MISO capacity auction: Higher prices, but no repeat of spikes

©2016 E&E Publishing, LLC
Republished with permission

By Jeffrey Tomich

The Midwest grid operator released data last week showing that the cost of reserving power plant capacity across much of its 15-state footprint will be higher for the year beginning June 1.

The Midcontinent Independent System Operator said capacity prices will range from $2.99 per megawatt-day in its southern region to $72 across much of the Midwest. The clearing price for parts of the Upper Midwest, an area including Minnesota and North Dakota, was $19.72.

MISO’s annual capacity auction is aimed at ensuring that utilities and other electricity retailers have ample generating capacity available to call on during hot summer afternoons and other times when supplies might be tight.

The auction draws little attention outside of the electric industry because prices were minimal and they are embedded in retail electric rates. But a price surge in southern Illinois last year sparked a political and consumer backlash and led to formal complaints lodged with the Federal Energy Regulatory Commission (EnergyWire, May 29, 2015).

MISO’s footprint sprawls from the U.S. Gulf Coast to Canada. But southern Illinois has been the focus of the debate over capacity market reform because it is the only area within MISO with a competitive retail electricity market.

Unlike in other states, where state commissions help ensure there’s ample generation, in Illinois, it is up to the competitive market.

FERC issued an order Dec. 31 declaring elements of the 2015 auction that produced $150 clearing prices to be “unjust and unreasonable.” Specifically, the commission ordered MISO to change two key formulas in its tariff that governs bidding by power plant owners, including a limit on how much capacity may be imported into southern Illinois from neighboring areas (EnergyWire, Jan. 6).

Prices for the southern Illinois region in the most recent auction declined from the current level of $150 per megawatt-day in last year’s auction to $72 for the coming year, in line with neighboring areas.

Meanwhile, MISO is proposing to overhaul the capacity market in southern Illinois to more closely resemble the auction run by PJM Interconnection in the northern half of the state.

MISO last month issued a draft proposal that is still subject to changes before its submitted to FERC for approval this summer.

The proposed changes are among reforms pushed by companies such as Dynegy Inc. and Exelon Corp., which argue that the existing market rules don’t send adequate price signals needed to spur investment in new power plants or to upgrade existing ones (EnergyWire, Feb. 23).

Consumer advocates say the changes aren’t needed and will drive up electricity prices without any measurable benefit in reliability (EnergyWire, March 22).

Overall, 135,483 MW of generation behind-the-meter resources, demand response and imports from other regions cleared the annual MISO auction.

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