PowerFacts
Independent Market Monitor: PJM Market Competitive
"Today's evaluation by the PJM Interconnection's independent market monitor (MMU) shows that the competitive market forces at work in PJM are increasing capacity and empowering customers. PJM's markets were once again found to be competitive in the first report since the MMU left the PJM staff. Furthermore, PJM's newly implemented capacity market - the Reliability Pricing Model (RPM) - is already bearing fruit, producing commitments for over 10,000 megawatts of new capacity, showing that markets are responding as reserve margins start to tighten." John E. Shelk, President & CEO, EPSA
RESULTS SHOW THE MARKET WAS AGAIN COMPETITIVE AND SHOWED IMPROVEMENT IN 2007
- "The MMU concludes that the PJM Energy Market results were competitive in 2007." (p. 6, 2007 State of the Market Report, Volume 1: Introduction, Market Monitoring Unit, March 11, 2008)
- "The overall results support the conclusion that prices in PJM are set, on average, by marginal units operating at or close to their marginal costs. This is strong evidence of competitive behavior." (p. 8)
- "The pattern of prices within days and across months and years illustrates how prices are directly related to demand conditions and thus also illustrates the potential significance of price elasticity of demand in affecting price." (p. 10)
- "The performance of the markets in 2007, especially the Capacity Markets, represented a significant improvement over prior performance." (p. 17)
PJM'S RELIABILITY PRICING MODEL IS WORKING AS INTENDED
- "The PJM Capacity Market results were competitive during 2007." (pg. 30)
- "The RPM Capacity Market design explicitly allows competitive prices to reflect local scarcity without relying on the exercise of market power to achieve the objectives of the Capacity Market design and explicitly limits the exercise of market power via the application of the three pivotal supplier test." (p. 3)
- Prices in PJM finally began to signal the need for new investment: "The fixed costs of constructing a new entrant combustion turbine, combined-cycle or coal-fired steam generation resource were fully covered in some, but not all, PJM control zones." Prior to 2007, "net revenue ha[d] generally been below the level required to cover the costs of new generation investment for several years and below that level on average for all unit types for the entire market period." (pp. 12-16)
EVIDENCE OF AN EFFICIENT COMPETITIVE MARKETPLACE
- "The number of transmission loading relief procedures (TLRs) issued by PJM continued to decline, with 41 percent fewer during 2007 (80) than 2006 (136). The reduction in TLRs declared by PJM is consistent with the fact that market signals, rather than market interventions, are being used more frequently to manage constraints on inter-area transactions." (pg 18)
- "Market areas, like PJM, include essential features such as locational marginal pricing, financial hedging tools (FTRs and ARRs in PJM) and transparent, least-cost, security-constrained economic dispatch for all available generation. Non market areas do not include these features. The market areas are extremely transparent and the non market areas are nontransparent." (pg 22)
CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.