Comments on Comments Due on 4/1 Stakeholder Meeting

1. How does your organization believe the presentations and discussion at the 4/1 working group meeting can or should inform the goals and problem statements this working group is developing?

Comments on Congestion Revenue Rights Enhancements

Working Group Meeting #5 – April 1, 2025

Department of Market Monitoring

April 16, 2025

Summary

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the Congestion Revenue Rights Enhancements Working Group Meeting Session #5 – April 1, 2025.[1] In this working group meeting, representatives from MISO, PJM and ERCOT presented how congestion revenue right (CRR) designs work in their regional transmission organizations (RTOs). A review of the state of the market reports from the RTOs’ market monitors shows that these auctions also sell CRRs for less than their payouts, losing hundreds of millions of dollars a year—even in cases without revenue inadequacy. This highlights that the core auction design for financial congestion revenue rights common to all these markets and CAISO is flawed.

Comments

CRR auctions sell contracts at large losses regardless of revenue adequacy

Table 1 summarizes the reported auction losses from the MISO, PJM, ERCOT and SPP state of the market reports. The MISO and ERCOT reports include all auction sales. PJM and SPP values are for non-load serving entity (non-LSE) trades.[2]

Figure 1. Losses in financial congestion revenue rights auctions[3]^,[4]

From data available in each market monitor’s annual reports, DMM estimates that average auction revenue collected per payout was 65 cents per dollar in ERCOT and 66 cents per dollar in SPP from 2021-2023, and was 72 cents per dollar in MISO in 2020 and 2021.[5] MISO and ERCOT do not have revenue adequacy problems, but the flawed auction design results in the sale of contracts for hundreds of millions of dollars less than their payouts each year in these RTOs.

MISO’s independent market monitor states:

FTR markets perform well when they establish FTR prices that accurately reflect the expected value of day-ahead congestion, resulting in low FTR profits for the buyers (day-ahead congestion payments minus the FTR price). Even if the FTR prices represent a reasonable expectation of congestion, a variety of factors may still cause actual congestion to be much higher or lower than FTR auction values.[6]

The MISO market monitor goes on to say:

These results indicate that the MPMA [multi-period monthly auction] lacks the liquidity needed to erase the differences between FTR prices and congestion values. Barriers to participation should be identified and eliminated, which should improve convergence between the auction revenues and the associated day-ahead FTR obligations. If such improvements cannot be identified, it may be beneficial for MISO to examine its auction processes to determine whether to establish price-based limits on the sale of forward or counterflow FTRs.[7]

PJM’s independent market monitor points out that, as is the case in CAISO, efforts to reduce revenue inadequacy have had the effect of reducing the available allocated rights—called auction revenue rights (ARRs) in PJM—to load serving entities. 

For example, PJM’s subjective decision to reduce available ARR/FTR supply (system capability) in the ARR/FTR market model through outage selection for the 2014/2015 through 2016/2017 planning periods resulted in actual day-ahead congestion exceeding target allocations at the expense of a reduction in available ARRs and associated FTRs. PJM’s decisions have included the arbitrary use of higher outage levels and the decision to include additional constraints (closed loop interfaces) both of which reduced the FTRs made available for sale in FTR auctions. PJM’s actions have led to a significant reduction in the allocation of Stage 1B and Stage 2 ARRs and therefore a reduction in available FTRs.[8]

Figure 2 shows that ERCOT’s CRR auction has maintained revenue adequacy surpluses and payouts still significantly exceed auction revenues.

Figure 2. Trends in ERCOT CRR Revenues and Payments[9]

[1]  Congestion Revenue Rights Enhancements, Working Group Meeting Session #5, California ISO, April 1, 2025: https://stakeholdercenter.caiso.com/InitiativeDocuments/Presentation-CongestionRevenueRightsEnhancementsWorkingGroup-Apr1-2025.pdf

[2] The SPP non-LSE data do include generators who pay transmission rates and hold ARRs. ARR revenues were about 15 percent of the non-LSE auction payments.

[3] 2023 State of the Market Report for the MISO Electricity Markets, Potomac Economics, June 2024, p 53: https://www.potomaceconomics.com/wp-content/uploads/2024/06/2023-MISO-SOM_Report_Body-Final.pdf

2022 State of the Market Report for the MISO Electricity Markets, Potomac Economics, June 15, 2023 p 63: https://www.potomaceconomics.com/wp-content/uploads/2023/06/2022-MISO-SOM_Report_Body-Final.pdf

2023 State of the Market Report for the ERCOT Electricity Markets, Potomac Economics, May 2024, p 60: https://www.potomaceconomics.com/wp-content/uploads/2024/05/2023-State-of-the-Market-Report_Final_060624.pdf

State of the Market Report for PJM: 2024, Monitoring Analytics, March 13, 2025, p 777. Data are for the planning year starting in the year marked. The $527 million for 2024-2025 is for the first 7 months of the planning year: https://www.monitoringanalytics.com/reports/PJM_State_of_the_Market/2024/2024-som-pjm-sec13.pdf

State of the Market Report 2023, SPP Market Monitoring Unit, May 20, 2024, p 199: https://spp.org/documents/71645/2023%20annual%20state%20of%20the%20market%20report%20v2.pdf

[4] The PJM metric lists the auction losses to non-ARR holders. The MISO and ERCOT values pool all participants.

[5] 2021 State of the Market Report for the MISO Electricity Markets, Potomac Economics, June, 2022, p 63: https://www.potomaceconomics.com/wp-content/uploads/2022/06/2021-MISO-SOM_Report_Body_Final.pdf

[6] 2023 State of the Market Report for the MISO Electricity Markets, Potomac Economics, June 2024, p 62.

[7] 2023 State of the Market Report for the MISO Electricity Markets, Potomac Economics, June 2024, p 54.

[8] State of the Market Report for PJM: 2024, Monitoring Analytics, March 13, 2025, p 787.

[9] 2023 State of the Market Report for the ERCOT Electricity Markets, Potomac Economics, June 2024, p 61.

2. Please provide any other comments your organization has on the presentations by ERCOT, PJM, and MISO.

Please see the PDF attached below the final question for DMM's fully formatted complete set of comments. For the reader's convenience, the complete text of the comments is pasted in response to #1, but there may be some formatting errors.

1. How does your organization believe the presentations and discussion at the 4/1 working group meeting can or should inform the goals and problem statements this working group is developing?

The presentations by ERCOT, PJM, and MISO should serve as inspiration for the CAISO and this working group, because they demonstrate that incremental, practicable improvements can greatly enhance the utility and reliability of CRRs.  All three RTOs that presented (along with every other RTO in the US) hold centrally-cleared auctions for CRR-equivalent instruments (“FTRs” in PJM and MISO) that are open to all market participants that meet certain minimum credit requirements.  These auctions support participation in day-ahead markets because they provide the opportunity to acquire a hedge for day-ahead congestion costs, while maximizing the efficient, non-discriminatory use of, and open access to, the transmission system.

ERCOT, PJM, and MISO each explained that while they do not guarantee full funding for their CRR-equivalent instruments, underfunding is both infrequent and relatively modest compared to the levels of CRR underfunding experienced in the CAISO.  PJM and MISO track congestion revenue inadequacy and surplus across their respective market-wide footprints, rather than on a constraint-by-constraint basis like the CAISO.  PJM and MISO allocate congestion revenue inadequacy to all CRR holders but only after netting congestion revenue inadequacies with surpluses.  In both RTOs, netting initially occurs for the settlement month, which is long enough to balance inadequacies accrued on certain days with surpluses collected on other days.  Additionally, surpluses in one month continue to balance inadequacy over the course of the relevant year. This ensures CRRs are funded to the extent possible based on congestion revenue collected within that year.  At the end of the year, any remaining surplus is allocated to load.

ERCOT takes a different approach to ensuring that its CRRs remain adequately funded.  ERCOT maintains a balancing account that it uses to offset congestion revenue inadequacy.  ERCOT maintains this account at $10 million and allocates excess surplus congestion revenue to load most months. 

ERCOT and other RTOs experience net congestion revenue surplus much more frequently than the CAISO.  This indicates that it is not only possible to better fund CRRs by reforming the allocation of congestion revenue inadequacy, but also to experience much better underlying congestion revenue adequacy. 

PJM and MISO in particular described modeling practices that help them ensure congestion revenue adequacy.  Both PJM and MISO model loop flows on their respective systems, which arise when power flows scheduled on a neighboring system cause incidental unscheduled flows on another system.  In response to a stakeholder question during its presentation, PJM explained that it uses historical values to model loop flows and that it publishes the related information for FTR auction participants to view.  MISO includes loop flows in its FTR allocation and auction models and provides transparency to participants as well.  In addition, PJM and MISO have a long-standing seams management agreement that helps them both manage and allocate the cost of congestion along their shared border.

In addition, MISO emphasized its efforts to reduce the generation shift factor cut-off applied when clearing its day-ahead and real-time markets, in order to increase the efficiency and accuracy of its generation dispatch and resulting locational marginal prices.  MISO does not apply a generation shift factor cut-off when determining implied flows on constraints when settling FTRs, in order to reflect day-ahead congestion as accurately as possible.  MISO is working to lower its generation shift factor cut-off in part to better converge the day-ahead market with FTR settlements.  

ERCOT, PJM, and MISO each hold recurring auctions for monthly CRRs allowing auction participants to reconfigure their CRR portfolios over time.  ERCOT holds a sequence of auctions for greater proportions of system capacity for the same month as it gets closer in time.  Under ERCOT’s sequence approach, CRRs for each month are available in seven different auctions.  Although multi-month bids are currently allowed in ERCOT’s CRR auctions, each month is auctioned separately in each of the seven auctions.  PJM and MISO both have balance of planning period (“BoPP”) auctions that similarly provide multiple auctions for FTRs settling in a given month.  PJM holds monthly auctions that include auctions for FTRs settling in each month remaining in the current planning year.  MISO does the same but only offers multi-month seasonal FTRs for certain periods further out in time.

Sequence or BoPP-style monthly auctions allow market participants to bid with greater confidence in annual auctions because market participants know they will have the opportunity to readjust their portfolios over time as the settlement period approaches.  Sequence or BoPP style monthly auctions also allow an RTO to release more transmission capacity as settlement gets closer in time, when more is known regarding planned outages and expected system conditions during the settlement period. Increased certainty allows an RTO to better model its system for an auction, and also allows auction participants to better reflect expected system conditions in their bids over time.  BoPP style auctions also allow for price discovery, which is beneficial for market decision making and credit monitoring purposes.

2. Please provide any other comments your organization has on the presentations by ERCOT, PJM, and MISO.

Certain CAISO practices deviate from the approach in other RTOs in ways that were not explored in the presentations. 

The CAISO and working group participants would benefit from a better understanding of how often and for what purposes the line ratings used to settle the day-ahead market deviate from the line ratings used in the CRR auction model in other RTOs.  In particular, it would be beneficial to know how often other RTOs adjust their day-ahead line ratings, the criteria other RTOs use for adjusting day-ahead line ratings, and the level of transparency other RTOs provide regarding the line-ratings used to settle the day-ahead market and the criteria used to make adjustments.

The CAISO and working group participants should also explore market data transparency practices in other RTOs.  For example, the data regarding outage modeling in the day-ahead market that ERCOT provides to all market participants.   Also, the CAISO should explore transparency regarding planned outages once they have been reported to an RTO. 

The CAISO should also explore examples of RTOs, such as ERCOT and SPP, that withhold a portion of capacity from their annual auctions in order to release it in later monthly auctions.  Releasing capacity in later auctions would mitigate congestion revenue inadequacy and reduce risk premiums, because CRR modeling should improve closer to the settlement period as more is known regarding planned outages and expected system conditions.

The CAISO should explore the number of biddable paths, opportunities for beneficial counterflow, and the size and granularity of load points in other CRR-equivalent markets.  The CAISO offers CRRs on a much more limited set of biddable locations and path combinations than any other RTO, limiting the ability to reconfigure the network to ensure both maximum auction revenue and maximum non-discriminatory use of, and open access to, the transmission system. Even bids on paths that do not appear to have a direct commercial value provide useful pricing information that informs prices throughout the rest of the network.

1. How does your organization believe the presentations and discussion at the 4/1 working group meeting can or should inform the goals and problem statements this working group is developing?

2. Please provide any other comments your organization has on the presentations by ERCOT, PJM, and MISO.

1. How does your organization believe the presentations and discussion at the 4/1 working group meeting can or should inform the goals and problem statements this working group is developing?

PG&E appreciates the CAISO’s efforts to understand the range of CRR/FTR market designs and outcomes to inform the framing and development of problem statements. PG&E believes it would be helpful to have analysis done detailing step-by-step how each of the ISO/RTO’s CRR/FTR allocation and auction processes differs from the CAISO’s. This may be useful in uncovering why these ISO/RTOs don’t seem to have the underfunding problem that is found in the CAISO.

2. Please provide any other comments your organization has on the presentations by ERCOT, PJM, and MISO.

No comment

1. How does your organization believe the presentations and discussion at the 4/1 working group meeting can or should inform the goals and problem statements this working group is developing?

Six Cities Comments:  A key takeaway from the presentations at the 4/1/25 working group meeting is that the financial transmission rights (“FTR”) designs of the ERCOT, PJM, and MISO markets do not give rise to the levels of underfunding and auction inefficiency experienced with the CAISO’s CRR design.  The 4/1 working group presentations reinforced observations during discussion at the 3/28/25 Market Surveillance Committee web meeting that revenue inadequacy for CAISO CRRs is both more severe than occurs in other markets and “more mysterious” (as characterized by MSC Member Bushnell).  The 4/1 presentations provide additional support for the Six Cities’ previous comments on the February 27 and March 12 stakeholder meetings and CAISO’s root cause analysis identifying significant differences between CAISO’s CRR experience and the performance of FTRs in other markets.  The Six Cities also note that slide 14 of the ERCOT presentation shows consistent payouts to load (despite using a capped portion of excess congestion revenue collections to offset FTR shortfalls in the same month), and that the PJM design appears to allocate excess congestion revenues to load while allocating shortfalls to FTR holders.

Another observation from the 4/1 presentations is that PJM and MISO both appear to model loop flow impacts on a more granular basis in their implementation of FTR designs than is the practice for CAISO.  This reinforces the Six Cities’ recommendation in their comments on the February 27 and March 12 stakeholder meetings that the CAISO conduct further investigation of loop flow causes and effects.

2. Please provide any other comments your organization has on the presentations by ERCOT, PJM, and MISO.

Six Cities Response:  The Six Cities have no additional comments on the 4/1 presentations at this time.