Screening and mitigation of exacerbated market power due to financial transmission rights

A methodology is proposed for taking into account potential exacerbation of market power due to financial transmission rights (FTR) allocations. Hedging position ratios (HPRs) are computed for FTR bids. These ratios quantify the relationship between the positions of an FTR bidder in the energy market and in the transmission rights allocation (based on the transmission rights bids). These ratios are used to identify the potential gambling positions from the transmission rights bidders and, therefore, used to prioritize critical positions in the auction. The transmission-right auction is modeled as a quadratic programming problem with a direct current (DC) approximation. The methodology is illustrated by a three-node network and then extended to larger networks.