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2009 State of the Market Report

Market Performance

cost allocations averaged $0.03 per MWh. Higher RSG cost allocations in the real-time market provided an incentive to schedule load in the day-ahead market even if it was slightly more expensive.

The average absolute differences are consistent with the overall price volatility in each market and are slightly lower in every market in 2009 than the absolute differences in 2008 as a percentage the real-time price. Prices were most volatile in the Midwest ISO and New York ISO, which both run true five-minute markets. The congested locations exhibit the largest average absolute differences in each market due to the higher volatility in these areas. Overall, these analyses indicate that price convergence in the Midwest ISO was consistent with other RTO markets. However, convergence in some of the Midwest ISO’s congested areas has eroded as virtual activity has diminished.

3.

Day-Ahead Ancillary Services Markets

The ancillary services markets are day-ahead and real-time markets for regulating reserves, operating reserves, and supplemental reserves that are jointly optimized with the energy markets. They were introduced in January 2009 and have operated with no significant issues. ASM prices have been consistent with expectations and are comparable to results in similar RTO markets.

Figure 18 shows monthly average day-ahead clearing prices for the Midwest ISO’s ancillary service products for 2009, along with day-ahead to real-time price differences. Day-ahead prices for regulation averaged nearly $21 per MWh in January 2009. This was higher than in subsequent months due in large part due to higher initial procurement levels to ensure sufficient resources to maintain reliability. The regulation requirements were reduced gradually over the first several months of operation based on experience and the determination that reliability could be maintained at lower product scheduling requirements. Prices averaged approximately $11 per MWh after the first quarter.

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