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.