Independent Market Monitor Issues 2010 State Of The Market Report

In August, the Independent Market Monitor (“IMM”) – a position intended to be a wholesale market watchdog and created by law in 2005 – issued its annual State of the Market Report for 2010. This year’s report was unusual in that it addressed the final year of operations under the old, zonal market design. Thus, the report highlighted inefficiencies and other issues with that market design that will not recur in future years, since in late 2010 the market transitioned to a nodal system.

The 2010 State of the Market Report contains comparative
 data on wholesale market prices for each of ERCOT's four
zones, and ERCOT as a whole. As this table illustrates, prices
increased in all zones from 2009 to 2010. Note the extraordinary
prices of 2008 -- they resulted from very high natural gas prices
and congestion on the grid, resulting in especially high prices
in the North, South, and Houston zones.

However, the report is notable for its conclusion that wholesale energy prices increased on average in 2010, going from $34.03 per MWh in 2009 to $39.40 per MWh on a load-weighted average basis. The report attributes a 16% increase in natural gas prices for much of this increase.

Despite this general price increase, the IMM again argues that wholesale prices in ERCOT are too low, and have been sufficient to support new investment in power plants in only one the last four years. That year was 2008, a year in which, as the report admits, ERCOT suffered from high prices resulting from inefficient congestion management between the North, South, and Houston zones. The experience of that summer, in which prices neared $4,000 per MWh at times and caused the default of a number of Retail Electric Providers (“REPs”) should in no way be viewed as any kind of “success” for the market.

Additionally, the report again concludes that the ERCOT wholesale market performed competitively in 2010, with no evidence that generators were withholding power or engaging in similar manipulative behavior.

-- Chris Brewster