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2009 State of the Market Report

IV.

Day-Ahead and Real-Time Market Performance

In this section, we evaluate the performance of the day-ahead and real-time markets. Our evaluation is focused on four main areas: (1) energy prices relative to load and other operating conditions; (2) the convergence of prices between the day-ahead and real-time energy markets; (3) the performance of ancillary service markets; and (4) load scheduling and virtual trading. We also address RSG payments, the dispatch of peaking resources in real time, and the integration of wind generation. We conclude this section with a number of suggested improvements intended to enhance efficiency and competitive performance of the markets.

A.

Day-Ahead Market Performance

The day-ahead market allows participants to make forward purchases and sales of power for delivery in real time to hedge their portfolios and manage risk. For example, loads can insure against volatility in the real-time market by purchasing in the day-ahead market and using FTRs to hedge against congestion. The performance of the day-ahead market is important because most of the power that is procured through the Midwest ISO markets is financially settled in the day-ahead market. In addition, FTRs are settled based upon day-ahead market results. The day- ahead market also plays a crucial role in coordinating generator commitments because most generator commitments are determined through the day-ahead market.

1.

Day-Ahead Energy Prices and Load

In this subsection, we review day-ahead, peak-hour energy prices in each region relative to scheduled load. This overview of day-ahead market results is shown in Figure 15. This figure shows daily average day-ahead prices during peak hours (6:00 a.m. to 10:00 p.m. on weekdays) at four representative hub locations in the Midwest ISO and the corresponding scheduled load (which includes net cleared virtual demand). Differences in prices among the hubs show the prevailing congestion patterns throughout the year (high prices in one location relative to another location indicate congestion from the low-price area to the high-price area).

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