LBMP

Locational Based Marginal Pricing - LBMP

New York State's electrical energy cost structure relies on a complicated economic model pricing system that probably very few people truly understand. The basic idea is that low-cost energy is obtained first, medium-priced energy is obtained next, and high-priced electricity is obtained only when absolutely needed. The end result is that many of the expensive oil-fired generators in the NYC area aren't used that often, to the point that they have trouble making enough money to stay in business.

The system is supposed to "signal" when generators are needed in certain areas, but it hasn't been working as intended (in part because Article X is defunct). Hence the drive to bring energy in from everywhere else---------upstate New York, New Jersey, Canada, etc. I'm sure if New York City could beam energy in from Mars, they would do so.

The model worked so poorly that new "spinoff" models were developed to include the idea of reliability and congestion. Now we have models on top of models, with groups on top of groups. The benefit of this whole system is that everything is so complicated that everyone can blame someone else if something should go wrong.

The best link I have found so far in explaining how we got to this point is here http://books.nap.edu/openbook.php?record_id=11666&page=124