ISO Net Surplus Collection and Allocation in Wholesale Power Markets Under LMP

Hongyan Li and Leigh Tesfatsion ()

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This study uses five-bus and 30-bus test cases to explore ISO net surplus (congestion rent) collections and allocations in wholesale power markets with grid congestion managed by locational marginal prices (LMPs). Price-sensitivity of demand and generator learning capabilities are taken as experimental treatment factors. A key finding is that conditions resulting in greater generator capacity withholding, hence higher and more volatile LMPs, also result in greater ISO net surplus collections that can be substantial in size. A key conclusion is that ISO net surplus collections should be used pro-actively to mitigate the conditions encouraging generator capacity withholding and hence high and volatile LMPs rather than to provide ex post support for LMP payment offsets and LMP volatility risk hedging as is currently the norm.

Date: 2010-01-01
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Working Paper: ISO Net Surplus Collection and Allocation in Wholesale Power Markets Under LMP (2011)
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