Evaluation of interface pricing in electricity markets

Correct interface pricing is essential to sufficiently reflect the true system marginal cost including incremental system dispatch cost or decremental system production cost savings. Deficiencies in interface pricing would provide wrong price signals to incentivize harmful interchange transactions or dis-incentivize beneficial interchange transactions between Regional Transmission Organizations (RTOs) or between RTOs and non-market entities, e.g. Tennessee Valley Authority (TVA). The inefficient interchange transactions would thus be scheduled and be charged more for the export or credited less for the import, or vice versa. This paper evaluates the interface pricing from both theoretical and practical perspectives. A real-time (RT) conceptual example was also developed to analyze and investigate the congestion cost allocation of interface price for interchange transactions between monitoring RTO (MRTO) and non-monitoring RTO (NMRTO).