Electric Markets in the United States

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• Electric Markets in the United States

W. Scott Miller, III Executive Director, Market
Applications PJM Interconnection, L.L.C.
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PJM / PJM West ISO Worldwide Comparison
ERCOT
National Grid(England)
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AESO 7,800
IMO 25,269
ISONE 25,158
NYISO 30,983
PJM 63,726
CAISO 45,900
ERCOT 60,157
PJM is currently the largest centrally dispatched
Control Area in North America
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The Law and The Rules in the U.S.

• The Law
• Title VII of Energy Policy Act of 1992
• to promote greater competition in bulk power
  markets...
• The Rules
• 1996 Order 888
• put in place the foundation necessary for
  competitive wholesale power markets in this
  country - open access...
• 1999 Order No. 2000
• ensure that customers have the benefit of
  competitively priced generation...

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• markets dont always
• operate efficiently because
  buyers and sellers dont always have
  access to the information they need to
  make optimal choices.

Akerlof, Spence, StiglitzNobel prize winners
for economics
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PJM eData Services Main Screen
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Creation of Value From Information Technologies
Advancing Technologies
High
ACCESSIBILITY
ENABLERS
Smart Products
HardwareCPUSpeed
Web
1991
2002
1991
2002
1991
2002
Portals
Bandwidth
MediaDigitalization
1991
2002
BUSINESS IMPACT
1991
2002
1991
2002
Network Architecture
Multimedia
Security
1991
2002
1991
2002
1991
2002
PRESENTATION
INFRASTRUCTURE
High
Low
Magnitude of Consumer Base Reached
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Information Exchange
Market Participants
Local Control Centers

Generators

Load Serving Entities

• 20,000 Data Points Every
• 2-10 Seconds
• Operational
• Generation availability
• Transfer capability
• Telemetry
• Generation control signals
• Security recommendations
• Pricing
• Planning
• Expected load forecasts
• Constrained conditions
• Congested areas

Public
Market Centers
Information Exchange
Regulators
Other
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Energy Costs in the Gross Domestic Product
2001 Gross Domestic Product by Industry (Dollars
in Billions)
Energy Industry 221 Billion Annually 2 of
Gross Domestic Product
Source Bureau of Economic Analysis, Dept. of
Commerce
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PJM Market Evolution

• 4/97 - Opened bid-based market based on
  Market Clearing Price
  
• 4/98 - Implemented LMP and FTRs (with
  overlying zones and trading hubs)
• 10/98 Implemented capacity markets
• 1/99 - Implemented full customer choice in PA
• Implemented daily capacity market
• 4/99 - Market-based pricing authority granted
• 4/99 - PJM FTR Monthly Auction market

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PJM Market Evolution

• 6/00 - PJM Day-Ahead Market and
• Regulation Market
• 4/02 PJM West implemented
• 12/02- PJM Spinning Reserve Market

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Maturing Energy Market Prices in PJM
Average Day-Ahead and Real-Time LMPs ( per
megawatt hour)
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PJM Capacity Markets
The fundamentals of supply and demand are
reflected by the prices in the daily and monthly
capacity markets.
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PJM Regulation Market
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Spinning Reserve Market Opened December 1, 2002
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PJM is the most liquid Trading Hub
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Wholesale Power Purchases
Wholesale Power Purchases as a Percentage of
Purchases and Self-Generation (1989 2001)
Source Platts POWERDAT Database
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PJM Prices are Stable

• Wholesale Energy Prices Reduced
• Wholesale prices dropped to 35.33/MWH in 2002
  from 43.63/MWH in 2001 25 hotter in 2002.
• Nine all-time peaks in summer of 2002 peak load
  served at an average of 150/MWH as compared to
  900/MWH on peak days in 2001 (savings of about
  10 million to wholesale energy customers).

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Markets Improve Generator Performance
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Demand Response Growth

• Demand Response Empowered
• PJMs demand response programs enabling customers
  to manage their own electricity costs grew 300
  percent in 2002.
• The most active 2002 demand side management hour
  lowered prices by more than 12.

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Common Market Cost/Benefit Analysis

• Creation of common MISO-PJM-SPP market results
  in
• Lower energy price for region as a whole
  Effects estimated at up to 7 billion over ten
  years
• As effective power markets mature, the spread
  between forward price and the ultimate spot price
  should diminish.
• Every 1 forward premium reduction from
  MISO-PJM-SPP common market is ultimate consumer
  savings of 1.7 billion per year.
• ESAI July 11, 2002 Report to Standard Market
  Design Forum

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Queued Capacity by In-Service Date
Over 35,000 megawatts scheduled will facilitate
robust, competitive markets and may further
reduce congestion.
In Service
Scheduled in Service
Megawatts of Generation Capacity
Scheduled In-Service Date
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Value of Large, Competitive Wholesale Markets
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Renewed Futures Market

• Futures market necessary for hedging and assist
  in price discover
• Lack of highly liquid futures market in the US
• Failed COB/Palo Verde contract in Western US
• New York Mercantile Exchange (NYMEX) recently
  launched renewed PJM West futures market
• Open interest increasing and price dropping

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• The future requires
• a higher sophistication
• in acknowledging
• and dealing with
• differences

Peter F. Drucker
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