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Market Monitor : PJM Wholesale Markets ‘Competitive’ for 1Q-3Q 2015

November 18, 2015 By Cheryl Kaften

PJM Interconnection’s wholesale electric energy, capacity, and regulation markets produced competitive results during the first nine months of 2015, according to the 2015 Quarterly State of the Market Report for PJM: January through September, released on November 12 by Monitoring Analytics, the Independent Market Monitor for PJM.

Overall, the analysts found that, “The results of the energy market, the results of the capacity mark, and the results of the regulation market were competitive in the first nine months of 2015. The PJM markets work. The PJM markets bring customers the benefits of competition. The goal of competition is to provide customers wholesale power at the lowest possible price, but no lower.”

Energy market prices declined substantially, compared to the first nine months of 2014, as a combined result of lower fuel prices and lower demand, the report noted. The load-weighted average real-time locational marginal pricing (LMP) was 33.5 percent lower in the first nine months of 2015 than in the first nine months of 2014 – or $38.94 per megawatt-hour (MWh) versus $58.60/MWh.

However, the analysts found, had fuel costs in the first nine months of 2015 been the same as they were during the first nine months of 2014, holding everything else constant, the real time load-weighted LMP in 2015 would have been 14.8 percent higher, or $44.72/ MWh instead of the observed $38.94 per MWh – but still lower than in 2014.

In the Real-Time Energy Market, the Independent Market Monitor found that the adjusted markup component of LMP decreased from $3.62 in the first nine months of 2014 to $1.75 in the first nine months of 2015. Specifically, the markup decreased from 6.2 percent of real-time LMP in the first nine months of 2014 to 4.5 percent in the first nine months of 2015.

Although markups continued to be significant in the first nine months of 2015, participant behavior was deemed to be “competitive,” because marginal units generally made offers at, or close to, their short run marginal costs.

Total energy uplift charges decreased by $613.4 million or 68.2 percent in the first nine months of 2015, compared to the first nine months of 2014 – from $899.1 million to $285.7 million. Energy uplift is paid to market participants under specified conditions in order to ensure that resources are not required to operate for the PJM system at a loss.

Finally, the analysts noted that net revenue is a key measure of overall market performance, as well as a measure of the incentive to invest in new generation to serve PJM markets. Net revenues are significantly affected by fuel prices, energy prices and capacity prices. Coal and natural gas prices and energy prices were lower in the first nine months of 2015 than in the first nine months of 2014. Net revenues from the energy market for all plant types were affected by the lower prices.

The report is the Independent Market Monitor’s assessment of the competitiveness of the wholesale electricity markets managed by PJM in 13 states and the District of Columbia. The report includes analysis of market structure, participant behavior, and market performance for each of the PJM markets. For more results of the analysis of PJM’s markets, see the report.

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