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2009 State of the Market Report

Market Performance

market compared to the price at which these positions were covered in the real-time market. Gross profitability does not account for RSG cost allocations.

Figure 21: Profitability of Day-Ahead Virtual Trading 2007 – 2009

Gross Profitability ($/MWh)

$5 $4 $3 $2 $1 $0

  • -

    $1

  • -

    $2

  • -

    $3

  • -

    $4

Virtual Demand Virtual Supply Average Profitability

07 08 09 J

Avg

F MAM J

J

2008

A

S

ON D

J

FMAM J J 2009

A

S

  • O

    ND

Share of Cleared Virtuals with Extreme Profitability (%)

Profit>$50/MWh 4.7 2.8 1.2 2.5 1.9 1.3 1.4 1.1 9.5 6.4 3.0 2.3 0.8 0.5 1.2 0.7 1.2 1.7 0.9 2.0 1.6 0.7 1.4 1.5 0.8 0.7 1.4

Profit<-$50/MWh 3.7 3.7 1.6 3.8 3.3 4.3 3.6 2.9 7.4 4.9 3.2 4.2 2.1 1.3 2.8 0.9 1.0 1.6 1.7 1.6 1.7 0.8 1.6 1.6 1.7 2.5 2.2

Profits available to virtual traders were low in 2009, as expected in a market that is well arbitraged. Profitability of all cleared virtual transactions increased modestly to $0.80 per MWh in 2009 from $0.42 and $0.33 per MWh in 2007 and 2008, respectively. Virtual supply has been considerably more profitable than virtual demand ($2.03 per MWh versus -$0.06 per MWh) due to the prevailing day-ahead price premium. However, after paying RSG charges of $1.60 per MWh, virtual supply transactions netted an average profit of only $0.43 per MWh.

The table below the figure shows the percentage of virtual transactions clearing with abnormally large profits or losses. Large sustained profits from virtual trading may indicate day-ahead modeling inconsistencies. The share of cleared transactions generating profits greater than $50 per MWh has fallen by more than one-half since 2008, to 1.2 percent.

We continually monitor for large losses on virtual transactions because they can indicate an attempt by a participant to manipulate the day-ahead market prices. Attempts to create artificial

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