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MISO traders face uncertainty over price trends: analysis

By Markham Watson

May 21, 2014 - Traders in the Midcontinent Independent System Operator face plenty of uncertainty over summer price trends, although on the whole, prices are likely to be higher than they were in the summer of 2013.

For example, the average Indiana Hub forward price as of May 14 for June, July and August power was 27.1% higher than the average day-ahead price for June 2, 2013, through August 31, 2013. For Into Entergy, Wednesday's forward price for June through August was 15.5% higher than the average day-ahead price for that period in 2013, according to Platts data.

But complications in evaluating price risk across the vast MISO footprint include the December 19 addition of the MISO South territory, MISO's ongoing seams dispute with Southwest Power Pool, the effects of increased wind generation in the MISO footprint, planned retirements of coal-fired generation and continued repercussions from this past winter's steep draw-down of natural gas storage supplies.

Analysis continues below...

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At this time last year, MISO's summer forward prices generally had a premium over those of Into Entergy, which encompasses what is now the MISO South region. For example, the average price for June, July and August 2013 for the Indiana Hub on May 15, 2013, was 18.5% higher than the corresponding average for Into Entergy.

But on Monday, the IntercontinentalExchange started issuing forward settlement numbers for MISO's Arkansas, Louisiana and Texas hubs, which are in MISO South. For the first two days that these numbers were generated, Indiana Hub had a 19.2% discount from the average of the June, July and August settlements for the Arkansas, Louisiana and Texas hubs.

MISO's own locational marginal price auction results have varied since the December 19 launch. The Indiana Hub has had a premium over the simple average of the Arkansas, Louisiana and Texas hubs (see graph) on only 61 of the 148 days since the MISO South integration.

"MISO price behavior is the least stable of the Eastern Interconnection ISOs that I follow," said James Carson, CEO of Risquant Energy, a consulting firm based in St. Paul, Minnesota. "The proliferation of wind in MISO created market uncertainties (low prices) that have now stabilized," Carson said in an email. "However, the recent weather-driven chaos in the eastern markets seems to have buffeted MISO more than I expected."

If the volatility will continue this summer "will depend on weather," Carson said.

The National Weather Service forecast for June, July and August, issued Thursday, shows a good chance of normal or below-normal temperatures across all of the MISO North/Central regions, while almost all of the MISO South region faces a strong chance for above-normal temperatures.

Arguments for annexing the Entergy territories in Arkansas, Louisiana, Mississippi and Texas included that power from MISO South could supply winter demand in the North/Central regions, and vice-versa in the summer. Under these conditions, higher prices in the North/Central regions in the winter would draw power from the South, while higher prices in MISO South during summer would draw power from the North.

But the North/Central region connects with the South at only one point, via a contract path in northeast Arkansas shared with SPP, to which SPP claims MISO only has 1,000 MW of capacity.

Next: Capacity limits, fuelmix raise concerns

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