Prices Fall 45% in PJM Region

Monitoring Analytics, which monitors market developments in the PJM region that spans 13 states in the Mid-Atlantic and Midwest, released its Q1 Quarterly State of the Market Report last week. The report found that the weighted average locational marginal price (LMP) fell by 45 percent throughout the region compared to the first quarter of 2014, from $92.98 per MWh to $50.91 per MWh. This was still 36 percent higher than the first quarter of 2013 and higher than each year dating back to 2009. The prices were driven by high demand (though lower than in 2014) and short-term fuel cost increases resulting from cold weather, offset by lower long-term fuel costs and improved grid operations. Overall the report found that the market is operating efficiently.

Implications for Retail Energy Buyers

Retail buyers who entered into long-term, fixed-rate electricity contracts prior to the price increases in 2014 would likely have benefited from the lower rates they paid. What will happen with future prices is unclear. If the region resolves the issues that have led to winter price increases, such as limited gas transmission capacity in the Mid-Atlantic, prices could be poised to fall. However, the region also relies heavily on demand response, which could be hindered by ongoing legal disputes, and some zones may be affected by capacity constraints stemming from retiring power plants.

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