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Competition in Regional Wholesale Power Markets Reduced Prices, Provided Economic and Environmental Benefits, According to ISO New England’s Annual Markets Report

New England has experienced a reduction in fuel-adjusted wholesale electricity prices of 5.7 percent during the past five years, according to the New England ISO 2004 Annual Markets Report. Improvements to New England’s power grid and enhancements to the wholesale electricity markets are the reasons for the price declines, the report said.

According to the report, the region’s electricity markets performed well in 2004, both during the high-use summer months and during a mid-January cold snap, which put much of the region’s energy system to the test. The report reviewed the operation of the markets from Jan. 1 – Dec. 31, 2004.

“The introduction of competition into the wholesale electricity markets has resulted in a more reliable, economical and environmentally-friendly power system for New England,” said Gordon van Welie, president and CEO of ISO New England Inc., the operator of the region’s bulk power system and wholesale electricity markets.

In addition to the reduction in fuel-adjusted wholesale prices, other report highlights are:
• Power plant operations have improved. Specifically, the addition of more efficient generating capacity has helped to reduce overall system production costs because the system-wide weighted average heat rate has declined by 5.6 percent since 2000;
• The percentage of time that generating units are available for dispatch in the system, rather than being out of service, has increased from 81 percent in 2000 to 88 percent in 2004 – suggesting that generators are responding to market signals to ensure that their units are available more often than in the past;
• The addition of 9,450 megawatts of new, generation capacity by competitive suppliers from 2000 to 2004 has led to cleaner power. Annual carbon dioxide emissions have been reduced by 6 percent, nitrogen oxides emissions by 32 percent, and sulfur dioxide emissions by 48 percent, relative to existing units;
• A new Forward Reserve Market went into operation on Jan. 1, 2004, to improve incentives for installing and maintaining reserve power plants that could be called on in emergency situations to produce power quickly and help maintain reliability.

“Major initiatives have been implemented to ensure the continued development and smooth operation of the markets,” said van Welie. “New power plants are producing cheaper, cleaner electricity, and four major transmission projects are under way that will enable power to flow more efficiently throughout the region.”

One of the improvements is the development of a “locational installed capacity market,” which is serving to create a market incentive to attract generation investment where it’s needed, as well as to minimize the need for costly reliability contracts, according to ISO-NE.
The annual markets report is available on ISO New England’s Web site at www.iso-ne.com.