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2009 State of the Market Report

Load and Resources

Capacity cleared in the VCA is a small portion of the total designated capacity, ranging from 0.1 percent in August to 1.2 percent in November.13 This indicates that the VCA is serving as a balancing market with most LSEs’ capacity needs satisfied through owned capacity or bilateral purchases. The figure further indicates that capacity designations have always met or exceeded requirements (at times by 5 percent).

The VCA has cleared at exceptionally low prices in every month except July, when peak demand and large quantities of capacity that were not offered (or offered at very high prices) resulted in a clearing price of approximately $10,000 per MW-month. We investigated this conduct and concluded that these results were attributable to inexperience with this new market and uncertainty regarding a retail load auction occurring in the same timeframe.

The low prices in all other months during 2009 are consistent with the substantial capacity surplus prevailing in the Midwest ISO. The total capacity available significantly exceeded the requirements, from a minimum of 12 percent in August to a maximum of 51 percent in October. These surpluses should decline as load grows and supply contracts through retirements, declining imports, or increasing exports.

Finally, we have concerns regarding the ability of participants to import and export capacity, particularly with PJM. Capacity markets serve an important role in providing long-term economic signals to govern investment in the RTO markets. However, capacity prices will only be efficiently determined if participants are able to freely import and export capacity to arbitrage capacity price differences between markets to the extent that the physical transmission capability allows. Therefore, it is critical to identify and eliminate barriers that inefficiently hinder such transactions.


Designated capacity includes capacity owned, purchased from internal resources, and imported from outside the Midwest ISO.

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