An ISO market settlement design validation approach using probabilistic market simulation study techniques

In the independent system operator organizations, settlement activity is an integral part of the market operation. One of the key components for measuring independent system operator market operational design correctness is to analyze how well market price signals create incentives and/or penalties for creating an efficient market to achieve the design goals under uncertainties due to unpredictable market conditions. The market settlement rule is an important vehicle to implement such price signals. This paper presents an approach for a probabilistic method to validate settlement systems design using probabilistic techniques for independent system operator market simulation. In addition, the paper presents critical comments on various differences in settlement design approach.