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2009 State of the Market Report

Executive Summary


Dispatch of Peaking Resources

The dispatch of peaking resources is an important component of the real-time market because peaking units are a primary source of RSG costs and a critical determinant of efficient price signals. The dispatch of peaking resources decreased from 270 per hour in 2008 to an average of 227 MW in 2009. During the peaking summer months, this amount rose only slightly to 287 MW due to mild weather conditions.

Our analysis also shows that a large share of the peaking resources were dispatched out-of-merit. A resource is out-of-merit when its offer price is greater than the LMP. A peaking resource that is dispatched out-of-merit does not indicate it was dispatched inappropriately, it simply indicates that the LMP was set by a lower-cost resource. When a large share of peaking resources is dispatched out-of-merit, it indicates that they frequently do not set the energy price and results in higher RSG costs to ensure the peaking resources recover their as-offered costs. Out-of-merit dispatch of peaking resources also contributes to the under-scheduling of load in the day-ahead market. Peaking resources are generally the only resources that can be committed in real time to serve the load not scheduled day-ahead. Hence, if real-time prices are not set by the peaking resources, real-time prices will be lower and create a disincentive to purchase day-ahead. The Midwest ISO continues to work on a pricing method to address this issue that will allow inflexible units and demand response resources to set prices.


Generating Capacity and Reserve Margins

The additions of MidAmerican Energy (“MidAmerican”) and Muscatine Power & Water (“Muscatine”) to the Midwest ISO in September 2009 increased the total amount of generating resources in the market to almost 140 GW. This is measured in nameplate capacity and does not include typical deratings (i.e., reductions in generators’ capabilities). These deratings tend to be particularly large during periods of hot weather. When we fully account for deratings and outages, we project a system reserve margin of 17 to 26 percent for 2010 depending on the level of interruptible load assumed.5 These margins have increased over the last four years as peak loads have fallen and new resources have entered the market. For summer 2010, the 5-percent


The integration of Dairyland Power Cooperative on June 1, 2010 is reflected in these estimates.

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