An LMP, or locational marginal price, is the wholesale price of the next megawatt-hour of electricity at one specific point on the grid. ERCOT's Nodal Protocols define it as "the offer and/or bid-based marginal cost of serving the next increment of Load at an Electrical Bus," produced either by the day-ahead market or by real-time dispatch, which runs approximately every five minutes. LMPs are the plural: one price for each of thousands of locations, recalculated all day.

For a Texas business, LMPs matter most when a contract or proposal names a settlement point. Think "LZ_HOUSTON," "HB_NORTH," "real-time" or "day-ahead" on an index offer. They also explain why a site in West Texas and a site in Houston can carry different wholesale exposure in the same hour, and why a multi-site portfolio isn't priced as one number.

One point is worth getting straight early: a business's load doesn't settle at its own node's LMP. It settles at a load zone price built from many LMPs, and what you pay is whatever your REP contract says. This guide explains how ERCOT builds an LMP, where those prices land, and how to read them in a contract.

In ERCOT, an LMP is the price of the next MWh at one electrical bus. It has an energy part (System Lambda) and a congestion part, and no loss component. Businesses don't settle at a node: load settles at a load zone price, and index contracts often reference a hub instead.

Sources and dates. Protocol references are to the ERCOT Nodal Protocols sections in effect as of September 2026. Zone price history comes from the Independent Market Monitor's 2025 State of the Market Report (Potomac Economics), dated May 2026.

What Is an LMP (Locational Marginal Price)?

The Plain-English Definition

Take one spot on the transmission network, a substation bus. Ask what it would cost the system to serve one more unit of load there, given every generator's offer and every transmission limit in force at that moment. That cost is the LMP. ERCOT's definition in Protocols Section 2 ties it to the electrical bus, and says the price comes out of either the day-ahead market (DAM) or security-constrained economic dispatch (SCED), ERCOT's real-time dispatch engine.

Marginal Price vs. Average Price

"Marginal" is the word that trips people up. A marginal price is the cost of the next unit, not the average cost of all the units already running. ERCOT's market clears at the cost of the last resource needed to meet load, and every resource dispatched in that interval at that location is paid that price. That can be a gas plant, a battery, or a solar farm with room to spare.

Which resource sets the price changes through the day. The Independent Market Monitor (IMM) reports that energy storage resources are particularly likely to set the price during the morning demand ramp and the evening solar down-ramp.

Marginal pricing draws a fair criticism: a low-cost generator earns the same clearing price as the expensive unit that set it. The case for it, as the IMM puts it, is that prices carrying transmission constraints guide efficient operating and investment decisions. Higher prices in constrained areas signal the value of generation that can relieve congestion, and lower prices elsewhere reflect relative surplus.

Why "Locational"

If the grid had unlimited transmission, the next MWh would cost the same everywhere. It doesn't. When flow on a line or transformer reaches its limit, ERCOT has to dispatch higher-cost generation on the constrained side to serve load without overloading the element. As the IMM puts it, the resulting differences in the cost of delivering power "are reflected in the differing energy prices at each location or 'node' on the network." The location changes the price because the physics of moving power changes the cost of serving it.

How ERCOT Calculates an LMP: Energy Plus Congestion, No Loss Component

Most LMP explainers teach a three-part formula: energy plus congestion plus losses. That describes some grid operators. It does not describe ERCOT.

System Lambda: The Energy Component

Section 2 of the Protocols defines System Lambda as "the cost of providing one MWh of energy at the reference Electrical Bus," and states plainly that "System Lambda is the energy component of LMP at each Settlement Point in ERCOT." In any given interval there is one System Lambda for the whole system. If no transmission constraint were binding, every location would share that price.

Congestion: Shadow Prices and Shift Factors

Congestion is what pulls locations apart, and ERCOT measures it with two terms from Section 2:

Protocols Section 4.6.1.2 shows how the two terms combine for a day-ahead load zone price: Day-Ahead System Lambda minus the sum, across binding constraints, of the zone's shift factor times each constraint's shadow price. Each binding constraint nudges a location's price up or down according to how strongly that location's power flows over it.

How ERCOT builds an LMP: System Lambda adjusted for congestion, with no loss component Diagram of the ERCOT LMP formula. System Lambda, the system-wide energy component, is adjusted by congestion, which is the sum across binding transmission constraints of shift factor times shadow price and can raise or lower the price at a location. The result is the LMP at an electrical bus, in dollars per megawatt-hour, for each day-ahead hour or real-time dispatch run. A separate dashed box notes that losses are not part of ERCOT's LMP and are allocated to load through loss factors under Protocols Section 13. How ERCOT builds an LMP System Lambda Energy component: one system-wide value per interval − Congestion Σ (shift factor × shadow price) One term per binding constraint. Can raise or lower the price by location. = LMP at an electrical bus $/MWh, each DAM hour or SCED run Not in ERCOT's LMP: losses Allocated to load through loss factors (§13)
ERCOT's LMP is System Lambda adjusted for congestion. There is no marginal loss term; losses are handled separately through loss factors. Sign convention per Protocols §4.6.1.2.

A Worked Illustration

Round numbers make the mechanism easier to see. Suppose System Lambda in one interval is $30/MWh and a single transmission line is binding with a shadow price of $20/MWh. Three buses sit in different places relative to that line:

Illustrative bus Shift factor on the constraint LMP = 30 − (shift factor × 20)
A: generation side of the line +0.50 $20/MWh
B: unaffected by the line 0 $30/MWh
C: load side of the line −0.25 $35/MWh

Illustrative inputs only. These are not ERCOT market prices, not a forecast, and not a retail or supply price. The point is the shape of the result. The same energy price and the same constraint produce three different LMPs, because each bus's power affects the constrained line differently. Extra injection at Bus A worsens the constraint, so power there is worth less. At Bus C, more injection would relieve it, so power there is worth more.

Where Losses Go Instead

Electricity is still lost as it moves over wires. ERCOT just doesn't price it inside the LMP. Under Protocols Section 13, transmission and distribution losses are the responsibility of the qualified scheduling entity representing the load. ERCOT allocates them to load during data aggregation, applying Distribution Loss Factors to each ESI ID along with Actual Transmission Loss Factors.

Losses aren't free and they aren't missing from the economics; they are allocated rather than priced by location. That is a genuine design difference. ISO New England, for example, lists a loss component as one of the three components of its LMPs. That three-part design is the one most general explainers describe.

One more precision point. The two-part framing is accurate for the LMP itself. ERCOT's published real-time settlement prices add one more term, covered below.

Nodes, Load Zones and Hubs: Where ERCOT Prices Land

An LMP is calculated at an electrical bus, but ERCOT settles money at three kinds of settlement point: resource nodes, load zones and hubs. Knowing which one a number refers to is most of the battle when reading a proposal.

Electrical Buses and Resource Nodes

Electrical buses are the network model's pricing locations. Resource nodes are the settlement points where generation and storage resources are paid. ERCOT's Settlement Points List and Electrical Buses Mapping file generated August 19, 2026 lists 19,379 electrical buses and 1,036 resource nodes mapped to those buses, plus separate logical nodes for combined-cycle plants. Both counts move as ERCOT loads network model updates, so treat them as a dated snapshot.

Load Zones: Where Business Load Settles

Every electrical bus belongs to a load zone (Protocols Section 3.4). There are three types:

In real time, a load zone's price is the load-weighted average of the LMPs at the buses inside it (Protocols Section 6.6.1.2). The IMM states it directly: in ERCOT, "LMPs are calculated at individual generation and load nodes, but load is settled at the load-weighted average price of its load zone." Zone boundaries don't change casually. Changes need ERCOT Board approval and take effect 48 months after the end of the month they were approved (Section 3.4.2).

Two Texas-specific notes. San Antonio and Austin load sits in NOIE zones (LZ_CPS and LZ_AEN): CPS Energy and Austin Energy are municipal utilities that have not opted into retail choice, so a business there can't shop a REP. Lubbock went a different way. When ERCOT integrated Lubbock Power & Light's remaining load in December 2023, it placed that load in the competitive West Load Zone rather than a NOIE zone (ERCOT market notice M-A111323-01). LP&L has since opened its territory to retail choice. For which parts of the state have choice at all, see deregulated energy states and Texas cities.

Your zone is set by the electrical bus serving your premise. City names and TDU names don't decide it, and a single TDU's territory can span more than one zone. The practical source is the offer or contract, which names the settlement point.

Hubs: The Trading Benchmarks

Hubs are reference prices for trading, not places power is delivered. Section 3.5.2 defines the North, South, Houston, West and Panhandle 345 kV hubs, plus the ERCOT Hub Average and ERCOT Bus Average (HB_NORTH, HB_SOUTH, HB_HOUSTON, HB_WEST, HB_PAN, HB_HUBAVG, HB_BUSAVG).

The Protocols also contain language for a Lower Rio Grande Valley hub. That language is grey-boxed pending system implementation, so it isn't a live trading point.

Settlement Point Prices vs. LMPs

A settlement point price (SPP) is the price ERCOT actually uses to settle a resource node, load zone or hub. It is built from LMPs:

Settlement point How the price is formed Who settles or trades there
Resource node Real-time LMP at that node, time-weighted to 15 minutes (§6.6.1.1) Generation and storage resources
Load zone (e.g. LZ_HOUSTON, LZ_WEST) Load-weighted average of bus LMPs in the zone (§6.6.1.2) Wholesale settlement for load, including load served by REPs
Regional hub (e.g. HB_NORTH) Arithmetic average of hub-bus prices (§6.6.1.5) Trading and contract reference; no load is delivered there
ERCOT Hub Average (HB_HUBAVG) Real time: simple average of North, South, Houston and West hubs, Panhandle excluded (§3.5.2.6) Broad market benchmark for trading and index references
From electrical bus to your bill: how ERCOT LMPs become settlement point prices and then contract prices Flow diagram. ERCOT calculates an LMP at each of 19,379 electrical buses, per its settlement point file dated August 19, 2026. Those LMPs feed three kinds of settlement point: 1,036 resource nodes where generators and storage settle, load zones (four competitive and four NOIE) where business load settles, and seven hubs used as trading benchmarks. The load zone price, or a hub price if the contract references one, feeds your REP contract, which, for an index product, names the settlement point and the market. The contract feeds your invoice, where the wholesale price is only one input to the supply charges, alongside TDU delivery charges and taxes. From electrical bus to your bill Counts from ERCOT's settlement point file, Aug 19, 2026 19,379 electrical buses An LMP is calculated at each one Resource nodes 1,036 generators and storage Load zones 4 competitive + 4 NOIE business load settles here Hubs 7 trading benchmarks if referenced Your REP contract Index terms name the settlement point (zone or hub) and the market (DAM or RT) Your invoice Supply charges + TDU delivery + taxes The LMP is one input to the supply part
ERCOT prices every bus, but business load settles at a load zone price. An index contract may reference that zone or a hub, and the invoice layers delivery charges and taxes on top. Counts are a dated snapshot from ERCOT's NP4-160-SG file.

Why Houston and West Texas Wholesale Prices Diverge

Location moves prices in practice, not just in theory. The IMM publishes annual load-weighted average real-time energy prices by load zone. Here is its five-year table:

Load zone ($/MWh) 2021 2022 2023 2024 2025
ERCOT average 179.24 76.41 73.28 32.41 36.94
Houston 136.69 82.47 72.88 30.24 34.95
North 221.52 77.30 78.01 30.42 35.34
South 200.35 74.39 71.12 34.66 37.59
West 111.56 66.62 67.56 35.88 41.59

Source: IMM 2025 State of the Market Report, Table 1. These are annual load-weighted average real-time wholesale energy prices, excluding DC tie imports and exports, and the IMM's headline zone comparison excludes price adders. 2021 includes Winter Storm Uri. This is wholesale market history. It is not a retail rate, and it is not a price Elite Energy Consultants offers.

Two things stand out. The West zone had the highest average price in both 2024 and 2025. In 2025 that was $41.59/MWh against an ERCOT average of $36.94. Houston was the lowest of the four competitive zones in both years. That runs against the older folk wisdom that Houston is the expensive zone and West Texas the cheap one.

The IMM's explanation is about constraints, not fuel:

Now the caveat: rankings flip. Houston was the highest-priced zone in 2022 at $82.47, and West was the lowest from 2021 through 2023. Don't read the last two years as a permanent rule in either direction. A dated average also isn't a forecast.

Zone Averages Hide Node-Level Extremes

Because load settles at a zone average, some congestion is averaged across every customer in the zone. The IMM reports that congestion within load zones continues to outpace congestion between them: roughly 9% of 2025 congestion costs were interzonal. It recommends that ERCOT revise the load zone configuration, which dates from 2003, and it evaluated a seven-zone alternative.

That is a recommendation, not an adopted change. Under Section 3.4.2, any approved zone change would take effect 48 months after the end of the month of Board approval.

What Changed With RTC+B in December 2025

On December 5, 2025, ERCOT went live with Real-Time Co-optimization Plus Batteries (RTC+B). For LMPs, the important changes are:

Keep the early read in proportion. ERCOT described "projected wholesale market savings exceeding one billion dollars annually." That is a projection, not a measured result. The IMM's 2025 report covers only the first weeks of RTC+B operation. It says the real-time market "has functioned as expected without any major malfunctions," while flagging ancillary service price formation issues it links to the design of the demand curves. For how those products work, see ERCOT ancillary services explained.

What LMPs Mean for Your Business Electricity Contract

Fixed-Rate Buyers

On a fixed-price product, the REP carries the LMP and load zone exposure and prices that risk into the offer. You won't see LMPs on the bill, but the market they reflect still shapes what offers look like when you shop. How fixed rate electricity plans work covers what the rate locks and what it doesn't.

Index and Block-and-Index Buyers

This is where the geography stops being academic. An index product names two things: a settlement point, usually a load zone or a hub, and a market, day-ahead or real-time.

When reviewing an offer, ask which settlement point and which market the index uses, how intervals are averaged into your billed price, and which charges pass through separately. Our index rate electricity guide walks through the contract mechanics. The index rate commercial electricity page explains how we compare index offers, and how to hedge electricity price volatility covers block-and-index and layering.

Multi-Site and West Texas Operations

Sites in different load zones carry different wholesale exposure, even under one master agreement. A portfolio with a Houston warehouse and a Permian Basin site is exposed to two zone price series that, per the IMM table above, have moved differently year to year. Lubbock's load sits in the West zone, and the IMM places the Permian Basin there too; your offer names the settlement point for each site. See our pages for Lubbock and Midland business electricity.

What an LMP Does Not Include

An LMP is only the wholesale energy piece. It does not include:

A unit note: wholesale prices are quoted in dollars per megawatt-hour, and your bill counts kilowatt-hours; one MWh is 1,000 kWh. kW vs. kWh on commercial electricity bills explains the units on the invoice.

And a note on roles. Elite Energy Consultants is a broker. We don't run the grid, set or forecast wholesale prices, or guarantee savings. What we do is read the settlement point, market and pass-through terms in each offer, so you compare like with like.

Where to Look Up ERCOT LMPs and Settlement Point Prices

ERCOT publishes the data itself. The ERCOT Market Prices page links to:

If you are checking an index invoice, match the report to the contract: the settlement point it names, and day-ahead or real-time. Comparing a real-time zone invoice against day-ahead hub prices will look like an error when it isn't. For the wider market context, see ERCOT wholesale electricity prices explained, our ERCOT market explainer, and the energy glossary.

Frequently Asked Questions

What is an LMP in electricity?

An LMP, or locational marginal price, is the wholesale price of the next increment of electricity at one specific point on the grid. ERCOT's Nodal Protocols define it as the offer- and bid-based marginal cost of serving the next increment of load at an electrical bus, produced by the day-ahead market or by real-time dispatch.

What does LMPs stand for?

Locational marginal prices, the plural of LMP. ERCOT produces an LMP at every electrical bus in its network model, and its settlement point mapping file generated August 19, 2026 lists 19,379 of them, so the term usually comes up in the plural.

Does ERCOT's LMP include losses?

No. ERCOT's LMP is System Lambda, the energy component, adjusted for transmission congestion. There is no marginal loss component. Transmission and distribution losses are allocated to load separately through loss factors under Section 13 of the Nodal Protocols. Some other grid operators, such as ISO New England, do publish a loss component.

What is the difference between an LMP and a settlement point price?

An LMP is calculated at an electrical bus for each day-ahead hour or each real-time dispatch run. A settlement point price is the price ERCOT actually settles at a resource node, load zone or hub. In real time it averages the LMPs across a 15-minute interval, adds the reliability deployment price adder, and cannot fall below −$251/MWh.

What is a load zone in ERCOT?

A group of electrical buses whose load settles at one price. The four competitive load zones are Houston, North, South and West, the zones in effect for the 2003 market. Four NOIE load zones cover Austin Energy, CPS Energy, LCRA and Rayburn Country, utilities that have not opted into retail choice; other non-opt-in load settles inside the competitive zones. In real time, a load zone's price is the load-weighted average of the LMPs at its buses.

What is the ERCOT Hub Average?

A trading benchmark. In real time it is the simple average of the North, South, Houston and West hub prices, with the Panhandle hub excluded. Day-ahead, it is calculated from the aggregated shift factors of the same four hubs. No load is delivered to a hub, which is why a hub-referenced contract carries basis risk against the load zone where your usage settles.

How often does ERCOT calculate LMPs?

In real time, ERCOT's security-constrained economic dispatch runs approximately every five minutes, and each run produces LMPs. Those prices are averaged into 15-minute settlement intervals. The day-ahead market produces hourly prices, with results due no later than 1:30 p.m. the day before the operating day.

Can LMPs be negative?

Yes. In 2025 the West load zone had the most negative-price intervals of any zone, which the Independent Market Monitor ties to the zone combining export-constrained Panhandle wind and solar with an import-constrained Permian Basin. Real-time settlement point prices carry an administrative floor of −$251/MWh.

Which ERCOT load zone is Lubbock in?

West. When ERCOT integrated Lubbock Power & Light's remaining load into the ERCOT system in December 2023, its market notice placed that load in the West Load Zone.

The Bottom Line

An LMP is a precise thing: the marginal cost of serving the next increment of load at one electrical bus. In ERCOT it is energy adjusted for congestion, with no loss term. Businesses don't settle at those bus prices directly. Load settles at a load zone average, and contracts reference a zone or a hub in a day-ahead or real-time market.

So when an offer mentions LMPs, the useful questions are where the price is set and which market sets it, not only what it was last month. The answers decide how closely your price follows the grid conditions at your own site.

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