(Updates with prices in the sixth paragraph and DNV comments starting in the 13th.)
Dec. 18 (Bloomberg) -- Midcontinent Independent System Operator Inc. will provide power to communities from Canada to the Gulf of Mexico after it takes control of Entergy Corp.’s southern transmission system at midnight, creating the biggest electricity network in the U.S. in terms of area.
The Carmel, Indiana-based grid operator will expand its footprint from Manitoba and the U.S. Midwest to the Louisiana coast. The move will add 18,000 miles (29,000 kilometers) of transmission lines and about 40,000 megawatts of generating capacity in Arkansas, Mississippi, Louisiana and southeastern Texas.
These new territories will give the rest of the Midwest access to power supplies from natural gas and nuclear plants as the region faces a deficit in 2016 with coal plants shutting down, said Todd Hillman, regional vice president of MISO’s southern region. Entergy said joining MISO will eliminate the need to pay for 1,000 megawatts of generating capacity next year and will save its customers $1.4 billion over the next decade.
“We’re trying to maximize the value of the wholesale transmission system,” Hillman said in a telephone interview from Entergy’s offices in The Woodlands, Texas. “In addition to Entergy, we’ve got nine other transmission owners and five other balancing authorities coming into the MISO system tonight also.”
MISO will start reporting spot prices for three new trading hubs at 12:05 a.m. Eastern time: Arkansas, Louisiana and Texas.
This afternoon, the grid operator reported day-ahead prices for these new hubs for the first time. Power for the highest- demand hours of the day averaged in the middle $30s per megawatt-hour, on par with the Midwest, MISO data showed. About 98 percent of electricity for the grid is secured the previous day with the remaining supply procured through the spot market.
At midnight, MISO will increase its transmission system by 27 percent to 83,787 miles and boost its generating capacity by about 30 percent to 171,964 megawatts. Along with Entergy, the southern expansion will include systems operated by Cleco Corp., South Mississippi Electric Power Association, Louisiana Energy and Power Authority and Louisiana Generating LLC.
A survey of MISO market participants shows they expect the region to see a shortfall of 7,500 megawatts to 8,500 megawatts in 2016, Hillman said.
About 51 percent of the generating capacity in MISO’s Midwest region is from coal versus 33 percent from other fossil fuels and 7 percent nuclear. Coal’s share will drop to 46 percent after the Entergy integration.
Hillman said MISO expects to be the biggest grid operator geographically after the integration of the Entergy system. He said it will be smaller than PJM Interconnection LLC in terms of overall generating capacity, as PJM operates in the country’s big population centers along the East Coast. PJM serves more than 60 million people in 13 states, including the Washington, Philadelphia and Chicago metropolitan areas.
Entergy will continue to operate regulated utilities in such places as Arkansas and Louisiana, but will now be able to purchase all of the electricity to serve households and businesses through the MISO wholesale market, said John Hurstell, vice president of system planning with Entergy, from The Woodlands office near Houston. The New Orleans-based company will also sell all of the output from its power plants through MISO, he said.
“If Entergy saves a dollar on generating costs, that’s a dollar less we have to get from our ratepayers,” said Hurstell. “Our customers don’t care whether they get their power from the Entergy units or some other units. They just want to get the lowest price possible.”
MISO prices will show little gains next year because of its expanding footprint and lack of Midwest economic growth, Jeff Baden, head of DNV GL’s market and policy development practices for the Americas, said in a telephone interview.
“Evidence suggests that prices are slightly lower in total” after a competitive power market expands geographically and adds a deep base of generating capacity, said Baden, who is based in the Philadelphia office of DNV, which advises utilities to competitive retailers.
On-peak wholesale electricity for MISO’s benchmark Indiana hub are averaging $38.85 a megawatt-hour for calendar year 2014, according to Bloomberg Fair Value prices. That is little changed from day-ahead prices averaging $38.06 so far this year, grid data show.
--Editors: Charlotte Porter, Margot Habiby