  In this paper, a framework is proposed to coordinate the operation of the
independent system operator (ISO) and distribution system operator (DSO). The
framework is compatible with current practice of the U.S. wholesale market to
enable massive distributed energy resources (DERs) to participate in the
wholesale market. The DSO builds a bid-in cost function to be submitted to the
ISO market through parametric programming. Once the ISO clears the wholesale
market, the dispatch and payment of the DSO are determined by ISO. Then, the
DSO determines the dispatch and payment of the DER aggregators. To compare the
proposed framework, an ideal case is defined in which DER aggregators can
participate in the wholesale market directly and ISO overseas operation of both
transmission and distribution systems. We proved 1) the dispatches of the
proposed ISO-DSO coordination framework are identical to those of the ideal
case; 2) the payments to each DER aggregator are identical in the proposed
framework and in the ideal case. Case studies are performed on a small
illustrative example as well as a large test system which includes IEEE 118 bus
transmission system and two distribution systems - the IEEE 33 node and IEEE
240 node test systems.
