©2003 PJM

www.pjm.com

Factors Contributing to Wholesale Electricity Prices

Howard J. HaasMarket Monitoring UnitNovember 30, 2006

©2006 PJMwww.pjm.com 2

Wholesale Electricity is a Commodity

• Prices a function of the interaction of supply and demand via least cost security constrained dispatch– Prices set by marginal resources– Can have multiple marginal units– Multiple concurrent market clearing prices

• Unique:– It is not generally storable– Short-term demand is inelastic– Instantaneous market where Supply must equal Demand

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Figure 2-1 - Average PJM aggregate supply curves: Summers 2004 and 2005

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Summer 2006 7-27-06

7-27-06 RT Zonal LMP

0

50

100

150

200

250

300

350

_01 _02 _03 _04 _05 _06 _07 _08 _09 _10 _11 _12 _13 _14 _15 _16 _17 _18 _19 _20 _21 _22 _23 _24

Hour Ending

LM

P

AECO ZONE_LMP

AEP ZONE_LMP

APS ZONE_LMP

BGE ZONE_LMP

COMED ZONE_LMP

DAY ZONE_LMP

DOM ZONE_LMP

DPL ZONE_LMP

DUQ ZONE_LMP

JCPL ZONE_LMP

METED ZONE_LMP

PECO ZONE_LMP

PENELEC ZONE_LMP

PEPCO ZONE_LMP

PPL ZONE_LMP

PSEG ZONE_LMP

RECO ZONE_LMP

©2006 PJMwww.pjm.com 5

Fall 2006: 10-26-06

10-26-06 RT Zonal LMP

0

50

100

150

200

250

_01 _02 _03 _04 _05 _06 _07 _08 _09 _10 _11 _12 _13 _14 _15 _16 _17 _18 _19 _20 _21 _22 _23 _24

Hour Ending

LM

P

AECO ZONE_LMP

AEP ZONE_LMP

APS ZONE_LMP

BGE ZONE_LMP

COMED ZONE_LMP

DAY ZONE_LMP

DOM ZONE_LMP

DPL ZONE_LMP

DUQ ZONE_LMP

JCPL ZONE_LMP

METED ZONE_LMP

PECO ZONE_LMP

PENELEC ZONE_LMP

PEPCO ZONE_LMP

PPL ZONE_LMP

PSEG ZONE_LMP

RECO ZONE_LMP

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Figure 7-1 - Annual average zonal LMP differences (Reference to Western Hub): Calendar years 2002 to 2005

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Figure 2-13 - Monthly load-weighted, average LMP: Calendar years 1999 through 2005

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Factors contributing to wholesale price

• Inputs to the marginal cost of generation– Fuel cost

• 80 to 90%

– Emission allowance costs• Seasonal effects

– VOM– Opportunity costs

Variables that affect the system “solution”• Load• Constraints• Outages

©2006 PJMwww.pjm.com 9

Delivered Fuel Prices

Delivered Fuel Prices per MBtu

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

1/1

/1999

5/1

/1999

9/1

/1999

1/1

/2000

5/1

/2000

9/1

/2000

1/1

/2001

5/1

/2001

9/1

/2001

1/1

/2002

5/1

/2002

9/1

/2002

1/1

/2003

5/1

/2003

9/1

/2003

1/1

/2004

5/1

/2004

9/1

/2004

1/1

/2005

5/1

/2005

9/1

/2005

1/1

/2006

5/1

/2006

9/1

/2006

LIGHT_OIL_DEL_DOL_MBTU

JET_OIL_DEL_DOL_MBTU

BIT_1p5_DEL_DOL_MBTU

PRB_DEL_DOL_MBTU

GAS_DEL_DOL_MBTU

©2006 PJMwww.pjm.com 10

Fuel Costs %

Generic Unit Estimated Fuel and Cost Offers

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

1-Jan-99

2-Jul-99

31-Dec-9930-Jun-0029-Dec-0029-Jun-0128-Dec-0128-Jun-0227-Dec-0227-Jun-0326-Dec-0325-Jun-0424-Dec-0424-Jun-0523-Dec-0523-Jun-06

date

%F

uel

of

To

tal O

ffer

CT % Fuel CC % Fuel CP % Fuel

©2006 PJMwww.pjm.com 11

Hypothetical Fuel Cost Based Offers (Gas and Coal based)

Estimated Cost Based Offers

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.001/

1/19

99

5/1/

1999

9/1/

1999

1/1/

2000

5/1/

2000

9/1/

2000

1/1/

2001

5/1/

2001

9/1/

2001

1/1/

2002

5/1/

2002

9/1/

2002

1/1/

2003

5/1/

2003

9/1/

2003

1/1/

2004

5/1/

2004

9/1/

2004

1/1/

2005

5/1/

2005

9/1/

2005

1/1/

2006

5/1/

2006

9/1/

2006

CT_COST_OFFER

CC_COST_OFFER

CP_COST_OFFER

©2006 PJMwww.pjm.com 12

Figure 2-14 - Spot coal and natural gas price comparison: Calendar years 2004 through 2005

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Difference in cost: Gas-fired CT and gas-fired CC

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Figure 3-4 - PJM capacity (By fuel source): At December 31, 2005

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Figure 3-5 - PJM generation [By fuel source (In GWh)]: Calendar year 2005

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Table 2-18 - Type of fuel used by marginal units: Calendar years 2001 to 2005

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Table 2-35 - PJM fuel-cost-adjusted, load-weighted LMP (Dollars per MWh): Year-over-year method

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Table 2-34 - PJM load-weighted, average LMP (Dollars per MWh): Calendar years 1998 through 2005

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Table 2-4 - Actual PJM footprint summer peak loads: From 1999 to 2005

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Table 2-2 - Actual 2005 summer peak demand and calculated Phase 3, 4 and 5 coincident summer peak

demand: For 2001 through 2004

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Figure 2-17 - Price duration curves for the PJM Real-Time Energy Market: Calendar years 2001 through 2005

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Figure 7-5 - Regional constraints and congestion-event hours (By facility): Calendar years 2002 to 2005