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What Are the Benefits?
LMP is a market-based means of pricing the efficient use of the transmission system when constraints prevent economically priced power from flowing to where it is needed.
In the short-term, LMP improves the efficiency of the wholesale electricity market by ensuring that the cost of congestion is reflected in electricity prices and ensures that the least-cost supply of electricity is delivered while respecting the physical limitation of the transmission network.
In the long-term, LMP helps relieve congestion by promoting efficient investment decisions. Because LMP creates price signals that reflect the locational value of electricity, participants can readily determine areas of congestion and will see the value of investing in generation, transmission and demand response programs.
Appropriately located generation additions, transmission and demand response will increase the competitiveness of the New England market. Greater access to a larger number of competing suppliers helps to enforce market discipline without resorting to administratively applied market power remedies. Increased access to energy from lower-cost generators or imported power will ensure robust, competitive prices. And increased competition from strategically located lower-cost units and demand response will benefit much of New England, as the transmission grid is utilized more efficiently. Ultimately, increased competition should result in a more efficient wholesale energy market with lower costs.
