Role of distribution factors in congestion revenue rights applications

In the locational marginal price (LMP)-based congestion management scheme, transmission customers face uncertainty in the congestion charges they incur. In order to bring certainty to customers, congestion revenue rights (CRR) such as the fixed transmission rights (FTR) used in the PJM interconnection and flow-gate rights (FGR) are introduced. These CRR are financial tools that provide the holder reimbursement of the congestion charges incurred in the day-ahead market. The implementation of CRR requires appropriate modeling of the transmission network in which the distribution factors are extensively used. These factors-the injection shift factors (ISFs) and the power transfer distribution factors (PTDFs) - are linear approximations of the sensitivities of the active power line flows with respect to various variables. The factors are computed for a specified network topology and parameter values. In practice, the PTDFs used for the CRR issuance may be different from those used in the day-ahead market due to changes in the forecasted network conditions. The PTDF errors may impact the FTR issuance quantities, the revenue adequacy of the FTR issuer and the hedging ability of the FGR. In this paper, we explore analytical characteristics of these distribution factors and investigate their role in CRR applications. We study the nature of the PTDF errors and examine their impacts in these applications, both analytically and experimentally. Our results indicate that the impacts of the PTDF errors in CRR applications stay in an acceptable range under a broad spectrum of conditions including contingencies used to establish n - 1 security.