introduce the notion of congestion cost duration curves constructed

analogously to the congestion duration curves defined above: With such curves, we can

analyze the frequency of the daily values of congestion costs for the 26 months of the

studied period and separately for the three highest congested months, March, April and

May, 2000. For example, the plot in Fig. 4.13 shows the congestion cost duration curve

for the period from May, 1999 - June, 2001.

We notice a similar flatness over most of the congestion cost duration curve as we did

for the congestion amounts indicating a rather low variability: 74% of the days

49
experienced costs below $0.4 million. The remaining 26%, however, exhibit high

volatility, making the daily congestion costs vary from $0.4 to over $1.6 million.

1.8
daily mitigated congestion costs in million $

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in the May 99 - June 01 period

Figure 4.13: Mitigated cost duration curve for May 1999 – June 2001

Table 4.2: Frequency information for daily mitigated congestion costs over the May 1999
– June 2001 period
percent of days with mitigated congestion costs
period below $0.4 between $0.4 million between $0.8 million above $1.2
million and $0.8 million and $1.2 million million

May 1999 – June 2001 74 21 4 1

March 2000 19 45 19 16

April 2000 0 80 20 0

May 2000 16 45 39 0

50
 In Table 4.2 we divided the daily mitigated congestion costs into sections of $0.4

million. We provide the percentage of days that fall under each section within the given

period of time.

In order to examine how the daily mitigated congestion costs during the peak months

account for the high monthly costs, we constructed the congestion cost duration curves of

the daily mitigated congestion costs for March, April and May, 2000. These are shown in

Fig. 4.14 to 4.16. We can explain the high values of monthly costs by comparing the

frequency of the daily values of the costs in each month with that during the entire

observed period. The numbers for that are also given in Table 4.2. While 74% of the days

during the 26 months from May, 1999, to June, 2001, experienced daily mitigated costs

below $0.4 million, no day in April, 2000, and less than 20% of the days during March

and May, 2000, experienced equally low costs.

1.8
daily mitigated congestion costs in million $

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in March 2000

Figure 4.14:Mitigated cost duration curve for March 2000

51
 1.8

daily mitigated congestion costs in million $ 1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in April 2000

Figure 4.15: Mitigated cost duration curve for April 2000

1.8
daily mitigated congestion costs in million $

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in May 2000

Figure 4.16: Mitigated cost duration curve for May 2000

52
The percentage of days that had more than $0.8 million of daily costs is substantially

higher during the peak months than during the entire observed period. The fact that

March, 2000, experienced the highest monthly mitigated congestion costs, is caused by

the high percentage of days with more than $1.2 million, which was 16% as opposed to

only 1% in the entire period of study.

So far, we have analyzed the monthly and daily data about congestion quantities and

associated costs. The total congestion costs are a function of the amount of congestion

and the per MWh mitigated congestion costs as described in Section 3.3. We next

examine the nature of the monthly and daily per MWh mitigated costs of congestion. We

refer to the per MWh monthly mitigated costs of congestion in Figure 4.17.

The analysis of the plot allows us to make the following findings:

• monthly per MWh mitigated costs of congestion range from 18.68 $/MWh to

37.50 $/MWh;

• the highest values were attained in March, 2000, and January, 2000, with 37.50

$/MWh and 36.00 $/MWh, respectively; some lower values occurred in

November, 1999, December, 2000, January, 2001, and May, 2001 (32.00 $/MWh

to 33.00 $/MWh).

Similar to the monthly congestion quantities and total costs, the monthly per MWh

mitigated costs were growing in the first year of operation, from May, 1999, to April,

2000, as can be seen in Fig. 4.18.

53
 monthly mitigated costs in $/MWh monthly mitigated costs in $/MWh

0
5
10
15
20
25
30
35
40

0
5
10
15
20
25
30
35
40
May-99
May-99
Jul-99
Jun-99
Sep-99
Jul-99
Nov-99
Aug-99
Jan-00
Sep-99
Mar-00

Oct-99

54
May-00

Nov-99
Jul-00

Dec-99

for May 1999 – April 2000

Sep-00

Jan-00 Nov-00

Feb-00 Jan-01

Mar-00 Mar-01
Figure 4.17: Monthly per MWh mitigated costs for May 1999 – June 2001

Apr-00 May-01

Figure 4.18: The general upward trend of the monthly per MWh mitigated costs
 Fig. 4.19 shows, that in the second year monthly per MWh costs did not decrease like

the monthly congestion amounts and total costs did as we have found from our analysis

above.

40
monthly mitigated costs in $/MWh

35

30

25

20

15

10

0
May-00

May-01
Aug-00

Sep-00
Jul-00

Nov-00

Feb-01
Jun-00

Jan-01

Jun-01
Mar-01

Apr-01
Dec-00
Oct-00

Figure 4.19: The lack of a definite trend in the monthly mitigated costs per MWh
for May 2000 – June 2001

The seasonal behavior of the monthly per MWh mitigated costs is slightly more

distinct than of the monthly congestion quantities and total costs. Fig. 4.20 shows the

monthly per MWh costs for each month during the observed 26-month period. We can

see that per MWh mitigated congestion costs were less during the summer months June to

September than during the rest of the year. May, 1999, and November, 2000, experienced

comparably low costs per MWh.

55
 40

monthly mitigated costs in $/MWh

35

30

25
1999
20 2000
2001
15

10

0 May

Aug

Sep

Nov
Apr

Jul
Jan

Feb

Mar

Jun

Dec
Oct
Figure 4.20: Seasonal behavior of the monthly per MWh mitigated costs
for May 1999 – June 2001

We next analyze the daily per MWh mitigated costs. The chart in Fig. 4.21 plots

daily per MWh mitigated congestion costs together with the monthly average values.

The study of the data leads to the following findings:

• the average of the daily per MWh mitigated congestion costs is 25.60 $/MWh and

the range is from 1.49 $/MWh to 92.89 $/MWh

• the highest value was attained on October 16, 1999, with 92.89 $/MWh, some

lower values occurred on July 19, 1999 (85.96 $/MWh), August 17,1999 (85.84

$/MWh) and February 28, 2000 (82.96 $/MWh);

56
 • costs below 10 $/MWh occurred nearly exclusively during the months in 19999.

100

90

80
daily mitigated congestion costs in $/MWh

70

60

50

40

30

20

10

0
1-May-99

1-May-00

1-May-01
1-Mar-00

1-Mar-01
1-Sep-99

1-Nov-99

1-Sep-00

1-Nov-00
1-Jul-99

1-Jan-00

1-Jul-00

1-Jan-01

Figure 4.21: Daily per MWh mitigated costs and monthly averages
for May 1999 – June 2001

The graph in Fig. 4.21 shows a concentration of extraordinarily high daily per MWh

mitigated costs during the first half of the studied period. We analyze this as before with

the help of duration curves of the daily values. We plot the per MWh mitigated cost

duration curve for the entire studied period from May, 1999, to June, 2001, in Fig. 4.22.

9 The only exception is November 16, 2000, with 9.96 $/MWh.

57
 Note that 60.2% of all days in the 26-month period experienced daily per MWh

mitigated congestion costs between 20 $/MWh and 40 $/MWh. Only 9.2% of the days

experienced higher values. The percentage values are given in Table 4.3.

100
90
per MWh mitigated costs in $/MWh

80
70
60
50
40
30
20
10
0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in the May 1999 - June 2001 period

Figure 4.22: Per MWh mitigated cost duration curve for May 1999 – June 2001

Table 4.3: Frequency information for daily per MWh mitigated congestion costs over the
May 1999 – June 2001 period
percent of days with per MWh mitigated congestion costs
period below 20 between 20$/MWh between 40 $/MWh above 60
$/MWh and 40 $/MWh and 60 $/MWh $/MWh

May 1999 – June 2001 30.6 60.2 7.2 2.0

May 1999 – April 2000 32.8 53.3 10.1 3.8

May 2000 – June 2001 28.6 66.2 4.7 0.5

To visualize any differences in daily per MWh mitigated congestion costs we

constructed the per MWh mitigated cost duration curves for the first 12 months in Fig.

58
4.23 and for the following 14 months in Fig. 4.24. The percentage per range is given in

Table 4.3.

We notice that 13.9% of the days during the first year of operation experienced daily

per MWh mitigated congestion costs of more than 40 $/MWh, whereas in the following

14 months only 5.2% of the days experienced equally high values.

100
per MWh mitigated costs in $/MWh

90
80
70
60
50
40
30
20
10
0
0% 10% 20% 30% 40% 50% 60 % 70 % 80% 90% 100%
percentage of days in the May 1999 - April 2000 period

Figure 4.23: Per MWh mitigated cost duration curve for May 1999 – April 2000

Especially costs above 60 $/MWh occurred on 3.8% of the days of the first year, but

during only 0.5% of the days in the following 14 months. Interestingly, the number of

days with congestion costs below 20 $/MWh is also higher during the first year than

during the second half of the studied period. This indicates a higher volatility of daily per

MWh mitigated congestion costs during the first year of operation than later on. This may

be again indicative of the fact, that trading in the new markets was in its incipient stages

and participants had to become accustomed to the competitive environment.

59
 100

per MWh mitigated costs in $/MWh

90
80
70
60
50
40
30
20
10
0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
percentage of days in the May 2000 - June 2001 period

Figure 4.24: Per MWh mitigated cost duration curve for May 2000 – June 2001

In this section we have analyzed monthly and daily data on congestion quantities,

total mitigated costs and per MWh mitigated costs. We found the months with highest

congestion to be March, April and May, 2000. We could not detect any definite trend or

seasonal pattern in congestion quantities and total costs over the 26-month period. Per

MWh mitigated costs were slightly lower during the summer months than during other

seasons. We noticed a high volatility in all congestion metrics.

We are interested in finding the time of the day that congestion is most likely to

occur. In this section we study the hourly behavior of congestion quantities and costs and

examine, if any distinct hourly pattern is detectable.

We first examine the hourly demand pattern. For this we use the hourly data for

system load and energy clearing prices, which are published as the System Hourly

60
Clearing Price Reports by ISO-NE for each day [22]. The typical system load reaches its

lowest point at night and rises around 7am, when the workday starts; it experiences a

small peak in the evening around 9pm. Fig. 4.25 shows the average hourly load for May,

1999.

16,000
hourly average system load in MW

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
hour

Figure 4.25: Average hourly system load for May 1999

If we consider that the demand for energy is low at night and therefore less energy

has to be dispatched, we expect the transmission network to be less intensively used and

therefore with little if any congestion. To check this assumption, we determined the

average hourly congestion quantities for each month and normalized them with the

respective lowest hourly congestion in each month. Thus a value of 1.0 corresponds to

the lowest average hourly value. We are normalizing so as to have some basis for

comparing across months. We found that the assumption of lower congestion at night is

true for several months, but not for all. For example, the months with the highest amount

of congestion, March, April and May, 2000, experienced lower congestion during the

61
hours of night than during the day (Fig. 4.26). The average values during the night hours

increased by nearly 40-50% for the peak daily hours in March and April, 2000, and by

20-30% in May, 2000.

2.4
normalized hourly congestion quantity

2.2

1.8 Mar-00
Apr-00
1.6 May-00

1.4

1.2

1
0 2 4 6 8 10 12 14 16 18 20 22 24
hour

Figure 4.26: Average hourly congestion for March, April and May 2000

2.4
normalized hourly congestion quantity

2.2

1.8
Aug-00
1.6 Nov-00

1.4

1.2

1
0 2 4 6 8 10 12 14 16 18 20 22 24
hour

Figure 4.27: Average hourly congestion for August and November 2000

62
 Such an assumption clearly does not hold in August and November, 2000 (Fig. 4.27),

since congestion was typically higher at night than during the day. Average hourly

congestion quantities at night exceeded the values during the day by 40-50% in August,

2000. November, 2000, exhibited volatile average hourly congestion quantities, showing

the highest peak during the night hours and a lower one during the day.

Based on these observations, congestion is random during the hours of a day and fails

to follow a distinct pattern. More surprisingly, the hourly congestion amount is not

necessarily correlated with the hourly demand.

The hourly energy clearing price is typically strongly correlated with the hourly

system load: as the demand rises so does the ECP. Fig. 4.28 shows as an example the

average hourly ECP and the average hourly system load for May 1999.

35 16,000

average hourly system load in MW

30 14,000
average hourly ECP in $/MWh

12,000
25
10,000
20
8,000
15
6,000
10
4,000
5 2,000

0 0
0 2 4 6 8 10 12 14 16 18 20 22 24
hour

ECP system load

Figure 4.28: Average hourly system ECP and load for May 1999

63
 Since the total hourly congestion costs do not provide very detailed information, we

were interested in determining additional insights on the congestion relief financial

aspects. Unfortunately, information on the hourly offers is not available. Therefore we

computed the average hourly per MWh mitigated costs of congestion from the ISO-NE

congestion reports for each month of the study period. We found out that per MWh

mitigated costs were typically slightly higher at night than during the day. This behavior

is opposite to the behavior of the ECP. A representative curve is shown for August 2000

in Fig. 4.29.

60
average hourly costs and prices in $/MWh

50

40

30

20

10

0
0 2 4 6 8 10 12 14 16 18 20 22 24
hour

per MWh mitigated costs ECP

Figure 4.29: Average hourly per MWh mitigated costs and ECP for August 2000

How do these findings affect the total resulting congestion costs? We first illustrate

this for March and April, 2000. As we found above, these months experienced lower

congestion during the hours of night than during the day. Hourly per MWh mitigated

congestion costs were slightly higher during the night hours than during the day. As a

64
 result the two months do not show a discernible pattern of average hourly total

congestion costs. Figures 4.30a and 4.30b show average hourly congestion quantities and

per MWh costs and the resulting average hourly total congestion costs for March and

April, 2000.
60 1,400 2.4

average hourly normalized total

average hourly congestion in
50 1,200 2.2
average hourly costs in

1,000 2
40
800 1.8
$/MWh

costs
MW
30
600 1.6
20
400 1.4
10 200 1.2

0 0 1
0 2 4 6 8 10 12 14 16 18 20 22 24 0 2 4 6 8 10 12 14 16 18 20 22 24
hour hour

per MWh mitigated costs congestion

Figure 4.30a: Average hourly per MWh mitigated Figure 4.30b: Average hourly
costs and congestion for March 2000 normalized mitigated congestion
costs for March 2000

60 1,400 2.4
average hourly normalized total
hourly average congestion in

1,200 2.2
hourly average costs per

50
1,000 2
MWh in $/MWh

40
1.8
costs

800
MW

30
1.6
600
20 1.4
400
10 1.2
200
1
0 0
0 2 4 6 8 10 12 14 16 18 20 22 24
0 2 4 6 8 10 12 14 16 18 20 22 24
hour
hour

per MWh mitigated costs congestion

Figure 4.31a: Average hourly per MWh mitigated Figure 4.31b: Average hourly
costs and congestion for April 2000 normalized mitigated congestion
costs for April 2000

65
 We get a different result for August, 2000. We found in our analysis above, that

average hourly congestion quantities were lower during the hours of the day than at night

in this month. Average hourly per MWh mitigated congestion costs were slightly higher

at night than during the day. In this case we get as a result average hourly total costs that

are substantially higher during the hours of night than during the day. We illustrate this in

Figures 4.32a and 4.32b.

60 1,400 2.4

average hourly normalized total

hourly average congestion in
1,200 2.2
hourly average costs per

50
1,000 2
MWh in $/MWh

40
800 1.8

costs
MW
30
600 1.6
20 1.4
400
10 1.2
200
1
0 0
0 2 4 6 8 10 12 14 16 18 20 22 24
0 2 4 6 8 10 12 14 16 18 20 22
hour
hour

per MWh mitigated costs congestion

Figure 4.32a: Average hourly per MWh mitigated Figure 4.32b: Average hourly
costs and congestion for August 2000 normalized mitigated congestion
costs for August 2000

The analysis of the hourly data in this section shows that congestion and its associated

costs do not occur in a predictable pattern throughout the day. Congestion quantities do

not follow the same pattern as system load. Also, total congestion costs do not follow the

same pattern as the congestion quantities. Therefore, improvement of congestion costs

may not be equivalent to improvement of congestion. The results of this section can be

66
used for further studies on effective measures for determining economically efficient

levels of congestion.

4.3 The geographic distribution

The occurrence of congestion is not uniform in the entire ISO-NE region. In this

section, we study the distribution of congestion within the twelve transmission regions of

New England based on the 26 month data used in our investigation. For the names of the

transmission areas please refer to Table 2.1 in Section 2.1. Three regions are responsible

for the majority of the congestion in the New England system. We first study the

distribution of the total congestion in MW over the 26-month period.

ME/NH 345 & 115 kV

NORTH 1.47%
MAINE
W MASS 0.36%
3.27%
0.29% SEMA/RI
3.28%
VT
5.93%

NEMASS/BOST
42.90%
SW CONN
19.95%

CONN
22.49%

Figure 4.33: Distribution of congestion in MW within transmission areas

67
 The pie chart in Fig. 4.33 shows the percentage of the total amount of congestion that

occurred in each transmission area. 85% of the total system-wide congestion occurred in

only three of the twelve areas. The NEMASS/BOST area experienced the biggest portion

with a 43% share of the total amount. The CONN area had 22% and SW CONN had

20%. The other nine areas had 15% of the share.

The pie chart in Fig. 4.33 presents in a telling manner that the amount of congestion

in the three areas NEMASS/BOST, CONN and SW CONN is nearly six times the

amount of the nine other areas. To see the occurrence of congestion in these three areas

we plotted the monthly congestion amounts as a function of time over the period from

May, 1999, to June, 2001. These plots are shown in Fig. 4.34. Note that the SW CONN

area basically experienced significant congestion during 2000 with peaks in March and

April as well as July, August and September and a lower one in December.

Figure 4.34: The contribution of transmission areas to the monthly congestion for May
1999 – June 2001

68
Significant congestion in the CONN region, however, was concentrated in a small

number of months. The largest congestion quantities occurred during February to June,

2000, lower peaks were experienced in December, 1999, and February and March, 2001.

The other transmission areas did not experience larger amounts of congestion during

1999, during the months of 2000 congestion values rose, but fell again during the first

half of 2001.

From this distribution we can detect which transmission areas were the main causes

for the system-wide peaks of congestion. Since the dense NEMASS/BOST area

experienced uniformly high levels of congestion from September, 1999, on, it did not

account for the extraordinary high peaks of congestion. The three highly congested

months in 2000 were clearly the result of high congestion in the CONN and SW CONN

transmission areas. The high values in March were mainly caused by the two regions

together, whereas the high quantities in April and May mostly resulted from congestion

in the CONN area, together with also higher than usual congestion in the other

transmission areas during May, 2000.

We next examine the distribution of the total congestion costs across the twelve

transmission areas. There are some additional insights we gain from the cost data. We

summarize the cost distribution in the pie chart in Fig. 4.35. Here, 85% of the system-

wide costs constitute the share of NEMASS/BOST and the Connecticut areas. The

NEMASS/BOST area, which experienced 43% of the total system congestion, accounted

for 53% of the resulting costs. The two Connecticut regions have a share of 32% of the

costs with 19% being the share of the congestion costs for CONN and 13% the share of

the costs for SW CONN.

69
 NORTH ME/NH 345 & 115 kV
0.88% SEMA/RI
W MASS 0.26%
2.08%
EAST 0.22% MAINE
0.14% 3.18%
VT
6.98%

SW CONN
13.33%
NEMASS/BOST
53.45%

CONN
19.46%

Figure 4.35: Distribution of mitigated costs within transmission areas

mitigated average costs in $/MWh

180 120

mitigated total costs in $

160 period of May
140 100
1999 to June
120 80
100 2001
80 60
60 40
40
20 20
0
0
I
ST
E

kV
ST

VT

TH
TH

T
R
N

ES
AS

N
A/
BO
EA

U
R

AI

5
O

O
M

11

W
M

SO
O

C
M

S/

SE
N

SW

%
AS

5
EM

34
N

H
N
E/

average costs total costs

M

Figure 4.36: Per MWh mitigated costs and total mitigated costs for each area
for May 1999 – June 2001

70
 The interplay of congestion amounts given in Fig. 4.33 and Fig. 4.34 and the

congestion costs in Fig. 4.35 need to be related to the per MWh costs plotted in Fig. 4.36

for each transmission area. The total costs of congestion over the 26-month period are

also shown in the diagram.

We observe that while the areas EAST and NORTH experienced the highest per

MWh costs, they had negligible total costs. This is due to the fact that congestion in these

areas occurred only during a few days, resulting in extraordinarily high per MWh costs.

Of the three highest congested areas NEMASS/BOST, CONN and SW CONN, none

shows particularly high per MWh costs, but each experienced congestion on a high

number of days. The number of days with congestion and the number of days with a

certain range of per MWh costs are given in Table 4.4 for the discussed areas. The total

number of days during the observed time-span was 792.

Table 4.4: Number of days with per MWh mitigated costs in certain range over the May
1999 – June 2001 period
number of days with respective range of costs
days with between between between
area below 120 above 900
congestion 120 and 200 200 amd 400 and 900
$/MWh $/MWh
$/MWh 400 $/MWh $/MWh
EAST 14 9 1 0 4 0

NORTH 38 31 1 1 1 4

NEMASS/BOST 749 749 0 0 0 0

CONN 402 399 2 0 1 0

SW CONN 501 496 4 0 1 0

71
 Figure 4.37: The contribution of the transmission areas to the total monthly mitigated
congestion costs for May 1999 – June 2001

The distribution of the shares of mitigated congestion costs from Figure 4.35 across

time is shown in the plots of Figure 4.37. In the study of these plots and in comparison

with those of Fig. 4.34 we note that:

• The NEMASS/BOST area experienced a higher volatility in total congestion

costs over the 26 months than in congestion amounts due to the time

variability of the per MWh costs of congestion.

• The share of congestion amounts and that of costs of the CONN region are

essentially the same across the study period with peaks experienced during the

February to June, 2000, period and again in February to March, 2001.

72
 • The SW CONN region has a distribution of the share of the congestion costs

that is slightly different from that of the congestion quantities; whereas

substantial congestion occurred during the entire year of 2000, the major part

of the resulting costs occur in the month of March, 2000.

• The other nine transmission areas had a small share of the congestion costs

with substantial increases in the months of October, 1999, and May, 2000.

In this section we analyzed the geographic distribution of congestion across the

twelve transmission areas in New England. We found that 85% of the system-wide

congestion amounts and costs during the observed study period were experienced in the

three areas NEMASS/BOST, CONN and SW CONN. The NEMASS/BOST area had

uniformly high monthly levels of congestion amounts from September, 1999, onwards.

Congestion costs in this area were more volatile. The Connecticut areas experienced high

amounts and costs of congestion concentrated in a few months. We also found that the

highest congested areas did not experience extraordinarily high per MWh costs.

4.4 Selected transmission regions

In this section we briefly examine the conditions in the major congested areas

NEMASS/BOST, CONN and SW CONN. The ISO-NE provides a rough breakdown of

the causes for congestion in these regions in their annual market reports [14,23].

The region around Boston is a densely populated area with a high demand for energy.

73
It accounts for more than fifty percent of the mitigated congestion costs in the whole

system. In two market reports ISO-NE provides causes for congestion in the

NEMASS/BOST area and distinguishes between reasons related to inadequate

transmission facilities (load pocket), maintenance, construction and high voltage control.

During the period from September, 1999, to April, 2000, the ISO determines that about

40% of the congestion was attributable to the existence of load pockets and almost the

same amount to maintenance. 10% of the congestion was due to construction of

generation and transmission facilities. According to the ISO the situation changed during

the time from May, 2000, to April, 2001. During this period the major reason for

congestion was inadequate transmission facilities. These numbers clearly show the dire

need for expansion of the transmission grid in this critical transmission area.

The market reports do not distinguish between the CONN and the SW CONN area.

The whole Connecticut region experienced roughly the same distribution of causes for

congestion as the NEMASS/BOST area. As a special case we discuss briefly the

characteristics of the southwestern Connecticut area. In the observed 26-month period

from May, 1999, to June, 2001, the area experienced 1.7 million MW of congestion,

which is 20% of the system-wide value. This resulted in mitigated congestion costs of

more than $30 million.

It is interesting that statewide, the generation normally exceeds the demand in

Connecticut, a margin that will even grow with the addition of power plants currently

under construction [24,25]. Most of the state is served by 345-kV transmission lines,

which generally allow large quantities of power to be transported. However, the situation

in southwestern Connecticut is different from other regions in the state. The area

74
(particularly Lower Fairfield County) generally has a supply deficiency and its ability to

import power is limited. The region’s power plants are mainly old and relatively

inefficient. But none of the plants under construction in Connecticut are located in the

southwestern region to provide more efficient generation and there are no proposals for

any so far. Unlike in the rest of the state, the region’s transmission system primarily

consists of 115-kV lines, which causes frequent constraints to the import of power.

Proposals for 345-kV lines to alleviate the constraints exist. Currently, approval of new

transmission lines is under the authority of the states and can take a long time.

4.5 Impacts of market power mitigation

In our analysis of congestion costs we have studied the costs that arose from

congestion and were subsequently mitigated or negotiated according to the ISO-NE

market power mitigation procedures that we described in Section 3.3. These are the costs

that are charged to the market participants. The unmitigated costs are based on the offer

prices of the generating blocks, which have to be dispatched out of merit order. The

mitigated costs adjust those prices in line with the rules and consequently result in lower

ones. The mitigation process aims to eliminate any charges that can be considered to arise

from the exercise of market power. In this section we quantify the impacts of the

mitigation provided by the ISO-NE in terms of reductions effected in the total congestion

costs.

75
 We compare the total unmitigated to the mitigated costs over the 26-month period.

We provide the plots of the monthly charges in Fig. 4.38. The shaded region of the

diagram indicates the total savings.

In the period from May, 1999, to June, 2001, the New England system experienced

total unmitigated costs of $310 million. The ISO-NE applied market power mitigation

procedures to all the generating blocks that were dispatched out of merit order to alleviate

congestion. After mitigation these costs were reduced by nearly 25%, resulting in the

$233 million of costs shown in the figure. This indicates that the prevention of the

possible exercise of market power was able to reduce the costs by $77 million. These

savings were brought about by the application of the ISO-NE procedures for identifying

possible market power exercise.

Figure 4.38: Unmitigated and mitigated monthly congestion costs

for May 1999 – June 2001

76
 Fig. 4.39 shows the percentage of reduction of costs by the mitigation procedures in

each month. During four months in 1999 mitigation had no impacts. That means, that the

generating blocks out of merit order received their offer prices. Mitigation had the highest

impact on congestion costs in January of 2001, when the reductions constituted 59% of

the unmitigated costs.

reduction as a percentage of unmitigated costs

70%

60%
average reduction
50% May 99 - June 01

40%

30%

20%

10%

0%
May-99

May-00

May-01
Aug-99
Sep-99

Nov-99

Aug-00
Sep-00

Nov-00
Apr-00

Apr-01
Jul-99

Feb-00

Jul-00

Feb-01
Jun-99

Mar-00
Dec-99
Jan-00

Jun-00

Dec-00
Jan-01

Mar-01

Jun-01
Oct-99

Oct-00

Figure 4.39: Percentage of reduction of monthly unmitigated costs by mitigation

These findings show, that the mitigation procedures substantially reduced congestion

costs. Total unmitigated costs during the 26-month period were lowered by 25%, which

resulted in significant savings of $77 million. The average monthly reduction was 20.5%

of the unmitigated costs. Monthly mitigation results show a high volatility, ranging from

as low as zero reduction up to 59% of the unmitigated costs. As many as 14 out of the 26

months experienced a reduction of the unmitigated costs of more than 20%.

77
4.6 Impacts of generation availability

In the previous sections we examined monthly and daily congestion data for possible

patterns and analyzed the distribution across the transmission areas. In this section we

explore a possible cause of congestion. We study the role of generation availability as a

factor in causing congestion.

A generator is considered available if it is ready for dispatch, and so ready to serve

part of the system load. If a generator is not available, we call it an outage. Such an

outage may be either planned (maintenance scheduling) or unplanned (forced outage).

Whenever an outage occurs at a generating unit, one or more other units must take over

the generation to satisfy the system demand. Depending on the location of the outaged

unit, power flows on the system will be impacted. As a result, transmission constraints

which were not binding when the outaged unit was dispatched in the pre-outage state, can

become binding and congestion may result in the post-outage state. Therefore, we are

interested in investigating any possible correlation between generation availability and

the amount of congestion in the system. We explore the relationship between generation

outages and congestion and between total available capacity and congestion. Total

available capacity is basically the sum of installed generating capacity reduced by the

outaged capacity10.

In 2001 two studies were conducted on generation availability in the New England

system. The study initiated by the ISO-NE found that average availability of plants

10
The ISO-NE determines the total available capacity in the daily Morning Reports as the sum of installed generating capacity and
dispatchable loads, reduced by generation outages and reductions, unavailable generation due to start time and net deliveries
(sales to minus purchases from neighboring systems). For further definitions please refer to ISO-NE documentations
[10,11,12,13].

78
increased slightly from 1995 to 2000 [26]. The second study concluded that the amount

of capacity out of service rose since the beginning of the competitive wholesale market in

1999 and recommended closer monitoring of plant owners to prevent strategic

withholding of capacity and thereby exercising market power [27]. Neither of the two

studies investigated the impacts of generation availability on the occurrence of

congestion.

The ISO-NE publishes outage data in the so-called daily Morning Reports for each

day [28]. The available data include total generating unit outages and partial capacity

reductions. In the following, we will use the term outages jointly for outages of a

complete generating unit and partial output reductions. The reports do not distinguish

between forced outages and those that were scheduled for maintenance. Therefore our

study can only examine the possible correlation between congestion and the total capacity

of outage.

Data from Morning Reports are available from September, 1999, onwards. We

examined the outages and congestion data between September, 1999, and June, 2001. We

constructed the chart shown in Fig. 4.40 from the Morning Reports data. The chart shows

daily outaged capacity in MW during the period from September, 1999, to June, 2001.

The daily values range from 1,075 MW on August 15, 2000, to 9,887 MW on May 20,

2000. 90% of the days experienced outages between 2,000 MW and 8,000 MW.

Outages in summer are usually lower and the high outage values occur during spring.

The pattern is less distinct in winter, but also shows outages concentrated in fall and early

winter. This is true due to very little maintenance planned for the summer and for winter

and the effort to concentrate maintenance during the off-peak seasons [26].

79
 12,000

10,000
daily outages in MW

8,000

6,000

4,000

2,000

0
10 /99
11 /99
12 /99

1/ 9
2/ 0
3/ 0
4/ 0
5/ 0
6/ 0
7/ 0
8/ 0
9/ 0
10 /00
11 /00
12 /00

1/ 0
2/ 1
3/ /01
4/ /01
5/ /01
6/ /01
1
0
0
0
0
0
0
0
0

0
/9

/0

/0
3/
3/
5/
5/
6/
6/
7/
7/

9/
1

9
/2
/2
/3

/8
/8
/9

12
12
13
13
9/

Figure 4.40: Daily outaged capacity for September 1999 – June 2001

We computed the correlation coefficients on a monthly basis using the daily

congestion quantities and the daily outages for each month. The monthly correlation

coefficient rm for month m was calculated using

rm =
( )( )(
∑ xi * yi - ∑ xi * ∑ yi )
σ mx * σ my

Here the summation is done over all days of month m. The congestion value for day i is

denoted by xi, the outage value for day i is denoted by yi. The month m standard

deviations are denoted by σ mx and σ my for the congestion and outage amounts,

respectively.

80
 The correlation coefficient provides a measure for the linear relationship between two

variables [29]. However, it must be used carefully, since it is only meaningful if variables

are correlated and not if they are not. That means a correlation which happens only by

chance, will be detected as a correlation as well as one based on actual interdependency.

Therefore, we applied a statistical significance test to the data to determine the

probability of a real correlation between outages and congestion. The statistical methods

used are described in Appendix C.

A correlation coefficient of 1 (-1) denotes a perfectly positive (negative) correlation

between two variables. A value of zero shows no correlation at all. Negative values are

related to negative correlation and indicate opposite actions (one variable increases and

the negatively correlated variable decreases and vice versa). To show meaningful

correlation, we require the correlation coefficient to satisfy

0.7 ≤ rm ≤ 1

We display the months that showed a high probability of correlation between

congestion and outage amounts in Table 4.5 together with the values of rm.

Table 4.5: Months with significant correlation between congestion and outages
month rm
Sep-99 0.45564
Oct-99 - 0.38388
Sep-00 - 0.36692
Apr-01 0.49738
Jun-01 - 0.45248

These five rm‘s out of the 22 studied have a probability high enough to assume actual

correlation between generation outages and congestion quantities. Of these months, none

81
has a correlation coefficient whose absolute value exceeds 0.5. We note that both positive

and negative rm‘s are present.

The five months indicating some correlation are spread over the 22 months of the

sample studied. None of these months are among the highest congested months. The peak

congested months March, April and May, 2000, had lower correlation coefficients.

March and April had correlation coefficients of 0.3 and 0.25, respectively, but the

significance test showed a relatively high probability for an only random relationship.

The correlation coefficient for the highest congested month of the observed two-year

period, May, 2000, was extremely low at 0.07, showing basically no correlation between

outages and congestion.

These results do not indicate a clear correlation between the occurrence of congestion

and the daily generation outages11. From this study there is no data to indicate that high

quantities of congestion occur especially during days with a high amount of outaged

capacity.

We also studied the possible relationship of total available capacity and congestion.

We show a scatter diagram of the daily amounts of congestion versus the reported daily

amounts of outages in Fig. 4.41. We see that the total available capacity values do not

show any obvious relation to the amount of congestion. Surprisingly, outliers of high

congestion even occur on days with especially high available capacity.

11
Note that we have only investigated a simple linear relationship. The result does not exclude the possibility of a more complex
nonlinear relationship.

82
 60,000

50,000
daily congestion in MW

40,000

30,000

20,000

10,000

0
0 5,000 10,000 15,000 20,000 25,000 30,000
daily total available capacity in MW

Figure 4.41: Daily congestion versus daily outaged capacity

for September 1999 – June 2001

In this section we have analyzed the relationship between daily congestion quantities and

daily outaged capacity as well as daily total available capacity. We found that neither the

daily outaged capacity nor the daily total available capacity is significantly correlated to

daily congestion quantities. Especially the peak months of congestion show no indication

that high quantities of congestion occur during days with a high amount of outaged

capacity. From these findings we can see that there is no guarantee for a reduction in

congestion as a result of improved generating unit availability.

83
 5. CONCLUDING REMARKS

In this thesis we focused on the analysis and quantification of congestion in one of the

major power systems in the United States, the New England power system. Our study of

the May 1999 – June 2001 period provided a good basis for identifying the principal

characteristics of congested situations in terms of quantity, costs, geographic spread and

the reductions effected by mitigation.

In our analysis of the congestion data for the study period we found that neither

congestion quantities nor costs follow a distinct seasonal pattern. Only the per MWh

mitigated costs exhibited slightly lower values during the summer months than during

other months. Daily congestion quantities and costs also vary significantly within a wide

range of values during the 26-month period. We found that the majority of days exhibit a

rather low variability in congestion quantities and costs, but that the remaining days

experience extremely high volatility. We investigated the high monthly congestion

quantities and costs using the frequency information gained by the construction of

duration curves. The months that had highest congestion and associated costs typically

experienced a lower percentage of days with low values and a higher percentage of days

with extremely high values than the entire study period.

Whereas the system load peaks occur, typically, during the same time slot each day,

the hourly congestion data do not allow any predictable patterns on the course of

congestion. We found certain months that had high congestion during the day and other

months that experienced high congestion only at night. Another interesting finding is that

the values of the congestion costs do not necessarily track the hourly congestion

quantities. A topic for future work is to investigate the nature and level of correlation

84
between congestion costs and quantities. It is also necessary to analyze the effectiveness

of the ISO-NE congestion management and to examine the adequacy of the congestion

pricing scheme based solely on the out-of-merit-order dispatch.

Our study attempted to investigate possible causes of congestion and, for that

purpose, we examined the relation between generation availability and congestion. We

found no statistically significant correlation between the amount of outaged capacity and

the quantity of congestion. This finding does not allow us to impute that generator

outages can be considered a major factor in causing congestion. Therefore, it is not clear

on the basis of available data that these could be a big potential for reducing congestion

by improving unit availability.

We studied the distribution of congestion across the New England transmission

region and found that a significant part (85%) of the system-wide congestion amounts

and costs during the May 99 – June 2001 period was experienced in three areas. The

three areas lie in the Northeast Massachusetts, Boston and the Connecticut region and are

characterized by both major transmission bottlenecks and lack of sufficient generation

resources. The high congestion figures in these areas clearly provide signals for the need

to implement effective incentives and support for expansion of the transmission grid

and/or the enlargement of local generation capacities.

The total actual post mitigation congestion costs during the entire study period were

$233 million and represent a $77 million savings from the unmitigated costs of $310

million. Due to the fact that there is insufficient information available on the offer data, it

is difficult to establish how much market power exercise was actually prevented by the

ISO-NE’s market power mitigation procedures and how much went undetected. Such

85
determination could be made if the ISO-NE would be able to publish more detailed

information on offer prices and quantities if even with a certain delay after the

transactions. This additional information would allow better determination of the

existence and the impacts of exercising market power in the New England region.

The existence of market power is a big issue not only in New England, but in all the

restructured electricity markets and deserves much attention in future studies. The

behavior of market participants has to be observed in terms of anti-competitive actions

and proper schemes for preventing players from exercising market power need to be

developed to ensure the benefits of a competitive market can be more effectively

harnessed.

The electricity markets are subject to continuous review and rule changes. ISO-NE

has been continuously reviewing the market performance of the New England electricity

markets from its inception. From the experience of the first years of operation and the

comparison with other systems in the United States ISO-NE identified several aspects

that need to be improved. The newly proposed Standard Market Design (SMD) includes

the implementation of separate day-ahead and real-time energy markets and locational

marginal pricing (LMP) to recognize locational congestion. The proposal is planned to be

filed with the Federal Energy Regulatory Commission in June, 2002, and targeted for

implementation by December, 2002.

The new market design implementation should be tracked closely by a study of how

the quantities and costs of congestion are affected and the effectiveness of the new

congestion management scheme. A study similar to the one presented in this thesis can

provide insights into the effectiveness of the new market design with respect to

86
transmission congestion. Future work must assess the capability of the congestion

management scheme to provide appropriate economic signals for the needed

expansion/improvement of the transmission grid.

A major development in the northeast electricity markets in the coming years will be

the formation of a regional transmission organization (RTO). Currently plans are to

include the New England System, the New York Power Pool and PJM into a single large

geographic entity. The formation of an organization of such size raises many new and

challenging issues. The participating systems must develop a consistent market design

across the joined transmission regions and also coordinate their planning and operations.

Market efficiency and system reliability acquire a significantly larger scope. Future

studies will need to include the assessment of the congestion management under the

changed conditions in the new RTO. Such a study will need to explore the ability of the

new structure and markets to create and sustain vibrant competitive markets.

87
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Congestion in the PJM Market”, September 15, 2000,
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[6] Rajesh Rajaraman and Fernando Alvarado, “(Dis)Proving Market Power”, Laurits
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[7] James Bushnell and Celeste Saravia, “An Empirical Assessment of the
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[13] “NEPOOL Market Rules and Procedures”, http://www.iso-ne.com/mrp/main.html

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[17] “Transmission Congestion Uplift Data File, Content & Definitions”,

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[18] Linda J. Kelly, “Market Monitoring, Reporting and Market Power Mitigation”,
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90
 APPENDIX A

A brief synopsis of the restructuring of the electricity markets in the U.S.

During the last decade the electricity markets in many countries underwent major

changes. Chile, England and Wales, Norway and New Zealand were some of the first

countries to introduce competitive electricity markets. The United States followed

shortly.

The driving forces behind the restructuring of electricity markets are economics. The

example of the economic benefits to society resulting from the deregulation of other

industries such as telecommunications and airlines, led to the belief that the introduction

of competitive market forces to the electric utility will result in lower-priced electricity to

end consumers [1, 30].

In the regulated electricity market the major participants were vertically integrated

utilities, who owned and operated both generation and transmission facilities. Electricity

rates were set by the regulatory agencies and based on the utilities’ production costs [31].

There was no incentive to fully assess the risks of investments, since the costs could be

recovered from end customers as part of the electricity price even if the investment turned

out to have poor results. Also, utilities were not generally obligated to provide

transmission service to independent power producers, preventing in many cases

wholesale electricity customers from harnessing the fruits of competitive electricity

markets in generation [32].

The Energy Policy Act of 1992 (EPAct) provided the Federal Energy Regulatory

Commission (FERC) with a broader authority to require transmission owning entities to

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allow independent suppliers to use their transmission facilities. Any electric utility,

federal power marketing agency or person generating electric energy for sale at wholesale

are allowed to request transmission service from a transmission owning untility (TOU). If

the request is not met, the eligible entity may apply to FERC for a transmission order,

which FERC may issue if it is in the public interest.

On April 24, 1996 FERC took a big step and released its Orders 888 and 889, which

were aimed at promoting wholesale electricity competition. The Orders were seeking a

number of goals. One of them was to guarantee non-discriminatory open access to the

transmission grid by requiring all utilities that own or control transmission facilities to

provide an open access transmission tariff. The tariff must specify terms and conditions

for using the utilities’ transmission systems. The utilities were also required to

functionally unbundle their activities, which meant to apply the same tariff to their

transmission services for its own uses as charged to all other transmission users, separate

their rates for generation, transmission and ancillary services and rely on the same

information system as their transmission customers to obtain prices and other

information. The primary tool for this is the required Open Access Same-Time

Information System (OASIS). The OASIS is an electronic bulletin, which provides

information on transmission capacity, prices and ancillary services over an interactive

Internet-based database. The Orders further specified the basic service requirements of

transmission providers. These obligate transmission entities to offer transmission and

ancillary services, which they are reasonably capable of providing. In addition, the Order

No.888 provided the standards and procedures for the recovery of any costs resulting

from increased competition. Today all utilities have filed open access tariffs.

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 The combination of competitive generation and regulated transmission requires some

form of central operation of the power grid. Since there is not a single vertically

integrated utility with control over both generation and transmission anymore, but a large

number of independent suppliers, transmission providers and other traders, transactions

must be coordinated. Power cannot deliberately be injected into the system and the flow

of electricity, i.e. which transmission facility it will use to travel from one point to

another, can usually not be determined exactly. System reliability is harder to maintain

under a competitive market scheme with an increasing number of participants.

In Order 888 FERC encouraged the formation of independent system operators

(ISOs) to operate and control the transmission system. Utilities were supposed to transfer

the control of their transmission facilities to the ISO, while maintaining the ownership.

FERC set out a list of principles such an ISO must comply with. Without economic

interest in power transactions the ISO must administer the open access tariff in a fair and

nondiscriminatory way and ensure a single grid-wide tariff. The ISO has control over the

transmission system operations within the respective region and has the responsibility for

ensuring the operational reliability of the grid. The ISO coordinates transactions with

neighboring control areas and must be able to identify and effectively manage actions to

relieve transmission grid constraints. So far, there are six ISOs operating in the United

States: California ISO; Pennsylvania, New Jersey, Maryland (PJM) ISO; ISO New

England; New York ISO; ERCOT ISO (Texas) and – what has recently assumed

operation – Midwest ISO.

After Order 888 is implemented, there still remain some impediments to a fully

competitive electricity market. There are still complaints that transmission owners

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discriminate against independent power companies. In a market with a large number of

players, it is becoming more difficult to detect discriminatory behavior. Another big issue

is increasing transmission congestion and the growing difficulty to maintain system

reliability. Transmission expansion is slow, responsibilities are not clear and incentives

are low, since the rapidly changing market situation makes cost recovering insecure.

Furthermore only some areas of the country have formed independent system operators,

some have not. In order to further improve competitive markets, FERC issued Order

2000 in December 1999, which strongly encourages the voluntary formation of regional

transmission organizations (RTOs) throughout the United States. It requires public

utilities that own or operate interstate transmission facilities to form or join a regional

transmission organization. The order specifically states minimum characteristics,

functions and policies of an RTO. One requirement is a sufficient scope to operate

efficiently and support non-discriminatory markets. FERC envisions the US power

system organized in four or five large regional transmission organizations. Goals of

Order 2000 are to increase the efficiency of the power system, improve transmission

pricing, congestion management, reliability management and information necessary to

promote competition, and the elimination of any remaining obstacles to open

transmission access.

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 APPENDIX B

Sample ISO-NE transmission congestion area uplift report by day

C Nepool Transmission Congestion Area Uplift Report by Day

C Area: SYSTEM
C 03/01/2000 - 03/31/2000
Date Total MW Unmitigated Unmitigated Mitigated/Negotia Mitigated/Negoti
Total Uplift Average Cost ted Total Uplift ated Average
H
Cost ($) ($/MW) Cost ($) Cost ($/MW)

D 3/1/2000 11924.64 383645.35 32.17 364771.3 30.59

D 3/2/2000 12072.73 456093.2 37.78 322137.66 26.68
D 3/3/2000 11354.88 923725.91 81.35 765627.08 67.43
D 3/4/2000 13408.85 1057807.94 78.89 898047.76 66.97
D 3/5/2000 10986.59 958867.55 87.28 808380.37 73.58
D 3/6/2000 19155.84 1457367.93 76.08 1298737.33 67.8
D 3/7/2000 19156.57 1454778.29 75.94 1289719.15 67.33
D 3/8/2000 15063.51 1288628.27 85.55 1150714.5 76.39
D 3/9/2000 23295.06 1536959.09 65.98 1315621.06 56.48
D 3/10/2000 22831.36 1449223.08 63.48 1281785.34 56.14
D 3/11/2000 24615.42 1007276.47 40.92 864818.9 35.13
D 3/12/2000 23410.61 961468.18 41.07 915040.71 39.09
D 3/13/2000 36866.95 1817370.28 49.3 1636135.58 44.38
D 3/14/2000 32303.54 1163806.24 36.03 1101135.92 34.09
D 3/15/2000 21633.72 502389.89 23.22 455736.24 21.07
D 3/16/2000 23332.52 614601.8 26.34 564838.91 24.21
D 3/17/2000 23284.42 789534.64 33.91 732360.96 31.45
D 3/18/2000 22617.74 775651.9 34.29 714868.42 31.61
D 3/19/2000 18983.68 456321.23 24.04 405330.65 21.35
D 3/20/2000 19899.44 758237.59 38.1 674370.03 33.89
D 3/21/2000 21359.36 438323.52 20.52 323749.56 15.16
D 3/22/2000 18922.35 379621.36 20.06 315161.44 16.66
D 3/23/2000 18834.66 486006.09 25.8 432163.42 22.95
D 3/24/2000 17819.35 407557.86 22.87 389231.23 21.84
D 3/25/2000 18690.28 440333.37 23.56 429569.31 22.98
D 3/26/2000 19171.77 426896.27 22.27 413520.41 21.57
D 3/27/2000 17448.95 398173.65 22.82 379016.55 21.72
D 3/28/2000 18146.36 488535.21 26.92 436770.45 24.07
D 3/29/2000 18204.22 486496.96 26.72 448882.68 24.66
D 3/30/2000 24527.88 759536.84 30.97 736221.76 30.02
D 3/31/2000 24115.49 647491.8 26.85 605566.58 25.11
T 31 lines
C
C TOTAL MW = Sum of dispatched MW generation from OOMO bid blocks.

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 UNMITIGATED TOTAL COST = Sum of dispatched MW generation from OOMO bid block *
C (bid block price - ECP).
C UNMITIGATED AVERAGE COST = Total Cost / Total MW.
MITIGATED/NEGOTIATED TOTAL COST = Sum of dispatched MW generation from OOMO
C bid block * (mitigated/negotiated price - ECP).
C MITIGATED/NEGOTIATED AVERAGE COST = Total Cost / Total MW.
The data in this report for months prior to July, 2001 reflects congestion uplift and data after
C July 1, 2001 reflects NCPC uplift for congestion hours.
The data in this report reflects internal NEPOOL generation and uplift and excludes
C congestion from external contracts.

Note:

• OOMO = out of merit order

• The report refers to the NEPOOL region, this is equivalent to the ISO-NE region.

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 APPENDIX C

Significance test used on correlation coefficient

Given the correlation coefficient r we test it for significance by testing the null
hypothesis that the true correlation is zero [33].

H0: r = 0

We compute the test statistic

n-2
t=r ,
(1- r 2 )
where n is the number of data values.

t is then tested against the 5% significance level of the Student’s t-distribution:

If

t ≥ t5% (n - 2),

we reject the null hypothesis and assume the correlation coefficient r to be significant.

Example:
The correlation coefficient for daily congestion quantities and outages for September,
1999, is rS99 = 0.45564, the number of daily values is n = 30.

30 - 2
tS99 = 0.45564 = 2.71
(1- 0.455642 )
t5% ( 28 ) = 2.05

Since 2.71 > 2.05 the result is significant at the 5% level and we reject the null
hypothesis.

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