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Electric Markets in the United States

Electric Markets in the United States. W. Scott Miller, III Executive Director, Market Applications PJM Interconnection, L.L.C. EDF (France). 80,190 MW Peak 608 Generating Units. Tokyo Electric. 64,300 MW Peak 147 Generating Units. PJM. 63,726 MW Peak 594 Generating Units.

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Electric Markets in the United States

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  1. Electric Markets in the United States W. Scott Miller, III Executive Director, Market Applications PJM Interconnection, L.L.C.

  2. EDF (France) 80,190 MW Peak608 Generating Units Tokyo Electric 64,300 MW Peak147 Generating Units PJM 63,726 MW Peak 594 Generating Units 60,157 MW Peak 555 Generating Units 54,430 MW Peak212 Generating Units PJM / PJM West ISO Worldwide Comparison ERCOT National Grid(England)

  3. 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

  4. 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...” The Law and The Rules in the U.S.

  5. “…markets don’t always operate efficiently because buyers and sellers don’t always have access to the information they need to make optimal choices.” Akerlof, Spence, & StiglitzNobel prize winners for economics

  6. PJM eData Services Main Screen

  7. Creation of Value From Information Technologies Advancing Technologies High ACCESSIBILITY ENABLERS HardwareCPUSpeed Smart Products Web 1991 2002 1991 2002 1991 2002 Portals Bandwidth MediaDigitalization 1991 2002 BUSINESS IMPACT 1991 1991 2002 2002 Network Architecture Multimedia Security 1991 2002 1991 2002 1991 2002 PRESENTATION INFRASTRUCTURE High Low Magnitude of Consumer Base Reached

  8. 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

  9. 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

  10. 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 PJM Market Evolution

  11. 6/00 - PJM Day-Ahead Market and Regulation Market 4/02 – PJM West implemented 12/02- PJM Spinning Reserve Market PJM Market Evolution

  12. Maturing Energy Market Prices in PJM Average Day-Ahead and Real-Time LMPs ($ per megawatt hour)

  13. PJM Capacity Markets The fundamentals of supply and demand are reflected by the prices in the daily and monthly capacity markets.

  14. PJM Regulation Market

  15. Spinning Reserve Market Opened December 1, 2002

  16. PJM is the most liquid Trading Hub

  17. Wholesale Power Purchases Wholesale Power Purchases as a Percentage of Purchases and Self-Generation (1989 – 2001) Source: Platts POWERDAT Database

  18. 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). PJM Prices are Stable

  19. Markets Improve Generator Performance

  20. Demand Response Empowered PJM’s 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%. Demand Response Growth

  21. “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 Common Market Cost/Benefit Analysis

  22. 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

  23. Value of Large, Competitive Wholesale Markets

  24. 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 Renewed Futures Market

  25. “The future requires a higher sophistication in acknowledging and dealing with differences…” Peter F. Drucker

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