Locational marginal pricing, even if "complex," is well worth the benefits.
In two recent issues, PUBLIC UTILITIES FORTNIGHTLY featured editorials %n1%n on restructuring of the PJM Pool. Those two articles described proposals by the so-called supporting companies, %n2%n seven members of the Pennsylvania-New Jersey-Maryland Interconnection, to use a "locational marginal pricing" model for congestion pricing for electric transmission and to continue PJM as a "tight" power pool. The FORTNIGHTLY compared the LMP model with a zonal pricing idea proposed by PECO Energy and the Coalition for a Competitive Electric Market, an ad hoc group including power marketers. Contrary to the impression conveyed by those editorials, however, the facts and the public interest strongly favor the supporting companies and their LMP proposal.
Locational pricing for transmission congestion has been used successfully in one form or another in certain foreign countries for some time now. Many believe, in those countries and in the U.S., that LMP provides the most accurate, efficient and equitable way to price transmission congestion. Indeed, while the Federal Energy Regulatory Commission has not yet formally approved the LMP model as proposed by the supporting companies, it has spoken favorably of the idea: "Ultimately, [it] will promote competitive market mechanisms we are encouraging." %n3%n The FERC repeated that view in its just-issued order in the California restructuring case: "While the Commission recognizes that congestion pricing is complex, we believe that the gains in efficiency outweigh the burden of such complexity." %n4%n
Congestion: A Fact of Life