Energy prices and coal generation rebounded in the first half of 2013 as natural gas costs increased, PJM’s Market Monitor reported in its mid-year report.

The load-weighted average LMP was $37.96 per MWh, up nearly 22% from the first half of 2012 as natural gas in eastern PJM briefly spiked at more than $6/MMBtu.

While LMPs were up compared with 2012, and also higher than 2009, they remained lower than 2008, 2010 or 2011.

Fuel Mix

Coal prices were flat in the first half of the year, leading to an 11% increase in generation by coal-fired units and an 18% drop in generation from gas units. Coal units provided 44% of total generation with nuclear units responsible for 35% and gas units almost 16%.

Coal represented 58% of real-time marginal resources in the first half of the year, a slight drop from 2012, while natural gas represented almost one-third of marginal resources, up from 30% in the first six months of 2012. Wind, which was not on the margin in the first two quarters of 2012, represented almost 6% of marginal resources in 2013.

Load

Average real-time load increased by about 2% from the first six months of 2012 while average day-ahead load, increased by almost 12%, driven by the continued growth of up-to congestion transactions.

Virtual bids dropped by one-quarter year-over-year. Physical companies — utilities and customers which primarily take physical positions in PJM markets — increased their share to 75.5%, up from less than 64% in 2012.

Market Competiveness

The monitor’s evaluation of market fundamentals was unchanged from the 2012 report, with only the regulation market results not judged competitive.

The monitor judged the regulation market results “indeterminate.” It found the market structure not competitive because one or more pivotal suppliers failed the three pivotal supplier test in 90% of the hours for the first six months. However, participant behavior was considered competitive due to PJM rules that require competitive offers when the three pivotal supplier test is failed.

PJM made several changes to the regulation market in 2012, including new optimization methods.

“It is too early to reach a definitive conclusion about performance under the new market design because important parts of the design are inefficient and because there is not yet enough information on performance,” the monitor said.

In its response to the 2012 report, released in May, PJM took issue with the monitor’s criticism of the market.

“PJM believes there is ample evidence of competitive market behavior in the regulation market and the IMM conclusion is based on the IMM’s disagreement with opportunity cost calculation rules that were endorsed by members and approved by the FERC.”

Recommendations

In addition to summarizing changes in prices and other metrics, the monitor’s new report called for increased transparency and added several new recommendations on the energy market, operating reserves, demand response, ancillary services and Financial Transmission Rights. (See Market Monitor Recommendations)

The monitor called for additional transparency regarding constraints affecting energy prices, and on unit retirements, “in order to permit new entrants to address reliability issues.”

It also said the market needs better information about the reasons for operating reserve charges. “Data on the units receiving operating reserve credits and the reasons for those credits should be made publicly available to permit better understanding of operating reserve levels and to facilitate competition for providing the same services,” the monitor said.

The monitor also called for action to address what it called the failure of capacity market prices to reflect fundamentals, including “better [Locational Deliverability Definitions], the effectiveness of the transmission.