Dynegy CEO’s Comments Serve To Highlight Barriers Facing Independent Retailers From Capacity Markets
May 05,2016
During an earnings call yesterday, Dynegy CEO Bob Flexon said that retail suppliers which do not own locally sited generation are hesitant to enter the Ameren service area due to the potential for volatile capacity auction prices and unwillingness to "bet" on auction prices, as the comments served to highlight the barriers such mandatory capacity markets create for independent retail suppliers, and the advantages provided to the owners of former incumbent assets.
As reported yesterday, Dynegy announced plans to retire nearly 2 GW of capacity in MISO Zone 4 (Southern Illinois/Ameren), due to what Dynegy said was the lack of sufficient compensation via the MISO capacity market. In the absence of adequate compensation, Dynegy is sizing its capacity ownership to match its retail book.
An analyst asked Dyengy about its uncommitted MISO capacity remaining after the retirements, which prompted Flexon to discuss the hesitancy of retail suppliers not owning generation to enter the MISO Zone 4 market (Ameren).
"What we've seen in our retail businesses, our Homefield Energy business is doing quite well within Zone 4. And that kind of was borne out last quarter when we announced how we picked up nearly 1,000 megawatts from Good Energy at close to $4.50 a kW-month for the capacity. So what we're seeing is that other retail providers don't necessarily like to come into Zone 4, because they have to buy capacity or be short capacity and take it to the auction. And ... this last auction, if you look at that bid curve, if that demand moves by 500 or 1,000 megawatts, it's an entirely different price. So any retail provider coming into the space without generation is making a big bet on what capacity is going to clear at," Flexon said
"And certainly now going forward, if [Exelon's] Clinton were to retire, if you have these assets coming out of the marketplace, I mean, all the slack is gone out of MISO. So coming in and selling retail, unless you have generation, is ... what we're seeing is not something that outside retail providers actually want to come in and do. So, a matched book for us is the right strategy in that market. And I'm not worried at all about not being able to move the megawatts through our retail book in 2018-2019. We've got a great retail team, and we've got the right assets spread across the state to back that retail business," Flexon said
Independent retail electric providers in ERCOT should remember these words the next time creation of a capacity market receives a serious push from certain generation owners