Analysis of Risks Posed by MISO Market and of Inherent Risks in System Portfolio

Client Problem:

Our client is a large joint action agency located in the MISO market with a service area that covers more than 20 different price nodes. Because of these multiple price points, this utility is exposed to a variety of Operational, Price, and Congestion Risk.

Our client wanted to understand how its portfolio is exposed to new risks created by the MISO market and, just as importantly, how to hedge against those risks. Specifically, the agency wanted to know what hedges are available to it and how effective different combinations of those hedges would be on the agency and its portfolio.

TEA® Solution:

The Energy Authority® conducted a multi-phased analysis beginning with a Base Case that included a model of the individual member system—including all relevant price nodes—as well as a model that represented the new market rules. TEA analysts then interpreted the models' output and applied the results with a perspective cultivated from every-day experience in the MISO market.

Next, we evaluated our client's approach to operating in the MISO market, helping them to identify the risks inherent in their approach and the potential benefits of alternative approaches. For example, we compared the risk of real-time only operations with the potential benefits of offering Non-Designated Network Resources in the Day-Ahead MISO market, and presented those findings to our client.

The third step was to evaluate the new market products that are available to our client. These include a variety of products that are very different from what was commonly used in the previous bilateral market:

• Financial Bilateral Transactions,
• Designated Network Resource Capacity,
• Virtual Trades to hedge our client's portfolio,
• Financial Natural Gas Products, and
• Financial Transmission Rights (FTRs) which can be used to hedge congestion and protect load, among other applications.

Finally, TEA calculated the impacts these new options could have on our client's Expected Cash Flow and Cash Flow at Risk.

As a result, The Energy Authority was able to help our client identify the challenges and opportunities of the new market, and to quantify their potential impact. We were able to increase our client's awareness of the new financial tools available in the RTO market, and to identify how operational changes would enable them to take advantage of these new opportunities.