How to Analyze a Fixed Price Contract in the MISO Market
The MISO market presents unique challenges for energy buyers. Achieving a MISO energy product that meets your firm’s budget and risk profile requires attention to detail and specific market knowledge.
Different suppliers’ approaches to Ancillaries, Transmission, and Capacity can lead to starkly different price quotes, which ultimately impacts how much your business will pay for energy.
Here are some helpful tips when requesting pricing in the MISO market.
Transmission or Ancillary Service?
Did you know that a fixed energy price is made up of dozens of components in addition to the energy itself? Some of these components are well-known, such as capacity and RPS; however, other smaller, MISO-specific components are often unfamiliar to energy buyers, and can be included in the Ancillaries or Transmission costs. One of the unique challenges in MISO is understanding how suppliers categorize components.
While a component such as Network Integrated Transmission Service (NITS) is anticipated to be included as a Transmission charge, other components such as MISO Transmission Expansion Plan (MTEP) charges can be interpreted as a Transmission cost or as an Ancillary Service charge. MTEP is a charge to ensure reliability of the transmission system in support of state and federal energy policy requirements by covering enhancement to the electric infrastructure for future reliability needs. With charges like MTEP, suppliers have flexibility in determining what “bucket” to place the particular charge.
Why is this important? A product that allows Transmission to be passed through or otherwise fluctuate may also, unexpectedly, allow additional components slotted within the Transmission category to likewise be passed through or fluctuate. When evaluating your MISO options, make sure to clearly understand what charges make up both the Transmission and Ancillary Services categories, and whether such components are classified as fixed or pass through.
Another common concern in MISO is determining whether all components are included in your fixed price in the first place, which can prevent surprise costs in the future.
In MISO, in addition to MTEP, make sure to ask your supplier whether these other components are included:
- Multi-Value Projects (MVP) charges: A sub-type of MTEP, MVPs refer to charges for specific, announced development projects across the MISO footprint that will improve reliability, lower wholesale energy costs, and connect renewable resources.
- System Support Resources (SSR) charges: A temporary charge to maintain grid reliability when a generating unit has announced a shut down, yet MISO has determined that it is a resource needed for grid reliability
Once you’ve established whether charges like MTEP, MVPs, and SSRs are included in your price, make sure to evaluate how likely they are to change during the contract term and understand what happens if they do. For example, if MVPs are forecasted to increase each year over the next few years, are those increases already covered in your energy price, or will you need to consider future changes to your budget to cover them? Similarly, if MISO has determined that the grid is fully reliable and SSRs are currently $0/MWh, will you end up paying more if a generator announces a retirement and an SSR charge arises during your term?
What about Capacity?
Capacity auctions in MISO occur every spring and are in effect from June through the following May.
This means that suppliers really only know the actual capacity in effect for a given planning year a few weeks in advance of that planning year. Additionally, capacity rates have fluctuated widely over the past five years. Be sure to ask how your supplier will treat any changes to future capacity rates during the term of your agreement. While a fluctuating capacity rate may give you a lower price at the start of your agreement, it may end up resulting in a large unexpected price change later in the term of your agreement.
Looking for similar tips in the New England market? Please see our previous blog in this series: “Navigating an Energy Contract in New England.”
Guest Author: Nora Baxtrom, Principal – Market Analytics
In Nora’s 10-year career in retail energy, she has held positions that support a variety of capacities including Business Development, Account Management, Pricing, and Market Analytics. In her current role as a Principal on Constellation’s Market Analytics team, she focuses on understanding and communicating broader market trends to inform both strategic and tactical direction. She holds an MBA in Economics and Strategy from the University of Chicago Booth School of Business and a B.S. from the College of Communications at the University of Illinois Urbana-Champaign.