Author: Carl Doten, Account Manager, U.S. Energy Services
The 4th Midcontinent Independent System Operator (MISO) capacity auction was held earlier this month and the results of the auction have now been published (MISO Resource Adequacy Auction Results). The recently published prices offer insight into both expected energy costs for the coming delivery year of June 1, 2016 through May 31, 2017, and trends within the capacity supply/demand balance of each respective zone.
A map of MISO’s territory by zone is shown to the right. Electric consumers located in any of these zones, are likely to be impacted by the auction results either through potential cost changes in base rates in fully regulated service territories or cost changes in the capacity line item component in deregulated service territories.
The extent to which a consumer is impacted by the auction depends on a number of factors including:
- Which zone a consumer is located in (unit cost)
- Assigned capacity requirement (kW units)
- Energy contract structure (exposure)
The auction results (shown in $/Megawatt Day) by zone are shown in the table below along with the results of prior years.
A review of the results with an understanding of the wider context prompts a few observations:
- All regions will be adequately supplied with capacity for the coming delivery year.
- Six of ten zones within the MISO will see higher capacity prices, while Zone 4 will find welcome relief from the prices of the last delivery year.
- The results indicate a shrinking in the available pool of capacity offerings. Most notable was the approximate 2,000 MW of capacity at the price taker point (bid in around $0/MW-day), and 3,000 MW of capacity this last year at the $160/MW-day price point. These losses represent approximately 5% of the bid capacity within the region.
- Regional capacity varied only slightly from what was expected, with much of the differential attributed to Reciprocating Internal Combustion Engine (RICE) regulations causing early retirements.
Finally, it should be acknowledged that within the MISO territory, the price set by the auction is only one approach to setting the cost to end users for the capacity component of pricing, and therefore should be looked at more as a price trend indicator than a specific unit cost.
From a higher level, the variability of pricing year over year, and from zone to zone provides a reasonable defense for the efforts that are underway to revise the capacity auction framework in MISO zones that rely on competitive markets to satisfy capacity needs (currently limited to Zone 4 as proposed). The proposed shift to an annual auction covering the coming 3 delivery years (similar to PJM) would allow end users to better forecast costs, and would allow generators to finance and plan their generation resources based on a longer term view.