An Examination of Prices on the MISO Exchange

This chapter examines the efficiency of the Midcontinent Independent System Operator (MISO), Inc., electricity exchange following its major expansion in terms of market participants and geographic scope in 2014. Specifically, hourly day-ahead (forward) and real-time (spot) prices from 2014 to 2016 reveal that forward premiums are prevalent despite the increase in market size. Furthermore, these forward premiums do not adhere to Bessembinder and Lemmon’s (2002) commonly used general equilibrium model for electricity forward premia. A technical trading rule based on the relationship between day-ahead prices across hubs that was found to be profitable prior to MISO’s expansion still produces economically and statistically significant returns after the exchange’s growth.