A rational buyer´s algorithm used for ancillary service procurement

Ancillary service procurement is a major operational function in the deregulated electricity market. In the past, ancillary services were procured sequentially from the highest quality service market to the lowest quality one, at the California ISO. The cost of procurement for each market is based on a market clearing price which is the highest accepted bid price in that market. The sequential method does not necessarily result in a minimized overall procurement cost. In this paper, a rational buyer´s algorithm that has been in production since August 18, 1999 is introduced. By shifting requirement from the lower quality service market to the higher quality service market, this algorithm performs an exhaustive search to find the minimum-cost procurement plan while keeping the total requirements for all markets unchanged. The issues on feasibility and performance of the algorithm are discussed, a numeric example is given, and real-time operation result data that show significant saving of the overall cost are included