Improving an unjustified common practice in Ex Post LMP calculation: An expanded version

A common practice for the Ex Post LMP calculation at a number of US ISOs uses a small constant range, typically from -2.0 MW to +0.1 MW, as each generator´s lower and upper bounds. However, this paper shows that this common practice lacks theoretic justification and may lead to inconsistent results. For example, if the ex post dispatch results are identical to the ex ante dispatch schedules, it is expected that the Ex Post LMP must be identical to the Ex Ante LMP. However, this paper shows that this may not be directly achieved with the common practice. This paper further illustrates that the practice is unjustified, because the marginal units and the Ex Post LMP results may vary if the bounds are changed from [-2.0, +0.1] to other values. To improve the Ex Post LMP model, this paper proposes a simple yet effective approach based on a scaling factor applied to the ex ante model. Then, if the generation dispatches at ex post is the same as scheduled at ex ante, identical LMPs at ex post and ex ante will be ensured. Also, the Ex Post LMP results will not vary if a different scaling factor is applied.