Methodology for Automatic Zone Creation/Merging/Partitioning

The objective of this report is to investigate methodologies for zone creation suitable for zonal pricing by the California ISO. It is recognized that in meshed networks, zones are only approximations to individual node pricing. The objective, however, is to create zones that closely approximate the "correct" nodal prices under most conditions and where the majority of the "commercially significant" value of the locational pricing is captured. The report starts with a review of congestion concepts, then proceeds with a review of nodal and zonal pricing, it then reviews the CAISO's own criteria for zone partitioning, it then evaluates the notion of "nodal price patterns," and finally, using the notion of nodal price pattern it defines a methodology for zone creation and partitioning and finally demonstrates its used by means of an example. It concludes with some suggestions and recommendations.