Auctiondesign changes, combined with a mostly tighter supply balance due toretirements and exports to PJM, worked to impact prices in the latestMidcontinent Independent SystemOperator Inc.'s fourth annual Planning Resource Auction, analystsfrom ICF International said during an April 26 webinar, "Highlights fromMISO's April Capacity Auction."
Theauction, which coversthe 2016-2017 planning year from June 1, 2016, to May 31, 2017, yielded threedifferent clearing prices. Zone 1 cleared at $19.72/MW-day, Zones 2-7 clearedat $72.00/MW-day and Zones 8-9, which includes MISO South, cleared at$2.99/MW-day. The results showed a 52%-drop in prices on the year in Zone 4 buta near 2,000%-jump in prices for Zones 2-3 and 5-7.
Goingforward, the Midwest supply/demand balance could be and a further tightening ofsupply is projected, which will likely lead to volatility in prices, the ICFanalysts said, depending on demand of course.
MISOrepresentatives had indicated this year's auction results were likely impactedby a series of auction changes mandated by an order from the U.S. FERC. Themost notable of these changes affected the determination of the initial offerreference price level applicable in the auction, which is the basis for ageneral offer price cap. Previously, the reference level was calculated as theopportunity cost of foregoing the value of exporting capacity to neighboringregions. The order reduced the initial reference level to $0. As a result, anyresource desiring to offer above the conduct threshold of 10% of Cost of NewEntry, or CONE, had to obtain approval from the MISO Independent Market Monitorto support the offer.
Also,the order generally expanded import capability into MISO Local Resource Zonesand decreased Local Clearing Requirements for most zones. Anotherchange in the auction was a decrease in the transfer limit between MISO Southand MISO North/Central regions from 1,000 MW to 876 MW. FERC previouslyapproved a capacity sharing settlement between MISO and neighboring regionsthat formalized the allowable flow limits between these regions.
More market changes lie ahead
MISOis discussing with stakeholders various modifications to the resource adequacy construct. MISOis developing and has presented a related proposal to refine resource adequacyplanning to better reflect locational issues.
Inaddition, in March, MISO introduced a proposal to address price formation andtiming in retail choice areas, while still retaining the existing construct forthe rest of the footprint. The proposal calls for the addition of a new andseparate auction for only the portions of the MISO footprint that rely onmarkets to assure resource adequacy, like Zone 4 in southern Illinois. ThisForward Local Requirements Auction, or FLRA, will serve as a complement to MISO'sexisting PRA, which will remain unchanged as used by other load-servingentities in MISO.
Currently,MISO's resource adequacy construct balances capacity developed or procured on aforward basis through local or state jurisdictional planning processes, thenvalidates that regional and locational resource adequacy requirements have beenmet two months ahead of the planning year through the PRA or through fixedresource adequacy plans.
Accordingto the analysts at ICF, with the introduction of the FLRA, MISO will boast avery unique market design that would share many elements with that of the PJMmarket. However, there would be no mitigation rules under the FLRA. This islikely to have a marginal, if any, impact on pricing.
MISOproposes to phase the implementation of these new features into the market overan 18-month period. Phase one, set for spring 2017, would feature a PRAcovering planning year 2017/18. Phase two, scheduled for spring 2018, wouldinclude a PRA for planning year 2018/19, as well as FLRAs for planning years2019/20, 2020/21 and 2021/22.
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