Market-Based Price Differentials in Zonal and LMP Market Designs

The California ISO is redesigning procedures for scheduling, dispatch, and congestion management, which are critical to reliable, nondiscriminatory transmission service. The redesign implements security constrained unit commitment and locational marginal pricing to reflect actual costs of delivering energy, using an accurate network model to price both congestion and losses. CAISO simulations of the market redesign are a unique opportunity to compare a) estimated LMPs if the redesign were in place during recent historical periods with b) actual conditions, as logged in operating records. The study uses market schedules and bids in an alternating current optimal power flow simulation. Resulting LMPs are similar within current congestion zones, but price differences occur during high loads, reflecting actual changes in system conditions. The frequency and magnitude of LMP differences are consistent with the current market, suggesting that the increased market transparency will produce stable, predictable prices. Case studies demonstrate that optimization using SCUC and SCED, coupled with the state estimator, allows more appropriate responses to system conditions, improved utilization of transmission capacity, reduction in congestion costs, and enhanced system reliability.