2009 State of the Market Report
As the Independent Market Monitor (“IMM”) for the Midwest Independent Transmission System Operator (“Midwest ISO”), Potomac Economics is responsible for evaluating the competitive performance, design, and operation of the wholesale electricity markets operated by the Midwest ISO. In this State of the Market Report for 2009, we provide our annual evaluation of the Midwest ISO’s markets and our recommendations for future improvements.
The Midwest ISO introduced competitive wholesale electricity markets on April 1, 2005. These markets include day-ahead and real-time energy markets that produce prices that vary across the region to reflect the marginal cost of supply, transmission congestion, and losses. These markets are designed to facilitate an efficient daily commitment of generation, to dispatch the lowest-cost resources to satisfy the system’s demands without overloading the transmission network, and to provide transparent economic signals to guide short-run and long-run decisions by participants and regulators. The Midwest ISO also operates a market for Financial Transmission Rights (“FTRs”) that allows participants to hedge the congestion risk associated with serving load or engaging in other transactions.1
Two notable additions to the markets were introduced in 2009. First, the Midwest ISO began operating as a balancing authority in January and introduced markets for regulation and contingency reserves known collectively as Ancillary Services Markets (“ASM”). These markets jointly optimize the allocation resources between energy and ASM markets, and allow prices to reflect shortages more efficiently. Despite the scope and complexity of this project, the ASM markets were introduced smoothly and have operated as expected. Second, the Midwest ISO in June began operating a Voluntary Capacity Auction (“VCA”) for loads to meet residual requirements under Module E of its Tariff, and clarified the enforcement of these requirements. This establishes a spot market for capacity that will help ensure that long-run economic signals.
FTRs are financial instruments that entitle their holder to a payment equal to the congestion price difference between locations in the day-ahead energy market.