LMP Market Design

LMP Market Design

Scott Harvey - Local Marginal Pricing Market Power

Locational Marginal Pricing (LMP), Price Formation and Competitive Electricity Markets


All centrally coordinated electricity markets in the U.S. currently employ locational pricing to price electric energy.

  • PJM implementation: April 1, 1998
  • New York ISO implementation: November 19, 1999
  • ISO New England implementation March 1, 2003
  • MISO implementation: Aprli 1, 2005
  • Southwest Power Pool implementation: February 1, 2007
  • California ISO implementation: Aprli 1, 2009
  • ERCOT implementation: December 1, 2010.
  • Western EIM November 1, 2014

Outside of the U.S., locational marginal pricing has been used in New Zealand for more than 20 years, and versions of locational pricing have been used in Chile and Norway for many years. The papers and presentations below cover the basics of locational marginal pricing, as well as topics that are in the forefront of the evolution of U.S. electricity markets. These topics include the causes and impact of uplift costs, issues related to price formation when cost functions are not convex, and the features of an locational marginal pricing system that can be used to address these issues such as extended LMP. Papers relating to the impact of reserve shortage pricing and simultaneous optimization of energy and reserves on price formation are listed in the ancillary services section below.

Scott M. Harvey, "The History of LMP Pricing Development and the Origins of Fixed Block Pricing," PJM Price Energy Price Formation, Senior Task Force Meeting, Valley Forge, Pennsylvania, March 5, 2018.

William W. Hogan and Susan L. Pope, "Priorities for the Evolution of an Energy-Only Electricity Market Design in ERCOT," May 9, 2017

Scott M. Harvey, "The Load Bias Limiter, Price Formation, and the Need for Flexible Capacity," California Market Surveillance Committee, Folsom, CA, May 5, 2017.

Scott M. Harvey, "Market Impacts of Shift Factor Truncation," California Market Surveillance Committee, Folsom, CA, June 17, 2016.

Susan Pope, "Price Formation in ISOs and RTOs," October 2014.

William W. Hogan, "Electricity Market Design and Efficient Pricing: Applications for New England and Beyond," June 24, 2014.

Scott M. Harvey, "Is the California ISO Becoming an Uplift Market? Pricing, Uplift and Commitment," May 19, 2014 California ISO Market Surveillance Committee

Scott M. Harvey, "Pricing and Price Signals: What is the problem we are trying to solve?" California ISO Pricing Forum, April 22, 2014.

William W. Hogan, "Electricity Market Reform: Market Design and Extended LMP." NHH Workshop on Pricing in Deregulated Energy Markets presentation, Voss, Norway. November 28, 2011.

Michael Cadwalader, Paul Gribik, William Hogan, Susan Pope, "Extended LMP and Financial Transmission Rights," June 9, 2010.

Scott M. Harvey, Matthew Kunkle, Benjamin Hagberg, and Shaun Glassman, "Final Report: Analysis Track Testing of CAISO MRTU Pricing and Dispatch," Prepared for California Independent System Operator, October 20, 2008.

Paul R. Gribik, William W. Hogan and Susan L Pope, "Market-Clearing Electricity Prices and Energy Uplift," December 31, 2007.

Scott M. Harvey, Susan L. Pope and William W. Hogan, "Comments on the California ISO MRTU LMP Market Design," California Independent System Operator, February 23, 2005.

William W. Hogan and Brendan J. Ring, "On Minimum-Uplift Pricing for Electricity Markets," March 19, 2003.

Scott M. Harvey, William W. Hogan, Susan L. Pope, Andrew P. Hartshorn and Kurt Zala, "Final Report on Phase IV Market Trials," prepared for the New York Power Pool , October 26, 1999.

William W. Hogan, "Getting the Price Right in PJM: Analysis and Summary: April through September," October 11, 1998.

William W. Hogan, "Getting the Price Right in PJM:What the Data Teach Us," Electricity Journal, August-September 1998.

Susan Pope, "Affidavit on Congestion Pricing," prepared for the Member Systems of the New York Power Pool, Docket ER97-1523 et al, December 2, 1997.

William W. Hogan, "Report on the Proposal to Restructure the New York Electricity Market," prepared for the Member Systems of the New York Power Pool, January 31, 1997.

William W. Hogan, "Report on PJM Market Structure and Pricing Rules," prepared for the PJM Supporting Companies, December 31, 1996.

William W. Hogan, "Appendices to Report on PJM Market Structure and Pricing Rules," prepared for the PJM Supporting Companies, December 31, 1996.

William W. Hogan, "A Wholesale Pool Spot Market Must Be Administered by the Independent System Operator: Avoiding the Separation Fallacy," Electricity Journal, December 1995.

William W. Hogan, "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, September 1992, Volume 4 #3