The future contract for July delivery at cinergy remains at levels reminiscent of last year's prices. At one point the contract reached $170 per megawatt-hour, matching last year's actual average price during June and July. High forward contract prices such as this show that market traders believe that spot prices for electricity will again be sent to four-digit levels.
Three primary factors led to last year's price spikes. First, nearly 23 percent of the capacity in the Midwest was unavailable during June. Second, temperatures reached abnormally hot levels on consecutive days and loads were substantially higher than anticipated. Third, problems in one area of the transmission system quickly became problems in other areas as tight supply/demand conditions limited the ability of utilities to shift generation to meet load. These shifts caused overloads on the transmission system, which resulted in the need for line load relief.
Now it appears that market players are alleviating the first problem--the capacity shortage. First, a few generators in the region have undertaken significant forced outage rate improvement programs to ensure that their generators will not be one of the generators to miss the high next year. The economic incentives to undertake such initiatives are compelling. RDI calculates that a new combustion turbine installed in ECAR would have generated operating profits (revenue less fuel) of $106 per kilowatt if it had been available every day last year. A number of nuclear nits have also returned to service.