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Capacity Prices Will Soon Be Lower in the MISO Region. Here's Why.

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Last week, the Midcontinent Independent System Operator (MISO) revealed the outcome of its recent Planning Resource Auction (PRA) for the time period covering June 1, 2017 through May 31, 2018. 

The annual auction is held each year by MISO to assure that adequate capacity resources are on hand to meet the expected system planning reserve requirement for the upcoming year. This is different than other independent system operators (ISOs) where the capacity auction is held three years in advance.  

The MISO auction results in capacity prices in 10 different pricing zones, across the entire ISO. Direct Energy serves retail load in the Illinois pricing zone (Zone 4) and the Michigan pricing zone (Zone 7). In past years, there have been different prices in each of the zones, due to various factors including transmission import constraints, higher customer demand and local sourcing requirements. 

In this auction, one price emerged for all of the pricing zones, meaning that all 10 zones will pay the same price. The resulting price for the 2017/2018 time period is $1.50 per MW-day. This price is significantly lower than the $72.00 per MW-day that came out of last year’s auction for Zone 4 and Zone 7 and is in fact less than half of the previous low price for Zone 7, which was $3.48 per MW-day for the 2015/2016 time period. 

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There are several factors that drove the lower pricing this auction. The first is that more capacity from the southern part of MISO was able to be used to meet the capacity needs of the northern part of MISO. This was done through easing of administratively set transmission transfer limits between the two portions of the ISO. This was not available in past auctions. Another factor contributing to the lower cost is the fact that less capacity was being procured through the auction due to lower forecasted customer demand. An additional contributing factor is increased energy efficiency in the region. 

A detailed analysis of the auction results will be presented by MISO to stakeholders in mid-May at which time more information will be available regarding the reasons for the substantial reduction in capacity prices.

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Posted: April 20, 2017