MISO Power Tracker: Gas prices strengthen power prices this December

Substantially higher natural gas prices helped boost wholesale power prices in the Midcontinent Independent System Operator footprint this December, compared with December 2019, but a mild first-quarter weather forecast and pandemic-surge concerns appear to have weakened February on-peak forwards.

Another factor in forward prices, at least in the MISO South region, may have been Entergy's 993-MW Montgomery County Power Station, a new combined-cycle gas turbine facility that started commercial operation on Jan. 1, according to a Jan. 13 news release from McDermott International, the general contractor.

In an Oct. 5 regulatory filing at the Public Utility Commission of Texas, Entergy said the facility was expected to be placed in service in early January, more than five months earlier than originally expected.

In December, day-ahead on-peak locational marginal prices averaged in the mid-$20s/MWh across the five hubs included in this analysis, up by 2.7% to 18.6% from the same period of 2019, according to S&P Global Platts data. The month-to-month comparison was mixed, with the Texas prices down 9.7% December 2020 from November 2020 and Minnesota Hub prices up by 16.7%.

At Henry Hub, spot gas averaged $2.575/MMBTu this December, up 0.8% from this November's $2.555/MMBtu and up 17.4% from December 2019's $2.193/MMBtu.

At the Chicago City-gate, spot gas averaged $2.442/MMBtu this December, up 1.5% from this November's $2.405/MMBtu and up 16.6% from December 2019's $2.095/MMBtu.

Daily systemwide peakloads averaged about 81.7 GW this December, almost flat with December 2019's 81.8 GW but up 9.5% from this November's 74.6 GW, according to MISO data.

The weather played a big role in MISO's strong demand. Population-weighted average heating-degree days in December were up about 126% from November and up about 4.6% from December 2019, according to CustomWeather.

This December's population-weighted average low temperatures, at 25.3 degrees Fahrenheit, were down from 41.6 degrees F this November and 26.6 degrees F in December 2019.

Generation mix

With such strong gas prices, coal-fired generation continued to increase its share of the MISO mix, hitting 38.5% this December, compared with 35.2% this November and 36% in December 2019.

Gas-fired generation supplied 29.2% of MISO's energy this December, up from 27% this November but down from 31% in December 2019.

Nuclear power had the No. 3 spot, at 15.9% of this December's total, up from this December's 15.6% but down from December 2019's 19.1%

Wind power supplied 13.5% of the total this December, down from 18.8% this November but up from 11.7% in December 2019.

Forward markets

Looking to the future, Platts M2MS Forward Curves show little correlation between power and gas forwards, which may mean that demand fundamentals played a larger role in trading.

The Indiana Hub February on-peak index averaged about $30.90/MWh, and the Louisiana Hub February index averaged about $28.50/MWh this December. The Indiana Hub number is down 5.6% from this November's $32.70/MWh and down 3.4% from the February 2020 index average in December 2019. The Louisiana Hub number is almost flat with this November's average of about $28.60/MWh, and down 7.7% from the February 2020 average of $30.90/MWh in December 2019.

February gas at Chicago City-gate averaged $2.533/MMBtu this December, down 15.1% from this November's $2.982/MMBtu but up 3.5% from the February 2020 average of $2.447/MMBtu in December 2019.

February gas at the Henry Hub averaged $2.584/MMBtu this December, down 12.9% from this November's $2.968/MMBtu but up 13.3% from the February 2020 average of $2.281/MMBtu in December 2019.

The National Weather Service's forecast for January, February and March, issued Dec. 17, indicated a greater likelihood – 33% to 60% – for above-normal temperatures across most of MISO's footprint, with only North Dakota and parts of Minnesota and South Dakota likely to have below-normal temperatures.

Pandemic effects

Concerns about the coronavirus pandemic's effect on the economy and power demand may also play a role in forward-price weakness. Among the top 20 states in terms of total COVID-19 cases, states that lie all or partly in the MISO market occupy seven places, including Texas at the No. 2 spot, with more than 2 million cases and more than 31,000 dead. These numbers are according to Worldometers.info, which obtains data from local, state and federal public health agencies.

The daily infection counts have been on the rise recently. The seven-day moving average for Texas, for example, hit a new high of 22,256 on Jan. 12, compared with a recent low of 3,609 on Oct. 6. However, most of Texas lies in the Electric Reliability Council of Texas footprint.

Illinois, of which most lies in MISO, ranks No. 5 among the states with the most infections, at more than 1 million. Its seven-day moving average of new infections was 6,921 on Jan. 12, down from 12,384 on Nov. 16 but up from 602 on June 18.