Status of Deregulation and Locational Marginal Pricing in Power Markets

In this paper, we present the status of electricity deregulation in the United States. Furthermore, we describe the use and advantages and disadvantages of locational marginal pricing (LMP) in deregulated power markets. Finally, we present the use of LMP in analyzing electricity pricing in a deregulated electric utility environment. Using LMP, our proposed methodology for determining electricity prices in deregulated power markets is presented as an optimization problem that aims to minimize the total system production cost subject to physical and operational power system constraints. As building blocks in our modeling and analysis, we consider NERC guidelines for regional generation and transmission planning. We show an application of LMP in analyzing a six-bus test system. The details of the test system are included in this paper.