Reliable and economic deployment of a generation fleet to satisfy demand is a complex problem. Independent system operators (ISOs) and regional transmission operators (RTOs) solve complex unit commitment and economic dispatch models to determine appropriate resources to deploy at various time stages. Due to the complexity of power systems, several approximations are made within optimization models, including approximations of the transmission network with a linearized formulation known as the direct current optimal power flow (DCOPF) instead of the more realistic formulation known as the alternating current optimal power flow (ACOPF). Furthermore, approximations occur in these models by relaxing specific constraints in the model, i.e., the constraint is allowed to be violated based on a predetermined penalty price. By doing so, the ISO/RTO receives several benefits, including the ability to manage prices, clear the market, as well as the potential to obtain gains in social welfare (market surplus). This paper describes the constraint relaxation practices of ISOs in their unit commitment models and analyzes the corresponding market implications based on these practices.
