Like a physician with her stethoscope at the outset of a check-up, astute shareholders and directors should use the level and trend of a utility’s market-to-book ratio (MtB) as one of the first...
Wholesale Competition: The Big-Bang Effect
Consider the opening of the PJM market, and its effect on prices.
2004 period, PJM energy markets received a maximum of 109,600 MW in supply offers (net of real-time imports or exports). The 2004 net supply offers represented an increase of approximately 29,800 MW compared with the same 2003 summer period.
On the demand side, the PJM system peak load in 2004 was 77,887 MW, a coincident summer peak load reflecting the Mid-Atlantic region, the APS control zone, and the ComEd control area. The PJM peak load in 2003 of 61,499 MW occurred prior to the integration of the ComEd control area.
For this case study, Global Energy performed a simulation analysis of Eastern Interconnect market fundamentals to test PJM's conclusions, account for all price determinants not directly related to integration, and quantify the impacts associated with the integration of ComEd, AEP, and DPL supply and demand with that of PJM. Global Energy analyzed and quantified the impact of eliminating the seams, in the form of pancaked wheeling charges, between and among the ComEd, AEP, and DPL territories, and the PJM energy market. By isolating pancaked wheeling charges in its analysis, Global Energy captured the primary structural change to the energy market supply and demand of ComEd, AEP, DPL, and PJM.
The study employed a production cost-savings method, using Global Energy's PROSYM-based EnerPrise Market Analytics software, which measures production costs. The study also compared the production costs of a "competition case" that simulated PJM as it was in 2004 with a "no competition case" in the 2004 market, wherein ComEd, AEP, and DPL never had joined PJM. The study included the entire Eastern Interconnect.
In the "no competition case," the market topology is similar to the "competition case," except that ComEd (represented by the CE_NI zone) and AEP and DPL (both represented by the AEP zone) are modeled outside the PJM RTO where pancaked wheeling between the zones is not eliminated.
In addition to the integration of supply and demand in the wholesale energy market, brought about by the elimination of seams between market areas, other significant benefits to RTO membership and the integration of energy markets and services in general were not considered in this study. For example, AEP and DPL now are integrated with APS in a single spinning reserve market. For regulated services, ComEd, AEP, DPL, and APS are all members of PJM's integrated Western Zone. PJM also coordinates generation and transmission maintenance, as well as available transmission capacity (ATC), for the entire RTO. These and other potential benefits are not captured in this analysis.
It turns out that competition produced lower wholesale costs in PJM. The results of our study confirmed PJM's conclusions that, in 2004, changes in supply and demand fundamentals resulted in lower PJM prices in 2003 than 2004. In addition, our study quantified the production cost savings associated with the elimination of seams involving ComEd, AEP, and DPL at approximately $29.5 million, for PJM in 2004, and $36.4 million for the Eastern Interconnect.
Because these savings are based on the actual integration schedule for ComEd (May 2004) and AEP/DPL (October 2004), they represent savings for a partial