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In this paper, a novel locational marginal price (LMP) policy for distribution system with significant penetration of distribution generation (DG) in competitive electricity market is presented. This new LMP method is based on remunerating DG units for their participation in reduced amount of energy losses in distribution systems brought about by participation of all DG units in supplying demand. Also, this method is combined with an iterative solution. This approach provides an efficient tool for distribution companies (DISCOs) to estimate the state of the system in the next step which other existing approaches of LMP fail to provide this system state estimation. Finally, in order to expand LMP method and provide effective prediction method for DISCOs to estimate the day-ahead state of the system, ANN tool is employed to predict the market price and demand for the next 24 h. This LMP prediction is a powerful operational tool for DISCO to exert its control over private DG units. However, prediction methods contain error. Therefore, uncertainty modeling is implemented for modeling the effect of error in prediction on the LMP calculation for the next day.