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MISO May electricity prices rise on stronger demand, warmer weather

Houston — Midcontinent Independent System Operator day-ahead on-peak locationalmarginal prices were mostly higher in May, compared with this April andMay 2017, boosted by rising demand and early summer heat in thefootprint.

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At the five hubs in the MISO footprint tracked in an S&P Global Plattsmonthly analysis, day-ahead on-peak LMP averages ranged between the low$30s/MWh and the high $40s/MWh in May, representing a jump of between 8%and 36% on the month, while prices at four out of five hubs rose between10% and 19% on the year. Only at the Texas Hub were May's prices downfrom May 2017. MISO data showed daily peakload averaged 89 GW/d in May, hitting as highas 111 GW near the end of the month. May's average was up about 19% fromApril and 14% from May 2017.

The surging demand was mostly attributed to much higher cooling loadsamid above-normal temperatures in the area.

May is a season-changing month for the geographically diverse MISO, whichstretches from Canada to the Gulf Coast. Most of the electric load shiftsfrom heating to cooling in May, as heating degree days fell significantlyin the month, which cooling degree days more than offset.

S&P Global Platts Analytics data shows that CDDs for the entire footprintwere estimated to total 139 in May, compared to seasonal norms of lessthan seven and the total of less than one in April.

In contrast, HDDs totaled about 65 in May, about half of the seasonalnorms and less than 10% of the April total.

On the year, May's CDDs total represented a rise of over 300% from theyear-ago level while this May's HDDs were less than 30% of what it was inMay 2017. Average temperatures across MISO were estimated at 67 degrees in May,about 10% above normal and 60% above the average in April.

The grid operator issued several hot weather and conservation operationalerts in mid-May and late May, asking market participants to take actionon the possible tight supply situations, such as calling for suspensionor deferral of generation and transmission maintenance outages.

Bucking the trend, next-day prices at Texas Hub were down about 7% on theyear to average in the high $30s/MWh in May, likely due to weaker spotgas prices on the year.

Spot gas prices at Houston Ship Channel, a representative regional gastrading point for Texas Hub, averaged about $2.814/MMBtu in May, downabout 43 cents, or 13% from what it averaged in May 2017, according toPlatts data. This May's average was down less than 2 cents from the Aprilaverage.

FORWARDS DIP ON HIGHER RESERVE MARGIN

Looking ahead, MISO forward prices for the upcoming summer were lower onthe year with little change from April, as higher generation reserves andlower natural gas prices were expected.

Texas Hub July on-peak price averaged slightly below $38/MWh in May, flatto the level in April, but about 8% below where it traded a year ago,according to Platts data.

The grid operator expected its net internal demand to decrease about 1%from last summer to about 119 GW this summer, while its prospectivegeneration resources were expected to decrease about 0.7% to 142 GW overthe same time.

As a result, MISO's prospective reserve margin, the percentage differencebetween prospective resources and net internal demand, was expected torise to 20.1% from 19.7% this year, about 3 percentage points higher thanthe reference or target margin level.

The falling demand was mostly caused by an increase of about 17% inavailable demand response resources, rising to 6 GW from 5.1 GW over theyear.

"MISO also studies the summer system reliability during a high outage,high load scenario. For these conditions, MISO expects to rely heavily ondemand response," the North American Electric Reliability Corp. said inits latest summer outlook report.

Additionally, Houston Ship Channel July gas forwards averaged about$2.919/MMBtu in May, about 2% below where the actual spot prices came inlast July.

The latest forecast from US National Weather Service called for enhancedchances of above-normal temperatures in most of MISO South region andnear-normal temperatures in its Central and North region from Junethrough August. -- Jeff Zhou, newsdesk@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com