New PJM Bal Day Application Manages Trader Price Risks in Extremely Volatile Energy Market

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Electricity prices in the PJM market have been extraordinarily volatile this winter, as extremely cold weather pushed up demand for electricity and natural gas, leading to sharp price increases for both. On some bitterly cold days in January, hourly electric prices in PJM soared to $2,000 per megawatt, up from typical $100 hourly peaks on normal winter trading days. PJM said the brutal cold and soaring electric demand were unprecedented in its 87-year history.

During this period of extreme volatility, energy traders require real time insights into prices and generation supply availability in order to operate profitably in the PJM energy market. Companies can get high-frequency updates and trade more effectively with the advantage of a new PJM Bal Day software application offered by Versify Solutions (Glen Mills, Pennsylvania) that leverages data feeds from IIR Energy. The PJM Bal Day application is updated hourly to give financial participants timely insights into the critical supply and demand forces driving the price of the PJM Bal Day contract.

Steve Giblin, a product manager for Versify's SmartStat program, said: "During a typical winter trading day with load and market volatility, a $20 range in Bal Day trades may exist. The value of that spread ($20 times 50 megawatts times 16 hours) works out to $16,000 per trade. But during the coldest days in January and February, the spread between high and low trades for the PJM Bal Day contract reached $400, which translates into a swing of $320,000 for each contract. If you're on the wrong side of the market, your trading book could show large losses."

"During particularly cold or hot days, electric prices in PJM are significantly affected by the availability of generating stations and transmission lines," said Paul Copello, president of IIR Energy. "During the polar vortex, we saw a number of generators selling into PJM trip off unexpectedly, a victim of being run so hard for so long. When you unexpectedly lose hundreds or even thousands of megawatts of generating capacity in an already tight market, electric prices can go through the roof. That's exactly what we saw on some days in January and February."

IIR Energy's data on plant outages is a valuable ingredient driving Versify's Bal Day application. To predict PJM Bal Day price curves, Versify's application draws on a vast database of historical factors like electric demand, weather, natural gas prices, tie flows, demand generation and generator outages. Current conditions are matched with historic, similar-looking days to produce extremely accurate price curves for traders.

Versify's Giblin said, "This is a unique offering, providing traders new tools to analyze electricity markets with increased visibility into market opportunities. With the hourly updates, traders tell us this application is their constant companion, particularly during volatile markets. The application is both comprehensive and flexible, so that traders have access to multiple, customizable price-curves so they can exercise their own judgment of where the market is going on a given day."

Bal Day trades reflect participants' expectations about average electric prices for a 50-megawatt block of power on a particular day across a 16-hour block of time, from 7 a.m. until 11 p.m. Unlike day-ahead trading, Bal Day trades reflect participants' expectations about the average price electricity will fetch for the balance of that day. The PJM Bal Day contract is traded on the IntercontinentalExchange (NYSE:ICE) (Atlanta, Georgia). Companies that have licenses for both IIR Energy and Versify Solutions can obtain a license for the PJM Bal Day tool for a nominal added fee.

Webcast demonstrations of the Bal Day application can be scheduled with Brian Matteo, Versify's marketing manager, by calling (484) 845-7012 or emailing him at bmatteo@Versify.com.

About Versify Solutions
Versify Solutions develops leading software and services for professionals in the power industry who demand a constant flow of data to efficiently navigate an increasingly dynamic sector. Versify products offer energy traders and generators better information, empowering them to perform at the highest levels. Versify's software and services are utilized by some of the world's largest energy companies, including Constellation Energy Group (Baltimore, Maryland); Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina); Edison Mission Energy (Santa Ana, California), a unit of Edison International (NYSE:EIX) (Rosemead, California), Iberdrola Renewables LLC (Portland, Oregon); LS Power (New York, New York); Pacific Gas and Electric Company (San Francisco, California), a unit of PG&E Corporation (NYSE:PCG) (San Francisco, California); and Xcel Energy Incorporated (NYSE:XEL) (Minneapolis, Minnesota). Versify offers a unique portfolio of analytical applications and services providing key insights into generation performance, regulatory compliance, power-plant outage management and trading market opportunities.

About Industrial Info Resources
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.

About IIR Energy
A unit of Industrial Info Resources (IIR), IIR Energy is the leading provider of supply-side market intelligence for the energy market, including Electric Power Generation; Oil & Gas Storage, Transmission and Production; Alternative Fuels, such as biodiesel, ethanol, and coal gasification; and the Petroleum Refining industries. IIR Energy provides time-sensitive, critical market information that enables asset owners, developers, regulators, and financial & physical participants to enhance their trading strategies and minimize market risk.