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2009 State of the Market Report

Market Performance

marker for each month.14 The figure shows that the regulation price during shortage intervals is reliably equal to the monthly regulation penalty price plus the spinning reserve price. These penalty prices are determined formulaically each month and are intended to reflect the commitment cost of a typical peaking resource.

Figure 34: Regulation Deficits and Prices 2009

$200

Regulation MCP ($/MWh)

$180

$160

$140

$120

$100

$80

$60

$40

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

$20

$0

  • 0

    50

100

150 200 250 Regulation Deficit (MW)

300

350

400

The regulation price during intervals with a shortage is determined consistent with the penalty price, regardless of the size of the deficit. This is evident by the horizontal nature of the relationship for each month’s plot. This is a favorable result because it indicates that the price reliably reflects the shortage. Beginning in 2010, however, the formula-based penalty price has increased sharply. We have reviewed the formula and data used by the Midwest ISO in calculating the penalty price and have recommended changes intended to allow the penalty price to more accurately reflect the cost of a peaking resource.

14

Period of spinning reserve shortages are excluded because the spinning reserve shortages will substantially affect the regulation price.

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