The Laws of Physics

How Einstein discovered relativity, locational pricing, and participant-funded transmission.

Space and time. Energy and mass. All is relative. Nothing is ever exactly what it seems. Take the story of Albert Einstein. Perhaps you know how he mulled the nature of the universe as he rode the streetcar to his desk job at the Patent Office in Berlin-how he published three scientific papers in 1905 in the journal Annalen der Physik that explained Brownian Motion, the photoelectric effect, and the special theory of relativity, thereby changing the history of man and his world.

Yet you may not be entirely familiar with another side to that story-how just a few years earlier, Einstein already had discovered risk management, energy trading, and locational marginal pricing (LMP)-the latter being a key tenet of a standard market design (SMD) for wholesale electricity, now endorsed by the Federal Energy Regulatory Commission (FERC).

But I get ahead of myself. Let's go back to the beginning-back to the start of the 21st century.

MANY IN THE ELECTRIC INDUSTRY OPPOSE FERC'S SMD BECAUSE LMP CAN'T HELP TO RATIONALIZE THE TRANSMISSION GRID. They admit that LMP shows power producers where to build (by highlighting where prices are highest). But they counter that LMP does nothing to incentivize grid expansion, which they say is the real infrastructure need. These Luddites warn of threats to reliability. They see no reason why anyone would build a new transmission line to capture a locational price advantage if a power producer could then wipe out that advantage by siting a turbine in just the right place.