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Increasing complexity, faster pace of change driving MISO costs higher: report


Intermittent resources' share rising

Market volatility increasing

MISO CEO notes winter events

  • Author
  • Mark Watson
  • Editor
  • Bill Montgomery
  • Commodity
  • Electric Power

Increasing complexity and faster change are expected to increase the Midcontinent Independent System Operator's costs 46% faster over the next five years, compared with 2018-2021, MISO Advisory Committee members learned June 16, which may result in increased administrative rates applied to power moving through the system.

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During a Finance Subcommittee presentation, Mitchell Myhre, Alliant Energy's regulatory affairs manager who chairs the MISO subcommittee, said MISO expects cost growth to average 4.9% a year for 2022-2026, compared with 3.5% for 2018 through 2021.

Factors driving costs include:

  • A changing generation fleet
  • A more complicated and volatile power market
  • Changing regulatory issues
  • A need for flexible infrastructure to accommodate people, policy and technology changes
  • A need to upgrade protection against cyber and technology threats

Regarding changing generation, S&P Global Platts Analytics forecasts coal-fired generation's share of MISO's output to fall from about 39% in 2021 to less than 33% in 2026, while gas-fired generation's share would climb from about 26% to more than 28%, wind's share would rise from about 14% to more than 17%, and utility-scale solar's share would climb from less than 1% to more than 4%.

System being 'stressed'

Regarding a more complicated and volatile power market, MISO CEO John Bear in a recent Edison Electric Institute event noted that "five of the six events that have stressed our system ... have been non-summer cold weather events."

For example, during the winter storm of Feb. 15-17, real-time on-peak locational marginal prices at the Indiana Hub averaged almost $153/MWh, compared with an average of less than $25/MWh for the same period of the previous five years, according to the Platts price database.

But prices -- and the fundamentals on which they are based -- can also vary widely during summer months. For example, when a heat save triggered several maximum generation alerts and warnings across MISO the week of June 2, in which Indiana Hub real-time on-peak LMPs averaged almost $41.75/MWh on June 7-8, compared with averages of less than $29.40/MWh for the same period of 2016 through 2020.

Effect of salaries, benefits

The biggest impact on total costs 2022-26 from all this complexity and change is salaries and benefits, according to Myhre's presentation, boosting merit raises for existing employees by $34 million to $38 million, while salaries and benefits for increasing head counts could raise costs by $11 million to $13 million.

The next-largest category is for increased computer maintenance costs, an estimated $12 million to $15 million.

MISO derives most of its income from administrative rates charged to market participants, which rose from 37 cents/MWh in 2016 to 45 cents/MWh in 2020, while the budget for 2021 includes a 44 cents/MWh administrative rate.