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The ISO graples with the politics of scarity.
Fortnightly Magazine - July 15 2003

to permit the inflexible unit to set nodal LMPs at $500 ... a market participant could easily find itself forced to buy incremental energy to serve load at $500/MWh at the same time that its own generating resource priced at $100 is available but not dispatched.

"In a worst case scenario," adds the ISO, " these perverse incentives could diminish [our] ability to operate the system."

In its landmark order, issued in April , the Federal Energy Regulatory Commission told the New England ISO to allow all those high-cost peaking turbines to set the LMP price in the day-ahead energy market, even when they receive a subsidy under the new PUSH bidding rule.

So far, the New England ISO has said it cannot meet FERC's request because of the software problems noted above. But it says it will allow three-quarters of those subsidized turbines to set the LMP.

As the ISO notes, that should serve well enough to provide "rough justice" to FERC's SMD vision, but not a full guarantee of cost recovery.

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