Risk-based penalty price determination procedure for transmission constraint relaxations

The electric power system is one of the most complex engineered systems. It is, thus, a challenge to design a market that is efficient, transparent, and provides the proper incentives to market participants. Existing market models employ constraint relaxations, which enable various constraints to be relaxed (violated) for a high penalty price. This paper examines the practice of allowing transmission assets to be overloaded in market models. While most overloads are corrected by dispatch operators before the actual operational state, some overloads are realized. Existing constraint relaxation practices specify the same penalty price regardless as to the line's voltage, anticipated current flow, probability of a contingency, or overall impact on operational security. This paper proposes a straightforward way to modify existing practices to assign higher penalty prices to lines that receive a higher risk index. The approach is tested on a real-world, large-scale system, the PJM Interconnection.