Review of LMP Markets


In order to address the effectiveness of LMP markets, Synapse was asked by the American Public Power Association (APPA) to review the theory and goals of the Locational Marginal Pricing (LMP) construct and to hold them up to the several years’ worth of experience in LMP markets. We asked the following questions: (1) Does security-constrained dispatch and LMP pricing work as well in the real world as it should in theory? (2) Have the price-signaling aspects of LMP produced the desired outcomes in terms of investments in electricity infrastructure? (3) Have the LMP markets been workably competitive, or is market power and price manipulation a concern? (4) Have power production costs come down as a result? Our results were presented at the Electricity Markets Reform Initiative (EMRI) symposium, hosted by APPA in Washington, DC on February 5, 2007.

Completed March 2007.