  Modern market management systems continue to evolve due to the intentions to
improve system security and reliability. This evolvement has been leading to a
transition of market auction models from a deterministic structure with
approximations on the reliability criteria (e.g., acquirement of contingency
reserve through proxy reserve policies) to explicit representation of
contingencies (e.g., estimation of post-contingency states via participation
factors and stochastic programming). This paper proposes a comprehensive
framework to establish various procedures for evaluating: (i) transparency and
incentive compatibility of different contingency modeling approaches, and (ii)
efficiency of two possible stochastic market designs. First, the concept of
securitized LMP is presented to solve the issue of how market participants
should be compensated for providing N-1 reliability services. Then, pricing
implications and settlements of three market models are compared: (i) a
deterministic market model with proxy serve policies, (ii) state-of-the-art
market models with estimated post-contingency states, and (iii) a two-stage
stochastic market model. Second, this paper evaluates two stochastic market
models while accounting for potential adjustments from day-ahead scheduling to
real-time operation: (i) minimizing expected operating cost of all N-1
scenarios, and (ii) minimizing the base-case (or no contingency) cost. These
analyses are conducted on IEEE 118-bus test system.
