Congestion management is the technical challenges in a deregulated power system environment. In Congestion Management the allocation of Congestion cost, Generation cost, losses are a main issue. In this research paper optimal generation levels in deregulated markets are determined. The major problem in deregulated system is congestion in the transmission lines, which limits transfer ability of a power system with existing generation capacity. Locational marginal price (LMP) of every generator at every bus is to determine by using nodal pricing method. Determination of Locational Marginal Price and maximization of the social welfare are objective functions in congestion management. The Simulations are done by using power system analysis tool box(PSAT-MATLAB)software in IEEE 6 bus test system and IEEE 14 bus system. © 2016 IEEE.