Figure 8. U.S. Independent System Operators in Operation, 1999

In 1999, wholesale trade continued to expand as the number of participants in the market grew. Activity in the wholesale market includes a variety of transactions (including hourly, daily, monthly, long-term bilateral contracts, sales and purchases through power exchanges, and financial transactions, such as futures and options). Newly established organizations like the independent system operators (ISOs) have created types of markets that did not exist before (Figure 8). Markets now exist for energy, automatic generation control, spinning reserves, other categories of ancillary services, and capacity. Organizations such as the New York Mercantile Exchange (NYMEX) offer trading opportunities in electricity futures and options at various hubs in the country. The California Power Exchange serves an adjunct to the California ISO and operates in a manner designed to complement operational activities of the California ISO. For the most part, all new wholesale electricity markets (due to restructuring) are still developing. A caveat is that prices for all categories of these transactions are not readily available. Available data are not complete and verifiable as they were under the fully regulated industry.

In 1999, wholesale prices were just as volatile as they were in 1998 (Figures 9 and 10), partly due to a country-wide heat wave that was nearly as severe as the record-setting one in 1998. Inadequacy either of capacity or transmission, or both, contributed to sporadic surges in price in various regions of the country. Lack of liquidity in the wholesale electricity markets is another critical factor that precluded interaction of market forces in determination of prices. ⁽³⁰⁾

Figure 9. Wholesale Average Price of Electricity at CalPX, PJM Interconnection, ISO New England, January Through December 1999

Figure 10. Wholesale Maximum Price of Electricity at CalPX, PJM Interconnection, ISO New England,January Through December 1999

While prices were volatile in areas of the country, examination  of the price-duration curve indicates that, except for a limited number of peak hours, the price of wholesale electricity was relatively stable (Table 6).⁽³¹⁾ The highest maximum spot-market price, which was $1,077 per MWh, occurred in the Pennsylvania-New Jersey-Maryland (PJM) Interconnection region during 1 week in August 1999. Note that the reported high prices were for a short duration, say a few hours on any given day. In addition to this high, PJM Interconnection saw 6 other weekly periods during June, July, and August where prices ranged between $400 and $1,000 per MWh. The lowest average price was set during November for PJM Interconnection at $12.46 per MWh. The ISO New England (ISO NE) highest maximum price occurred during the second week of June at $1,003 per MWh. Subsequently, the ISO NE had a period starting in late June, of three straight weeks where prices mostly stayed above $500 per MWh, then dropped under $180 per MWh.

However, the day-ahead market for the California Power Exchange (CalPx) did not see the same level of activity.⁽³²⁾ Maximum price in CalPx did reach $225 per MWh in August and the monthly maximum prices ranged between $100 to $200 per MWh for each of the other months from June to November in 1999. Interestingly, the average monthly price for all these markets was below $50 per MWh for all but July in the PJM Interconnection where it averaged nearly $90 per MWh.

The futures market presents another aspect of wholesale electricity competition (Tables 7-11 and Figures 11-14). This market covers sales of electricity akin to commodity trading. The futures market provides crucial risk protection to any industry operating under the uncertainty of a competitive market. Power marketers, electric utilities, power producers, buyers, and investors wishing to provide liquidity to a market use the financial instruments traded in the futures markets to mitigate the impact of potential high prices.

Figure 11. Daily Settlement Prices for Month Ahead Futures and Volume of Trade by Contract Month, NYMEX Palo Verde, 1999

Figure 12. Daily Settlement Prices for Month Ahead Futures and Volume of Trade by Contract Month, NYMEX California-Oregon Border, 1999

Figure 13. Daily Settlement Prices for Month Ahead Futures and Volume of Trade by Contract Month, NYMEX Cinergy, 1999

Figure 14. Daily Settlement Prices for Month Ahead Futures and Volume of Trade by Contract Month, NYMEX Entergy, 1999

Trading Site	Contract Specifications
NYMEX Palo Verde	432 megawatthours delivered over a monthly period (as of 12/06/99); prior to 12/06/99, the quantity was 864 megawatthours over a monthly period
NYMEX California-Oregon Border (COB)	432 megawatthours delivered over a monthly period
NYMEX Cinergy	736 megawatthours delivered over a monthly period
NYMEX Entergy	736 megawatthours delivered over a monthly period
PJM Interconnection	736 megawatthours delivered over a monthly period

Trading sites and types of electricity commodity futures are approved by the Federal Commodity Futures Trading Commission. Futures contracts do not reflect the hourly demand patterns for individual end-users. Futures prices are based upon quotes that use standard specifications describing the predetermined amount of electricity that is to be delivered to a known location at a specified point in time. The contractual specifications for the five trading sites in this report are shown in the inset box.

The volume of electricity trade in the futures markets relative to overall electricity sales has remained low, because this market is relatively new and deregulationis present in only about half the States. The largest volume traded option in 1999 was for the NYMEX Palo Verde at 6.6 billion kWh of electricity in June (Table 12). The NYMEX California-Oregon Border (COB) was next and had its largest volume of trade for the year in June at 5.7 billion kWh. NYMEX Cinergy peaked at 5.3 billion kWh in April, while subsequent months showed a declining volume in trade, ending with as little as 0.1 billion kWh in December. NYMEX Entergy had its highest volume of trade in January, at 5.3 billion kWh, while the lowest volume of 0.01 billion kWh occurred in December. April was also the month in which PJM Interconnection trade volume peaked at 0.8 billion kWh.

Endnotes