Enhancements of Extended Locational Marginal Pricing – Advancing Practical Implementation

Price formation is critical to efficient wholesale electricity markets that support reliable operation and efficient investment. The Midcontinent Independent System Operator (MISO) developed the Extended Locational Marginal Pricing (ELMP) with the goal of more completely reflecting resource costs and generally improving price formation to better incent market participation. MISO developed ELMP based on the mathematical concept of convex hull. However, considering the computational challenges and the existing market structure, MISO implemented an approximate version of ELMP. This paper presents enhancements to ELMP to bring the practical implementation of ELMP closer to the theoretical ideal and to achieve greater benefits of ELMP in production. The Special Ordered Set of Type Two (SOS2) piece-wise linear cost function formulation is used to tighten the approximation of, and under certain conditions exactly match, the convex hull of the cost function. Regulation commitment logic is also enhanced to maintain optimality under degeneracy conditions while providing flexibility for real-time regulation scheduling and pricing. Simulation results on the MISO system illustrate expected benefits. With the increasing interests in inter-temporal constraints, the on-going work on ELMP ramp modeling is also discussed.

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