US POWER TRACKER: Traders see tame Midcontinent ISO power prices in October

Mild weather forecasts offered

Inexpensive natural gas helps market share

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Mild weather forecasts combine with weak natural gas forwards to prompt power traders to quell concerns about Midcontinent Independent System Operator power price spikes in October, judging by forward prices.

CustomWeather forecast temperatures across MISO’s 15 states to range from 1 degree below normal in the southern Great Lakes region to as much as 2 degrees above normal for the northern Great Plains and the Gulf Coast. CustomWeather calculates MISO’s population-weighted temperatures to average 53.7 degrees F in October over the long term.

Despite occasional heat waves this summer, MISO has given little foretaste of extraordinarily hot weather. Indeed, population-weighted temperatures in the MISO footprint averaged 73.2 F in August, down from 74.6 F in July and 73.9 F in August 2022, CustomWeather data shows.

Similarly, MISO’s cooling degree days were down in August by 13.8% from July and 6.6% from August 2022.

In its Aug. 17 seasonal temperature anomaly forecast, the National Weather Service said most of the MISO footprint would face even chances of slightly above or slightly below normal temperatures in September, October and November, while most of the MISO South region faced chances ranging from 33% to 50% for above-normal temperatures.

Peakloads, however, have been another story, averaging 104.3 GW this August, up 0.7% from July’s 103.6 GW and up 3.9% from August 2022’s 100.4 GW.

But natural gas markets have more than recovered from the war in Ukraine’s initial energy market shock. Chicago city-gates spot gas averaged $2.348/MMBtu in August, up 2.6% from July’s $2.29/MMBtu but down 71.7% from August 2022’s $8.305/MMBtu, according to S&P Global Commodity Insights data.

Henry Hub spot in August averaged $2.566/MMBtu, up 1.1% from July 2023’s $2.539/MMBtu but down 70.8% from August 2022’s $8.794/MMBtu.

Forward markets

Looking ahead, Chicago city-gates October gas averaged $2.468/MMBtu in August, up 2.3% from its July average of $2.412/MMBtu but down 70.4% from the $8.33/MMBtu that October 2022 gas averaged in August 2022.

Henry Hub October gas averaged $2.744/MMBtu in August, up 0.3% from July’s $2.735/MMBtu but down 68.7% from the $8.763/MMBtu that October 2022 gas averaged in August 2022.

Therefore, it is unsurprising that October on-peak forwards at five major MISO hubs collectively averaged in the low $40s/MWh in August, up slightly from the equivalent averages around $39/MWh in July but down by more than 60% from the $110/MWh that the five hubs’ October 2022 forwards averaged in August 2022.

For examples as context, Indiana Hub day-ahead on-peak locational marginal prices averaged $70.42/MWh in October 2022, and Louisiana Hub day-ahead on-peak LMPs averaged $61.32/MWh.

Generation mix

Analysts at S&P Global forecast MISO’s gas-fired generation to average about 573.6 GWh/day in October, up from 485.3 GWh/d in October 2022. Assuming a similar implied heat rate to October 2022, MISO’s gas plants this August would burn about 3.5 Bcf/d, up from less than 3 Bcf/d in October 2022.

Such performance would keep MISO’s gas fleet in a leading position, supplying more than 37% of the system’s power, compared with 31.5% in October 2022, according to US Energy Information Administration data collected by S&P Global..

However, MISO’s growing wind fleet might gain market share in October, as S&P Global forecast wind output totaling 23.4% of October’s average daily generation, compared with 17.4% in October 2022.