September 24, 2020

Midcontinent ISO Market: What Your Power Prices May Look Like in the Future

By Bunty Kumar, Energy Manager, Supply Advisory

The Midcontinent Independent System Operator (ISO) or commonly referred to as “MISO”, coordinates, controls, and monitors the operations of the electrical power system across 15 states in the Upper Midwest and Deep South regions as well as the Canadian province of Manitoba, as shown below.

 

MISO Power Market

(Source: Midcontinent Independent System Operator, Inc.)

Each year, Load Serving Entities or “LSEs”, (which includes Retail Electricity Suppliers, or “RES”) within MISO are responsible for making sure they can meet their customer’s power needs, demonstrating resource adequacy. Multiple options exist for LSEs to meet this requirement including:

  • Submit a Fixed Resource Adequacy Plan
  • Utilize bilateral contracts with another resource owner
  • Participate in the Planning Resource Auction (PRA)

MISO recently concluded its Planning Resource Auction (PRA) where individual LSEs can procure resources to cover their load and a margin for likely scenarios – jointly called the Planning Reserve Margin Requirement (PRMR). The auction is location-specific, encouraging resources in the zones where they provide the most benefit. The MISO-wide reserve margin requirement is shared among the zones, and zones may import capacity to meet this requirement. The 2020/2021 auction results indicate that the MISO region as a whole will have enough generation capacity and other types of resources to meet its PRMR for the 2020/2021 planning year (June 1, 2020, through May 31, 2021).

 

2020/2021 Auction Results
MISO Energy Auction

(Source: Midcontinent Independent System Operator, Inc.)

As compared to the prior year’s capacity pricing, the overall results reflect a continued industry shift away from the higher carbon-based fuel, coal, to an increasing reliance on the lower carbon-based fuel, natural gas, along with renewable (non-carbon) intermittent generation resources, such as wind, solar and demand-based resources.

What May Prices Look Like? Generally speaking, capacity prices outside of MISO Zone 7 will remain reasonably priced compared to the neighboring PJM markets.

For the first time, however, one of the MISO zones (Zone 7—lower Michigan) did not have enough resources bid in the PRA to meet its Local Clearing Requirement (LCR) for procuring resources within the Zone. As a result, under MISO’s FERC-accepted Tariff, Zone 7’s clearing price will be set at a threshold called the Cost of New Entry (CONE), which is $257.53/MW-day. Approximately 1,150 MW of load will pay CONE, which is 6% of Zone 7’s forecasted peak load.

Zone 7 clearing at CONE is not a surprise as Zone 7 came very close to clearing at CONE last year and a survey conducted by MISO indicated that Zone 7 could be short this year. There are multiple factors that led to this result. Total resources offered within Zone 7 declined by about 336 MW this year compared to last year. That drop-off includes, but is not limited to, 311 MW of coal and 57 MW of oil. These decreases were partially offset by an increase of 138 MW of demand response and 98 MW of energy efficiency resources.

Even with Zone 7 clearing CONE, its shortfall of local resources does not necessarily mean it will face reliability issues. While the zone’s local reserve margin is 0.56% (123 MW) below its target LCR, the zone does have 7.4% (1,490 MW) more local capacity than its forecasted peak-load level, even when outage rates are considered. Moreover, the zone can draw on the support that comes with being a part of the MISO shared resource pool that spans parts of 15 U.S. states and part of Canada.

What May Prices Look Like? Zone 7 in Michigan will pay much higher capacity prices. For a typical industrial client, the cost of capacity may increase $15.00/MWh as compared to the prior year. Though there are not many ways to directly mitigate this cost increase, end users may be able to participate in Demand Response programs to create an offsetting revenue stream or complete a tariff analysis to determine if better tariff options are available.

To learn more about how Edison can help with these services, contact us today!

Loading