Entergy Arkansas, Inc. announced that it will join the Midwest Independent Transmission System Operator (MISO) regional transmission system located in Carmel, Indiana, a suburb of Indianapolis.

Entergy Arkansas has been studying how it will participate in electricity transmission after it transfers from its current system agreement with its parent company, Entergy Corp., to a more independent operation by the end of 2013.

Entergy had studied joining Little Rock-based Southwest Power Pool (SPP), MISO, or becoming a stand-alone operating company. It abandoned the pursuit of a new system agreement in April 2010 in an effort to mollify state regulators.

Additional information regarding the basis for the company’s conclusion will be included in a related filing to be made with the Arkansas Public Service Commission on or before May 12. The company anticipates asking the PSC later this year for approval to join MISO, with a target implementation date of December 2013.

“After a long and thorough process of reviewing available options, it became clear that joining MISO is the best choice for our customers,” said Entergy Arkansas President and CEO Hugh McDonald.

“Today’s announcement follows Entergy Arkansas’ 2005 commitment to terminate its participation in the System Agreement in 2013, ending the equalization payments Entergy Arkansas customers have paid since 2007 and thereby reducing the price they pay for energy. After a comprehensive analysis, we have concluded that this is the best approach for continuing to provide reliable electric service at reasonable cost once the company’s participation in the System Agreement has ended," he added.

One of the primary reasons Entergy chose MISO was due to its "mature" Day 2 market – a market-driven system where electricity generators and users place orders through MISO a day ahead of schedule in order to meet estimated customer demand the following day. The system aims to ensure electricity demand can be met while market prices are predictable.  You can read more on the subject in this short primer.

In addition to Entergy Arkansas joining MISO, Entergy Corp. announced that all six of its operating companies, including Entergy Arkansas, would be joining the midwest transmission operator’s group.

McDonald spoke to Talk Business this morning about the decision to join MISO. He explained what went into the decision and why Entergy Arkansas made the move.

Talk Business: When did Entergy Arkansas come to this decision and why is it best?

McDonald: The final decision was really made last week not just for Entergy Arkansas but all of the Entergy companies. We have done a significant amount of analysis over the last several years. We evaluated – based on the alternatives – that moving to MISO that has a mature, certain Day 2 market is going to provide our customers more benefits over a billion dollars over the next 10 years just in production cost savings.

Talk Business: If the goal was to break away from the Entergy system and all of Entergy’s subsidiaries will be going to MISO, then are you really breaking away from the Entergy system?

McDonald: Remember, when I signed the letter to exit the system agreement for Entergy Arkansas over 5 years ago, we were still going to be part of the Entergy system. We were just getting out of that agreement that really was forcing us – based on the FERC order to make those subsidy payments – we’re still getting out of that in December 2013. The new arrangement that we’ll be operating under will be with MISO. Even though the other Entergy operating companies will also join MISO, we will not be part of the "system agreement." We’ll be independent from that perspective.

Talk Business: Explain in more detail how you expect this move to MISO to save a billion dollars in production costs over the next decade.

McDonald: The analysis that the commission (PSC) ordered Charles River and Associates to do assumed – that was the independent cost-benefit study – that analysis showed that joining a regional transmission organization with a Day 2 market, either in SPP or MISO, will result in production cost benefits for the Entergy system.

The reasons we chose MISO was they have a Day 2 market that it is up and running and its been up and running since 2005. They are larger, so they have a larger scale to be able to spread costs over – larger than SPP – which reduces the overall costs for everybody. Finally, the transmission cost allocation policies, we believe in MISO, place our customers at lower risk from getting transmission costs allocated to them from transmission projects that are built many states away from us.