Analyst underwhelmed by first MISO auction

The first Midwest ISO (MISO) capacity auction cleared at only $1.05/MW-day or “barely above zero” due to a “highly oversupplied market,” UBS Investment Research Analyst Julien Dumoulin-Smith noted in an April 5 commentary.

The “de minimus result” points to heavy oversupply in Illinois, and it remains uncertain how much capacity prices might increase after coal retirements brought on by the mercury and air toxics standards (MATS) deadline of 2015 and 2016, the UBS analyst said.

The $1.05 price is fairly close to the Illinois Power Authority’s all-day price of 88 cents for the current planning year. “Compared to PJM price lows of $27/MW-day and more recent prices of $135/MW-day, we continue to view MISO economics as challenged,” Dumoulin-Smith said.

The results imply that there is probably 8,200 MW of “uncleared/excess capacity” in the region, the UBS analyst said.

“While many have flagged expectation that prices won’t materially improve until the 2015/16 auction, given the effect of MATS, we remain more sanguine on the potential for material improvement given very modest retirements (particularly in the competitive MISO-Illinois),” Dumoulin-Smith said. Both Dynegy (NYSE:DYN) and Ameren (NYSE:AEE)’s coal portfolios are largely already compliant with MATS regulations, the analyst said.

Ameren announced in March that it had reached agreement to divest its merchant generation business and was selling much merchant coal capacity to Dynegy.

Dumoulin-Smith also noted that the coal portfolio of Edison International (NYSE:EIX) subsidiary Midwest Generation has gotten a ruling from the Illinois Pollution Control Board that potentially delays some coal units retirements until January 2017. Midwest Generation and Edison Mission Energy have sought Chapter 11 bankruptcy protection. Even before filing Chapter 11, Midwest Gen pursued a break at the Illinois board on a state air emissions mandate so that it could save money in the meantime, while it works on a plan to turn over its assets to creditors.

MISO is an independent, not-for-profit regional transmission organization responsible for maintaining reliable transmission of power in 15 U.S. states and the Canadian province of Manitoba.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.