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A New Distribution System Operator Construct1

By

Farrokh Rahimi, Ph.D. and Sasan Mokhtari, Ph.D.

Open Access Technology International, Inc. (OATI)

Abstract

The electric industry is undergoing a paradigm shift due to a combination of factors including

emphasis on increased use of renewable resources both at bulk power and distributed levels,

new technologies, increased demand-side participation, and increased emphasis on grid

resiliency.

The utility business model is also changing due to declining revenues resulting from increasing

penetration of distributed customer side resources such as rooftop solar, energy conservation,

as well as demand response. Utilities need to offer new services to fill in the revenue gap.

Moreover, the emphasis on customer choice, emergence of Curtailment Service Providers, and

un-coordinated operation of customer-side distributed resources give rise to new operational

problems for operators of the distribution system.

Bulk power system and market operation are also impacted. The increasing levels of Variable

Energy Resources put increased pressure on the system for increasing levels of flexible

reserves and ancillary services. Much of the needed services and products can be supplied by

assets located throughout the distribution systems including Demand Response and customer-

side Distributed Energy Resources. However, the bulk power system operators (Balancing

Authorities, ISOs/RTOs) have limited visibility and control over such distributed resources.

A new Distribution System Operator (DSO) construct presented here is intended to take on the

responsibility for balancing supply and demand variations at the distribution level and linking

the wholesale and retail market agents, while maintaining the traditional role of the operator

as a custodian for distribution system reliability.

The DSO would interface with the bulk power system operator (Balancing Authority, ISO/RTO)

on the one hand and with owners and/or operators of demand-side assets (e.g., Micro Grids,

1 U.S. Patent Pending. Open Access Technology International, Inc. All rights reserved. (Submitted for publication

to Public Utilities Fortnightly)

Open Access Technology International, Inc. 05/12/2014 | Page 2 of 20 A New Distribution System Operator Construct Paper – Distribution Version


BEMS operators, etc.) on the other. The interaction of the DSO with the bulk power

system/market operator takes place at the level of substations that are modeled and visible

in the bulk power system operator’s network model. The interaction of the DSO with

demand-side assets and Distributed Energy Resources can take various forms based on

conventional demand-side programs, direct control/dispatch of DR/DER assets, or through

facilitation of retail markets. Subject to regulatory approval, the DSO can possibly collect

fees for the provision of various services such as bid matching services, facilitating retail

markets, as well as aggregation services providing product to the wholesale markets, thus

compensating for loss of retail revenues due to customer side generation or load curtailment.

The DSO maintains full responsibility and authority for reliable operation of the distribution

system when facilitating market-based transactions.

Index Terms: Distribution System Operator, Transactive Energy, End-to-End Power System

Operation, Transactive System Operation, Retail/Wholesale Energy Market Convergence

I. Introduction

The electric industry is undergoing a paradigm shift due to a combination of factors including

emphasis on increased use of renewable resources both at bulk power and distributed levels,

new technologies, increased demand-side participation, and increased emphasis on grid

resiliency. The implications of this changing electric industry landscape are viewed differently

by different stakeholders. Regulators consider renewable resources, energy efficiency, and

demand response as ‘Preferred resources’ in view of their beneficial environmental impacts.

Power system operators may see the technologies enabling distributed resources and

prosumer2 actions as “disruptive technologies” in view of their perceived operational impacts

at distribution, and possibly at transmission, level.

The utility business model is changing due to increasing penetration of distributed customer

side resources (rooftop solar, etc.) which impact utilities’ bottom line negatively, while

increasing requirements for system reliability. Utilities must either increase their retail rates

or offer new services to fill in the revenue gap. Raising rates would face serious regulatory

challenges and entail socioeconomic harm, particularly since it would mean shifting the

burden from the affluent consumers who can afford distributed resources to those who

2 A “prosumer” is a consumer with active generation resources that may exceed its consumption and inject power

into the grid.



cannot. So, offering new products and services that customers would pay for voluntarily

should they find it cost effective, seems to be a way out, albeit may require regulatory

approval.

Operationally, the emphasis on customer choice, emergence of Curtailment Service Providers,

and operation of customer-side distributed resources gives rise to new operational problems

for operators of the distribution system. Utilities need to extend their visibility to customer-

side assets and revamp their conventional distribution system operational procedures and

tools to maintain reliable system operations.

With increased levels of variable generation, bulk power system operators are also facing a

number of issues including the need for higher levels of reserves, ramping requirements, and

new types of balancing and flexible reserve services. They cannot solely rely on conventional

(generation) resources to meet these requirements as that would go against the premise of

promoting environmentally friendly resources, and could be cost prohibitive. They must rely

to some extent on demand-side assets to provide such services. However, aside from the fact

that they may not have jurisdiction over such assets, their visibility to and control of demand-

side assets may be limited, particularly when the products and services they need are to

come from aggregates of large numbers of distributed assets. In addition, the bulk power

operators cannot simply rely on economic incentives of Curtailment Service Providers3 to be

aligned with the system reliability objective.

With the emergence of MicroGrids, Building Energy Management Systems, Zero Net Energy

(ZNE) buildings, and smart end-use devices, consumers with active resources are in a position

to adjust their net consumption (or production) based on economic incentives. At present,

there are some utility-based programs such as Critical Peak Pricing, Peak Time Rebate, Time-

of-Use pricing and Dynamic Rates they can respond to. But the savvy prosumers (consumers

with the ability to produce energy from their active distributed resources) are looking for

more opportunities to increase the return on their investments. For example, some would like

to be able to trade their excess generation with other Micro Grids or prosumers. This has

given rise to concepts such as Federated Microgrids or a new paradigm called “Transactive

Energy.”

3 Curtailment Service Providers (CSPs) are also known as Aggregators of Retail Customers (ARCs).



The notion of Transactive Energy has emerged to extend the conventional wholesale level

trades of energy and energy derivative products to retail and end-use prosumers (Ref [1] and

Ref [2]). The Transactive Energy Framework (Ref [3]) provides the context, usage, and main

characteristics and underlying attributes of Transactive Energy. For the Transactive Energy

paradigm to work effectively across the various layers of power system operation as well as

among prosumers, the traditional role of the operator of the distribution system must be

expanded to ensure it can effectively function as a reliability custodian to maintain

distribution system integrity while facilitating transactive operations.

In this paper, we introduce a new Distribution System Operator (DSO) construct taking on

some responsibility for controlling the imbalance variations within the distribution system,

linking the wholesale and retail markets, and acting as a transactive agent among prosumers,

while maintaining the traditional role of a custodian for distribution system reliability. We

will first discuss the end-to-end power system operation, including the notion of a Virtual

Power Plant (VPP) as an aggregated resource based on distributed demand-side assets, and a

mapping of distributed resource capabilities to bulk power/wholesale market products and

services. Then we will present the notion and classification of DSOs. This is followed by a

discussion of how the different DSO constructs fit within the existing regulatory framework

and a roadmap for evolution of the different DSO constructs. Finally, we will discuss the

convergence of DSO and Transactive Energy constructs. We will close by summarizing our

conclusions and providing recommendation for follow on activities.

II. End to End Power System Operation under the New Paradigm

With increasing demand-side participation, conventional power system operation with

unidirectional power flow from bulk generation through transmission system to the

distribution system and end-use consumers is changing. The same is true for the conventional

unidirectional flow of information from the field equipment and user premises to distribution

and transmission control system and unidirectional flow of payments from end-users to

distribution, transmission, and generation entities. Under the new paradigm, power can flow

out from consumer premises (under feed-in tariffs) to the grid; real-time or close to real-time

information can flow towards customer premises (e.g., prices to intelligent end-use devices,

or controls to dispatchable demand-side assets), and money can flow to the consumers (e.g.,

MicroGrids providing services to assist system operators.) Figure 1 below illustrates the

transactions among various layers along with flow of power, information, and funds.



Figure 1. End-to-End Power System Operation under the New Transactive Paradigm

The transacted products may include not only power and energy, but also derivative products

such as conventional ancillary services (spinning and non-spinning reserves, regulation, etc.)

as well as new operating reserves such as flexible reserves (ramping, load following and

balancing energy) needed to mitigate proliferation of variable generation. These derivative

tradable products need not be provided only by conventional generation resources. Demand-

side and distributed resources can be aggregated as Virtual Power Plants (VPPs) to provide

these products.

The VPP concept is illustrated schematically in Figure 2.

Wholesale

Prices

&

Settlement

Charges

ISO and Wholesale

Markets• Energy

• Ancillary Services

• Capacity

• Day-Ahead

• Real-Time

Bulk Power Operation

Retail

Prices

Trans.Constraints

Supply

Distribution System

Customers

Direct Load

Control

DR,AncillaryServices

Supply &

Demand

Response

Data

Pricing

Electricity

Legend

©2014 OATI, Inc.



Figure 2. Virtual Power Plant Illustration

Demand-side assets can be grouped together as VPP based on Demand Response programs,

DR/DER asset characteristics (such as response time, controllability, etc.), location within the

grid (substation, feeder section, distribution transformer connectivity, etc.), and

customer/prosumer categories (residential, commercial, industrial, agricultural, etc.).

A VPP has similar characteristics to a conventional power plant except its parameters may

depend on time of day, ambient conditions, and other factors such as provisions in the

underlying DR programs (e.g., opt-in/opt-out). For example, the available capacity (Pmax) of

a VPP comprising air-conditioning units registered under an A/C cycling program is high on a

hot day and low on a moderate day.

The products a VPP is eligible to provide also depend on DR programs and asset

characteristics. Figure 3 schematically shows possible eligibility of assets enrolled in some

known DR program types for provision of these services.

©2014 OATI, Inc.



Figure 3. Eligibility of Generic DR Programs for Provision of Products and Services

In the above chart, a “Yes” indicates that based on the generic DR program requirements, the

corresponding VPP could potentially provide the indicated service. A “maybe” indicates

whether or not the VPP can provide the service depends on other criteria such as asset

characteristics, local regulatory provisions, etc. A blank means the generic DR program is not

compatible with the provision of the indicated service.

The amount of energy, ancillary services or flexible reserves available from a VPP at any

given time does not only depend on time, ambient conditions and asset response

characteristics, but also on the distribution system topology, asset connectivity, power

factor, and any other limitation that the distribution grid may impose.

Although the bulk power operators are the primary buyers/users of these services, they do

not have enough visibility to the distribution grid to be able to determine how much of these

services they can count on when deploying products from demand-side resources (VPPs). The

operators of the distribution system are in a much better position to attain the required

visibility and control to customer-side assets and to act as the agent facilitating interactions

between bulk power operation/wholesale markets and distributed resource operators.

The following two examples illustrate the point (see Ref. [4] for more detailed discussion).

Firm

Commit-

ment

Noti-

fication

Conventional Maybe Yes Yes Yes Yes Yes Yes Yes

Flexible Maybe Maybe Yes Yes Yes Yes Yes Yes

Day Ahead Maybe Maybe Maybe Yes Yes Yes Yes Yes

Real-time Maybe Yes Yes Yes Yes

30 Min Non-Spin Maybe Yes Yes Yes Yes

10 Min Non-Spin Maybe Maybe Yes Yes Yes

10 Min Spin Yes Yes Yes

Regulation Maybe Yes Maybe

Ramping Maybe Yes Maybe

Flexibility Reserve Maybe Yes Maybe

Wh

ole

sale

Pro

du

cts

Demand-Side ProgramsNon-Dispatchable Dispatchable

VoluntaryDemand-limiting

Control

Direct Load Control

(DLC)Conservation

Voltage

RegulationNotification

Eco

no

mic

Re

lia

bil

ity

Capacity

Energy

Ancillary

Services

Balancing(New)

©2014 OATI, Inc.



Example 1: Impact of DR Power Factor on DR Availability

Consider a 13.8 kV distribution feeder with 9 MW nominal load and unity power factor.

Assume the load consists of 3 MW constant impedance, 3 MW constant current, and 3 MW

constant power components.

Assume 10% of the load (i.e., 900 kW) is registered as DR, is constant power load with 0.8

lagging power factor (i.e., is a motor load). When the 900 kW DR is deployed, the

effective load reduction is less than 900 kW since the remaining load will have a lead

power factor, resulting in voltage increase and thus increase in the consumption. For

example, if the voltage rises by 1.5% due to leading power factor of the remaining load,

the constant impedance component will increase by 3% and the constant current

component by 1.5%:

Constant impedance base load increase: 2*3,000 kW*1.5% = 90 kW

Constant current base load increase = 1*3,000 kW*1.5% = 45 kW

Constant power base load change = 0 kW

Total base load increase = 90 + 45 + 0 = 135 kW

Therefore, the amount of DR effectively delivered is

900 kW – 135 kW = 765 kW (rather than 900 kW)

The wholesale operator has typically no means of determining or controlling if reduction is

otherwise available DR. However, the distribution operator can either adjust reactive

power sources, if available, to restore the voltage to the nominal level, or take into

account the voltage impact when determining DR availability.

Example 2: Impact of DR Phase Unbalance on DR Availability

Consider a distribution feeder with 9 MW phase-balanced load (3 MW on each Phase A, B,

and C). Assume 10% of its load (i.e., 900 kW) is registered as DR, with 300 kW DR on Phase

A, 270 kW DR on Phase B, and 330 kW DR on Phase C.



When the DR is deployed, since the initial load is phase-balanced, the remaining load will

not be phase-balanced, and will thus lead to neutral currents. Excessive neutral current

may trigger protection relays. Even if the resulting neutral current is below protection

trigger level, it will result in neutral losses which reduce the effective DR. For example,

if the increase in neutral current entails 30 MW of losses, the effective DR would be 870

kW (instead of 900 kW).

Bulk power operational decisions (including DR deployment) are based on the premise that

the system is three-phase-balanced. This assumption breaks down when using distributed

resources on individual phases. As illustrated, dispatch of aggregated distributed assets

(VPPs) without due consideration of phase balancing can result in neutral currents,

increased losses, and reliability degradation. The distribution operator is in a much

better position to monitor and control such impacts.

The above considerations lead to the need for transforming the custody of conventional

distribution system operation to a new construct, namely, the Distribution System Operator

(DSO) as elaborated in the next section.

III. The DSO Construct

The Distribution System Operator (DSO) as defined here is an entity responsible for reliable

operation of the distribution system (traditional role) while also providing demand-side

services. As such, the DSO on one hand interfaces with the bulk power system operator

(Balancing Authority, ISO/RTO) and on the other hand with owners and/or operators of

demand-side assets (e.g., Micro Grids, BEMS operators, etc.).

The interaction of the DSO with the bulk power system/market operator takes place at the

substation level that is included in bulk power system operator’s network model (e.g., Pricing

Node, or PNode in the case of ISO/RTO markets). By mutual agreement with bulk

power/market operators, this interaction can take place at the Aggregate PNode (APNode)

level (e.g., Proxy Demand Resource, PDR , in CAISO market).

The interaction of the DSO with demand-side assets and prosumers can take various forms

including conventional demand-side programs, direct control/dispatch of DR/DER assets, or

facilitation of a retail market.



The DSO concept presented here is somewhat different from that popularized and used in

Europe (Ref [5]). The European DSOs mainly operate the distribution wires and facilitate

customer choice of primary energy providers in an Open Access Distribution System. The

consumers and prosumers interact directly with the respective competitive retail energy

service providers, who in turn may interact with bulk power and Transmission Service

Operators (TSOs). As defined here, however, the DSO interacts directly with the Transmission

Service Provider (e.g., ISO/RTO in centralized wholesale market environment).

The DSO as defined here may also perform services necessary to accommodate direct access

energy service providers and Curtailment Service Providers (CSPs) where provided for by

Local, State, or Federal regulations. In the discussion that follows, we concentrate on the

nature and extent of the interaction of the DSO with the bulk power system/market operator.

With no loss of generality, we also assume DSO operation occurs in a centralized market

(ISO/RTO) environment. In areas where there are no centralized markets, the Balancing

Authority will be the surrogate and the DSO-BA interactions are somewhat simpler.

Figure 4 shown the DSO as a link between bulk power/wholesale market operator and the

operators of demand-side assets.



Figure 4. Illustration of the DSO Linking Bulk Power and Distributed Resource Operators

Depending on the extent and nature of DSO’s interaction with the bulk power/market

operator, on the one hand and the prosumers on the other hand, several flavors of DSO

structure may emerge, as outlined below. In all DSO constructs discussed below, the DSO

maintains its responsibility for reliable operation of the distribution system, but takes on

additional responsibilities as stated under each DSO construct. Where other entities acting as

Aggregators of Retail Customers (ARCs) or Curtailment Service Providers (CSPs) exist, it is

assumed they will provide information and data necessary for proper scheduling and dispatch

(including any ARC/CSP self dispatch) to the DSO as the distribution system reliability

custodian.

©2014 OATI, Inc.



III.A. DSO Lite

The minimalist DSO (or DSO Lite) would act as an aggregator of demand-side resources based

on conventional demand-side programs (Critical Peak Pricing, Dynamic Pricing, etc.). The

demand-side participants simply register in pre-defined DR/DER programs. Their response is

motivated by pre-defined incentives and penalties provided for the DR/DER programs. The

DSO Lite’s responsibilities in addition to conventional distribution planning, protection,

service restoration, and other related “wires” services, would include:

Forecast of both load and distributed generation at distribution substation and possibly

feeder levels

Determination of available resource capability (distributed resource, dispatchable load

storage, etc.) at distribution substation and possibly feeder levels

Aggregation of distributed demand-side capabilities for provision of different products

(e.g., Energy, Non-spinning Reserve, Flexible Reserve, Ramping, etc.)

Scheduling or offering aggregated demand-side resources (Virtual Power Plants) into the

ISO/RTO market

Receiving scheduling and dispatch information from ISO/RTO and communication to

demand-side asset operators

Monitoring of DR/DER asset responses

Measurement and Verification (M&V) with DR/DER asset owners

Settlement with ISO/RTO for provision of products and services to the ISO/RTO

Payment/charges to DR/DER asset operators and prosumers based on performance and

predefined rate structure

Under DSO Lite, while the DSO is responsible for provision of forecasts and assessment of

DR/DER responses to ISO/RTO instructions, the direct control of dispatchable DR/DER assets

may take place directly by the ISO/RTO. In other words, the DSO may act as a pass through

agent for ISO/RTO dispatch instructions.

One of the shortcomings of the DSO Lite construct is the fact that the scheduling and dispatch

of DR/DER resources is done without consideration for their impacts on the distribution grid.

For example, bulk power operators generally deal with three-phase balanced (positive

sequence) networks. Depending on the location of DR/DER assets on the distribution grid and



their concentration of various circuit phases, this may result in reliability issues such as phase

unbalance and increased losses, as well as over/under voltage and equipment loading issues.

Under the DSO Lite construct, the responsibility of forecasting DR/DER capabilities is with the

DSO. The DSO is to perform the forecasting bottom up: Forecasting DR/DER capabilities at

lateral or feeder level and aggregating, using grid topology, to determine forecast at various

levels and nodes of the system. This is in contrast to the traditional methods of forecasting

employed by bulk power operators where system load is forecasted and is then distributed to

individual grid nodes using Load Distribution Factors (LDF). With the variability and

unpredictability of the active distributed resources, LDFs will in reality be much more

volatile. The distribution system operator is in a much better position to forecast such nodal

level net consumptions.

III.B. DSO as Pseudo BA

A Pseudo Balancing Area DSO would perform all of the functions of the DSO Lite, but would

additionally be responsible for controlling the imbalance within the DSO footprint, and

exercise direct control of dispatchable DR/DER assets. Under this construct, the ISO/RTO

would not have direct control of DR/DER assets. The interface of the DSO and the ISO/RTO for

information exchange, control, M&V and Settlements is the PNode and APNode. The DSO is

responsible for delivery of the dispatched quantities to the ISO/RTO at the PNode or APNode

level. In this sense, the relationship between the ISO/RTO and the DSO is similar to a Pseudo

Balancing Area (or a Metered Subsystem in CAISO jargon). The DSO will make DR/DER

capabilities available to the ISO at the PNode (or APNode) level. The DSO will be responsible

for controlling the individual assets that comprise the aggregate. The DSO will schedule and

dispatch DR/DER assets with full consideration of their impacts on the distribution grid,

mitigating any otherwise potential degradation in the reliability of the distribution grid.

III.C. Comprehensive DSO

Under the Comprehensive DSO construct the DSO function will expand beyond that of a

Pseudo BA DSO. The interaction of the DSO and the DR/DER asset operators may expand

beyond conventional DR/DER programs. The DR/DER asset operators may offer their DR/DER

asset capabilities to the DSO, based on which the DSO may construct offer curves for the

aggregated assets it offers into the ISO/RTO market. The DSO may in return charge a fee to

the DR/DER asset operators. This also expands the extent of settlements functionality of the



DSO to allocate charges and credits to DR/DER asset operators not only based on

performance, but also based on the DR/DER bids and offers to the DSO.

III.D. Maximalist DSO (as Retail Market Facilitator)

The Maximalist DSO construct is envisioned as a possible future expansion of Comprehensive

DSO functionality. The Maximalist DSO function may include facilitation of a retail DR/DER

market. Under this construct, the DSO is no longer the single buyer of DR/DER capabilities.

The DR/DER asset operators can engage not only in submitting bids and offer to the DSO, but

also in bilateral arrangements among themselves. This is the ultimate construct in which the

“Transactive Energy” model prevalent in wholesale markets is extended to the retail domain.

In its role as the operator of the distribution system, the DSO is still responsible for secure

operation of the distribution system and will have to maintain reliable system operation while

facilitating such retail transactive market.

IV. DSO Roadmap

To compare and contrast the four stages of DSO evolution (roadmap) mentioned above, it is

helpful to classify the ultimate (Maximalist) DSO functions and the relative functionality of

the other DSO constructs respectively. To do this, we re-group DSO functional areas as

follows:

Basic Responsibilities

o Distribution System Planning

o Distribution System Reliability/Protection

Responsibilities as Linkage Between Bulk Power/Wholesale and End-Use/Retail Market

o Operations Scheduling

— Forecasting and Availability Assessment (Load; DR; DER)

— Aggregation; Virtual Power Plant Creation (Aggregation of distributed demand-side

capabilities for provision of different products such as Energy, Ancillary Services,

Flexible Reserve, Ramping, etc.)

— Scheduling/Bidding into Wholesale Market

o Dispatch and Real-Time Control

— DR/DER Resource Dispatch

— Real-Time Control

— Interchange Management (Pseudo-BA function)



o Metering and Settlements

— Interval Metering

— Measurement and Verification

— Settlement with Bulk Power/Wholesale Market Operator

— Settlement with DR/DER asset operators

o Retail Market Administration

— DR/DER Programs

— DR/DER offers (single buyer)

— Bilateral DR/DER (Full Transactive)

Figure 5 schematically shows the relative scope of responsibility of the different DSO

constructs.

Figure 5. Schematic Representation of DSO Responsibilities under Different DSO

Constructs

The DSO Lite construct is already accommodated in a number of utilities, balancing areas,

and ISO/RTO markets. Its basic functions include:

Reliability & Protection

PlanningForecasting &

Scheduling

Dispatch& Control

Settlements

Retail Market



Scheduling

Dispatch& Control

Settlements

Retail Market



Scheduling

Dispatch& Control

Settlements

Retail Market



Scheduling

Dispatch& Control

Settlements

Retail Market

DSO-Lite Pseudo BA DSO

Comprehensive DSO Maximalist (Fully Transactive) DSO

©2014 OATI, Inc.



Distribution System Planning

Distribution System Reliability/Protection

Operations Scheduling (only for conventional DR programs)

Dispatch and Real-Time Control (minimal responsibility; mostly direct control by bulk

power system operator)

Metering and Settlements (Settlement with DR/DER owners based on DR program

provisions and retail rates; no direct relation to revenues/penalties from wholesale

DR/DER transactions)

Retail Market Administration (limited to DR/DER Programs)

This is schematically shown in Figure 5.a.

The Pseudo BA DSO is the next logical step to alleviate some of the shortcomings of DSO Lite.

As stated earlier, this DSO construct may be perceived by including:



Operations Scheduling (possibly including interchange scheduling)

Dispatch and Real-Time Control of DR/DER (directly or through MicroGrid/BEMS operation

systems); possibly including interchange control with bulk power system

Metering and Settlements (Settlement with DR/DER owners mainly based on DR program

provisions; possibly some allocation of revenues/penalties from wholesale DR/DER

transactions)

Retail Market Administration (mainly limited to utility DR/DER Programs)

Figure 5.b shows this expanded responsibility schematically.

The Comprehensive DSO model would be a logical next step. So far as the Balancing Authority

and market operators are concerned, there is no difference between the DSO-CAISO

interactions between Pseudo BA DSO and Comprehensive DSO. The difference between the

two is the nature and extent of DR/DER asset operator interactions with the DSO. Specifically,

the new/expanded functionalities include:





Operations Scheduling (possibly including interchange scheduling)

Dispatch and Real-Time Control (directly or through MicroGrid/BEMS operation systems);

possibly including interchange control with bulk power system

Metering and Settlements (Settlement with DR/DER owners based on DR/DER programs as

well as DR/DER bids and offers with direct relation to revenues/penalties from wholesale

DR/DER transactions; DSO may also charges DR/DER asset operators for processing DR/DER

bids and offers)

Retail Market Administration (provisions for DR/DER asset operators, MicroGrids, etc. to

submit bids to the DSO who will use those to develop bid curves for aggregated resources

/VPPs that DSO schedules or bids into the wholesale market)

This is shown schematically in Figure 5.c. The Comprehensive DSO construct may entail

regulatory measures.

The Maximalist DSO represents the ultimate convergence of the DSO model with transactive

energy constructs (as explained in the next section). The responsibilities include:



Operations Scheduling

Dispatch and Real-Time Control of DR/DER assets

Metering and Settlements (Settlement with DR/DER owners based on DR/DER bids and

where relevant DR program provisions; direct allocation of revenues/penalties from

wholesale DR/DER transactions; DSO may charges DR/DER asset operators for processing

DR/DER bids and offers)

Retail Market Administration (including bids and offers and bilateral Transactive deals

among DR/DER asset operators)

This is shown schematically in Figure 5.d. The retail market structure for realization of the

Maximalist DSO construct will involve new State and possibly Local regulatory measures

allowing direct participation of DR/DER asset operators to participate as transacting parties in

the retail energy markets.



V. Convergence of DSO and Transactive Energy Constructs

Transactive techniques have been used in bulk power operation and trading in the U.S. since

the mid-nineties. Although restructuring had as its main goal customer choice and reduced

cost to consumers, the demand-side was still for the most part passive.

With the advent of smart device technologies and emphasis on smart grid operation the role

of demand side participation in retail markets is changing from passive or submissively active

to proactive. The notion of Transactive Energy primarily involves extension of trading to end-

use consumers. It envisions a paradigm under which Micro Grids and prosumers can trade

among themselves as well as with distribution operators and market operators.

GridWise Transactive Energy Framework [Ref.3] defines Transactive Energy as “A set of

economic and control mechanisms that allows the dynamic balance of supply and demand

across the entire electrical infrastructure using value as a key operational parameter.”

This definition emphasizes the balance of supply and demand based on “value” without

explicit reference to temporal and geographical aspects that may determine or modify the

“value.” In reality, the term “transactive” emphasizes the notion of a “transaction” as a

basis for exchanging information regarding quantity, value, time, and location. Since electric

energy is an instantly perishable product, whether trades are physical or financial, they are

based on the notion of perceived or actual value associated with the expected worth of

energy when it is eventually produced or consumed. In forward time frame trades are

primarily financial, but the closer they get to real-time delivery, the more the physical

deliverability aspects come into play.

The DSO construct and roadmap discussed in the previous sections also provides a roadmap

for gradual extension of transactions from wholesale to retail and end-use prosumers. The

Maximalist DSO construct embodies the convergence of Transactive Energy and DSO concepts.

VI. Conclusions

The electric industry is undergoing a paradigm shift impacting all entities including bulk

power supply, transmission operation, wholesale markets, distribution system operation, bulk

power and retail merchant operations, and end use consumers/prosumers. This changing

landscape gives rise to new operational challenges for power system operation at both bulk



power and distribution level. The DSO construct proposed in this paper provides a venue to

address these challenges while paving the way for a future fully transactive end-to-end power

system operation wherein different stakeholders can reap the benefits of the emerging

technologies.

References

[1] Farrokh A. Rahimi and Ali Ipakchi, “Transaction-based Techniques for Bulk Power

Operation under the Smart Grid Paradigm”, IEEE Smart Grid Newsletter, September

2011

[2] Farrokh A. Rahimi and Ali Ipakchi, “Transactive Energy Techniques: Closing the Gap

between Wholesale and Retail Markets”, Electricity Journal, Vol. 25/8, November 2012

(pages 29-35)

[3] GridWise Transactive Energy Framework (Draft Final), Prepared by The GridWise

Architecture Council; October 2013

[4] J. Medina, N. Muller, and I. Roytelman “Demand Response and Distribution Grid

Operations: Opportunities and Challenges”, IEEE Transactions on Smart Grid, Vol. 1,

No. 2, September 2010 (pages 193-198)

[5] The Role of Distribution System Operators (DSOs) as Information Hubs, EURELECTRIC

Networks, June 2010

Acknowledgments

The authors would like to thank our OATI colleagues Dr. Farrokh Albuyeh and Dr. Ali Ipakchi

for their review, comments and contributions to this work.

Biographical Notes

Farrokh Rahimi is Vice President of Market Design and Consulting at Open Access Technology

International, Inc. (OATI), where he is currently involved in analysis and design of power and

energy markets and Smart Grid solutions. He has a Ph.D. in Electrical Engineering from

Massachusetts Institute of Technology (MIT), along with over 42 years of experience in

electric power systems analysis, planning, operations, and control, with the most recent 8

years in the Smart Grid area. Before joining OATI in 2006, he collaborated with California ISO,

Folsom, CA for eight years, where he was engaged in market monitoring and design. His prior

experience included eight years with Macro Corporation (subsequently KEMA Consulting), five

http://smartgrid.ieee.org/

http://smartgrid.ieee.org/newsletter

http://smartgrid.ieee.org/newsletter/september-2011

http://smartgrid.ieee.org/newsletter/september-2011



years with Systems-Europe, Brussels, Belgium; one year with Brown Boveri (now ABB), Baden,

Switzerland; ten years as a university professor, researcher, and consultant in power and

industrial control systems in his country of origin (Iran), and two years with Systems Control,

Inc. (now ABB Systems Control, Santa Clara, CA), where he started his professional career.

Dr. Rahimi is a member of a number of Smart Grid task forces and committees collaborating

with IEEE, NERC, NAESB, WECC, and IRC among others.

Dr. Sasan Mokhtari, with over 30 years of experience in the North American Energy Industry,

serves as the Chairman of the Board, Chief Executive Officer, and President of Open Access

Technology International, Inc. (OATI), which he founded in 1995 to provide innovative

solutions for the deregulated energy industry. Throughout his 19 years at OATI, Dr. Mokhtari

has guided the company to become the premier Application Service Provider in the North

American wholesale energy industry by developing the OATI Data Centers in Minneapolis,

Minnesota.

Prior to founding OATI, Dr. Mokhtari held various positions for Siemens Power System Control

Division, including Manager of Research and Development (Advanced Applications). Dr.

Mokhtari holds a doctorate in Electrical Engineering, Power Systems, from the University of

Missouri-Columbia, has authored numerous professional papers, and currently serves as a

Senior Member of the Institute of Electric and Electronics Engineers.

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