New LMP Calculator helps improve real-time price formation

On May 27, ISO New England replaced its Locational Marginal Price (LMP) Calculator, the automated software that determines real-time energy and reserve prices. The revised LMP Calculator helps create a system in which the preliminary prices produced by the LMP Calculator, the price signals sent by the ISO’s dispatch software, and the final prices used in settling the markets are more closely aligned. The new software also eliminates the need for special pricing rules regarding the eligibility of resources to set price.

This project followed recommendations by the ISO’s External Market Monitor and Internal Market Monitor, as described in the 2013 Annual Markets Report. They found that in limited circumstances, the previous LMP Calculator algorithm could produce LMPs that didn’t correctly reflect the costs of real-time reserve constraints, requiring price reviews or corrections after the preliminary prices were published and before market settlement. To solve the problem, the ISO’s new LMP Calculator now uses the same software and inputs as its security-constrained economic dispatch software, which produces dispatch rates.

The move to a new LMP Calculator garnered unanimous support from the NEPOOL Participants Committee, and the accompanying market rule revisions received FERC approval on May 17.