  Introduction of market mechanisms in distribution systems is currently
subject to extensive studies. One of the challenges facing Distribution Market
Operators (DMOs) is to implement a fair and economically efficient pricing
mechanism that can incentivize consumers to positively contribute to grid
operations and to improve economic performance of the distribution system. This
paper studies a penalty-based pricing mechanism in distribution markets and
further investigates the interrelationship between the locational marginal
prices (LMPs) at transmission and distribution levels. As a result, a
closed-form relationship between these LMPs is derived. The possibility of
zeroing out the settlement profit is further investigated under the proposed
pricing mechanism.
