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2009 State of the Market Report

Competitive Assessment

Qiprod is the actual observed production of the unit. The difference between Qiecon and Qiprod represents how much the unit fell short of its economic production level. However, some units are dispatched at levels lower than their three-part offers would indicate due to transmission constraints, reserve considerations, or other changes in market conditions between the unit commitment and real-time. Therefore, we adjust Qiprod upward to reflect three-part offers that would have made a unit economic to run, even though the unit may not have been fully dispatched. Hence the output gap formula used for this report is:

Qi

econ – max(Qiprod, Qioffer) when greater than zero, where: Qioffer = offer output level of i.

By using the greater of actual production or the output level offered at the clearing price, units that are subject to ramp limitations are excluded from the output gap.

Figure 76 shows monthly average output-gap levels for the real-time market for 2008 and 2009. The output gap shown in the figure includes two types of units: 1) online and quick-start units available in real time, and 2) offline units that would have been economic to commit. The data is arranged to show the output gap using the mitigation threshold (defined above) in each area (the “high threshold”), and one-half of the mitigation threshold (“low threshold”). Resources located in NCAs are tested at the NCA conduct thresholds and resources outside NCAs are tested at BCA conduct thresholds.

The high threshold for resources in BCAs is $100 per MWh above the reference or 300 percent of the reference, whichever is lower. The threshold effective during most of 2009 was $22.11 per MWh in the WUMS NCA, $22.11 per MWh in the North WUMS NCA, and $42.97 per MWh in the Minnesota NCA. The low threshold is set to 50 percent of the applicable high threshold for a given resource. For example, a resource in WUMS, the low threshold would be $11.06 per MWh. For a resource’s unscheduled output to be included in the output gap, its commitment cost per MWh or incremental energy offer must exceed the given resource’s reference plus the applicable threshold. The lower threshold would indicate potential economic withholding of output that is offered at a price significantly above its reference yet within the mitigation threshold.

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