Entergy RTO Evaluation Glosses Over Capacity Costs

Entergy's comprehensive evaluation of alternative transmission arrangements, in which it justifies its selection of Midwest ISO membership, essentially dismisses capacity costs as a potential cost to ratepayers under the MISO option.

Only three paragraphs in the 200 page report address the issue of an installed capacity obligation for load serving entities. While Entergy notes that the Southwest Power Pool does not contemplate creation of a capacity market as part of moving to a Day-2 market, it dismisses any costs which could arise due to capacity obligations in the MISO.

"MISO is in the process of developing a forward capacity auction, which is sometimes described as mandatory," Entergy said. "While the details of what might ultimately be proposed are unknown at this time, it seems clear that any proposal will include a 'self supply option,' in which integrated utilities such as the Entergy Operating Companies can either own or contract for their capacity needs as they do today," Entergy continues.

However, rather the meeting a capacity target resulting from resource planning conducted by state regulators, the Entergy companies would, under a MISO capacity market, be subject to a reserve margin and unbundled capacity obligation set by the RTO, which may differ from that set by state regulators, and possibly require the purchase or construction of additional capacity not otherwise needed.

Furthermore, the MISO capacity auction would likely effectively serve as a price floor for any bilateral capacity contracts used to fill the self-supply option (reflecting the opportunity costs of resource owners), meaning that new build would be the only solution not priced at the capacity auction price for even the smallest, incremental capacity needs.

Entergy said that its analysis found net benefits to Entergy Texas from joining MISO of $170 million to $225 million for the 2013 to 2022 timeframe, while net benefits to Entergy Texas from SPP membership would be $130 million to $175 million.

Entergy further said that its analysis differs from the Charles River Associates study because, among other reasons, the CRA study did not consider the intra-company cost exchanges that will occur pursuant to the Entergy System Agreement for those Operating Companies (including Entergy Texas) that remain parties to the agreement even after RTO membership.

Entergy's study was filed in PUCT Project 39385.