Why are TLR´s inefficient and how to correct them with locational prices

Summary form only given, as follows. Transmission loading relief (TLR) as a means for attaining secure operation is a methodology advocated and implemented by NERC (the North American Electric Reliability Council). The methodology is based on the design of a procedure for selecting and ordering curtailments of transactions as they occur. The original methodology is based on an arbitrary (although explainable and to some extent rational) formula. While the formula is effective for purposes of load relief, it can have a highly distortive economic effect on the system. This formula leads to inefficient operation, possible price spikes and potential gaming opportunities. Improvements in the NERC protocols have led to the notion of market redispatch (MRD). MRD can improve on matters, but because of its restricted bilateral nature it cannot lead to optimality. In an attempt to overcome the bilateral problems of TLR, some authors have proposed a multilateral variant of TLR. Although both of these approaches are improvements over the basic TLR procedures, this paper contends that all such methods still result in significant distortions leading to potential operational problems. Only the proper consideration of both marginal production costs and network effects is likely to lead to efficient and stable prices without constraint violations. The paper elaborates further on the distinction that can be made on locational pricing approaches based on flowgate rights (the direct approach) and by the sale of nodal transmission congestion contracts (TCCs). This paper highlights both similarities and differences of these two approaches