Is Entergy joining MISO like Kissing Your Sister?

There is something decidedly unromantic about the idea of Entergy joining Midwest System Operator (MISO).  Yes I know they say that turning Entergy’s transmission system over to MISO will save customers $284 million over ten years.  Let’s face it, if THAT is all the romance there is in this deal then joining MISO is very much like kissing your sister.

The savings for customers may be enough to satisfy regulators to let Entergy and MISO say I DO to this deal but I suspect there are more reasons for it than that.  Even the projected $1.4 billion in system-wide operating savings that might result from integrating Entergy’s 30,000 MW power supply portfolio and 15,000 miles of transmission with MISO’s may be good for earnings growth and dividends it still is not the driving strategic reason for the action.

Why would Entergy do this deal?

  • Making a Market for Entergy Nuclear.  The MISO portfolio is only 6% nuclear so adding Entergy’s nuclear fleet to the mix creates a solid baseload foundation for all and positions Entergy to fill the gap from the loss of coal fired generation if the anti-coal regulatory bias continues past the next election.
  • Opening the Gateway to Wind in the South All that wind energy potential in Iowa and the rest of the upper Midwest has to go somewhere and creating a gateway to the South is not a bad place to be for wind producers.  SPP could play that role but Entergy has the capacity to make it happen.  It also has the capacity to make it difficult for competitors as well so a portfolio combination of nuclear baseload and lots of wind on the unregulated side of the business is not a bad play for the clean energy future.
  • Big Dog Theory of Market Selection.  In many ways Entergy is a lot like Poland.  Huh, you ask?  Poland is strategically located in central Europe but its location was also its biggest burden.  Poland has Germany on one side and Russia on the other and it has been occupied many times over its history.  Entergy has little risk of being occupied but it has the ERCOT boundary to the West and Southern Company to the East and TVA to its Northeast.  Getting around these giants has always been an issue.  Remember the old joke:  “ Unless you are the lead dog the view is always the same.”  And so one reason for Entergy’s MISO strategy is that it affords the opportunity to play big dog and the yard is much bigger in MISO than in SPP.  So like Poland, Entergy’s strategy must be to get as big and strong as it can without threatening the other big dogs in the neighborhood.  But having your own neighborhood is even better.
  • MISO Needs Entergy as Much as Entergy Needs MISO.  The departure of MISO members like Exelon and AEP to PJM stunted MISO’s growth.  It was not very attractive to utilities to the West because its costs were high and they felt like minor league players.  So Entergy evens the scorecard in the RTO pennant race and bulks up MISO and spreads its cost so it can become more attractive to others looking for a new neighborhood.  It remains to be seen whether SPP has enough stamina to make it on its own or will eventually join forces in MISO.  No matter, Entergy and MISO are a good fit.
  • Scalable Growth in a Target Rich Market.  The promise of smart grid is large, dynamic markets for energy and optimization.  To realize that smart grid potential requires scale.  Getting remote renewable energy to market requires transmission access.  Aggregating demand response and energy efficiency means scalable growth potential from wide, diverse markets are essential.  Bigger markets attract bigger players so expect consolidation to continue and accelerate in the energy space.  For Entergy, positioning itself to acquire attractive assets for both its regulated and unregulated business assures its scalable growth potential and makes it a player in any interstate transmission bridging the three great interconnected smart grid markets of the future.  The MISO market enables Entergy to grow and to compete at the seams on every front of the North American electric power future.

In my view these are all good reasons to do this deal and they are a far cry from kissing your sister.