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2009 State of the Market Report

Executive Summary

While market-to-market coordination between the Midwest ISO and PJM continues to increase efficiency of the RTOs congestion management, a significant issue was discovered in 2009 that impacted the market to market settlements over the past four years. In April 2009 the Midwest ISO identified an issue with PJM’s market flow calculations that frequently understated PJM’s market flows for the past several years. The settlement issues associated with these issues is currently the subject of a number of complaints before the Commission. Additionally, a number of disagreements regarding the interpretation of the Joint Operating Agreement (“JOA”) between the Midwest ISO and PJM and several other issues have resulted in two referrals by the IMM to the Federal Energy Regulatory Commission (the “Commission”). We recommend that the RTOs work together to institute a process to more closely monitor the exchange of information and other modeling parameters, provisions or procedures to optimize the interchange process, and to clarify the JOA in a number of areas to minimize future disagreements and ensure efficient outcomes.

Finally, although the report concludes that the market performed well in 2009, we provide a number of recommendations to improve its efficiency and competitiveness. These recommendations address energy pricing, congestion management, real-time operations, external transaction scheduling, the market-to-market process, capacity market rules, demand response development, and wind integration. Work is underway by the Midwest ISO to evaluate and address these recommendations.

In the remainder of this Executive Summary, we provide a more detailed discussion of the market outcomes and issues in 2009, along with a description of each of our recommendations to improve the performance of the Midwest ISO markets.


Short-Term Prices and Long-Term Economic Signals

We summarize changes in prices and costs in Figure E-1, which shows an “all-in” price of electricity. This represents the total cost of serving load. The all-in price of electricity is equal

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