Pay-as-bid auctions for a firm bilateral status

Abstract – This paper presents a systematic auction mechanism carried our by the System Operator to allocate Firm Bilateral Status. This status guarantees scheduling priority of physical bilateral contracts, and is considered an obligation rather than an option. To compete for the purchase of this firm status, each participant submits an offer that specifies the amount it is willing to pay in the event it wins any portion of the requested firm status. Similarly, parties that have already obtained this status may submit bids to sell them. The auction is settled by solving an optimization problem that maximizes the combined revenues from the offers and bids, while respecting system constraints, such as the power balance at all buses, constraints on the generation and transmission flow limits. In contrast to Financial Transmission Rights (FTRs) auction techniques, the method proposed here is based on
pay-as-bid pricing, as payments for the firm status of winning offers are equal to the values that have been submitted to the auctioneer. Therefore, market participants who take part in the auction know exactly the price they will face if
their offer is successful. Furthermore, this pay-as-bid approach is more transparent as the price for obtaining the firm status does not depend on system operating conditions that may change from one auction to another. The proposed
procedure could also be used to allocate FTRs