A joint energy and transmission rights auction: proposal and properties

An auction-based process is proposed that allows power market participants to acquire and reconfigure financial transmission rights. The process simultaneously accommodates flowgate and point-to-point options and obligations, along with energy production and consumption futures. A sequence of auctions is held during which participants can buy and sell rights, culminating in a real-time auction, at which time all rights are cashed out. By allowing flowgate and point-to-point obligations and options to be reconfigured and exchanged, the market can decide what combination of financial rights are most useful to power generators, consumers, and traders. Rights can be exchanged not only for capacity of individual flowgates, but also for more complex transmission constraints, such as nomograms. Under certain conditions, we prove that the auction is revenue adequate for the market operator, in that payments to rights holders cannot exceed congestion revenues. We present a linearized (DC) auction along with a numerical illustration.