Comments on Comments due on 5/12 Stakeholder Meeting

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

Appian Way appreciates the opportunity to participate in the CRR Enhancements working group and the hard work of presenters, multiple stakeholders and CAISO staff. We look forward to continued constructive engagement in this process. 

Regarding the goal of “fair allocation of congestion rent to customers paying the embedded cost of the transmission grid:”

• CRRs in the auction should be priced at a reasonable approximation of the expected payout of congestion rent in the day-ahead market
• Transmission customers receive approximately commensurate value for payouts made to CRR rights purchased in the auction

The first bulleted goal is terrific. CRRs are forward contracts associated with a volatile financial instrument. CRR prices should reflect the expected payout of congestion rents in the day-ahead market, discounted for risk and other factors. With respect to these other factors, uncertainty associated with revenue inadequacy is a major reason that CRR auction values will be discounted below the expected payout on the LMP price difference between source and sink nodes. CRR auction values should represent the “expected payout” of a wide and volatile rage of possible outcomes, just as with any forward/futures contract in volatile electricity markets. This is why and how these financial instruments fulfill a hedging function. But they are not an actual prediction of how the spot market will settle in fact.

This is why the second bulleted goal is fundamentally flawed, as is CAISO’s “auction efficiency” metric, as has been pointed out by numerous participants in the CRR Enhancements stakeholder meetings. The idea that auction prices would be expected to match the payouts to awarded CRRs represents a fundamental misunderstanding of the difference between “ex post” and “ex ante” prices. Auction prices are “efficient” based on whether they are competitive with respect to the market’s ex-ante expectations of price spreads (the concept represented by the first bullet). But there is no sense in measuring “auction efficiency” against ex-post outcomes as these are driven by what actually realized out of the huge number of possible scenarios represented in the expected value. Indeed, electricity markets are notoriously volatile and extreme CRR profits can occur during unusual events, which are not uncommon in electricity markets. CAISO’s excellent analysis of the January 2024 cold event is an example of this. CAISO staff concluded (Feb presentation slide 8): “Data from extreme cases shows that the expected value of CRRs bought and sold in the auction is not readily predictable to expect that CRR payouts align with auction revenues.”

Furthermore, as we stated in our February comments:

“Certainly, CAISO will not always get a random draw on the high side, but each of the past several years have experienced fundamental factors that can explain, at least in part or significantly, why auction revenues determined in November have underpredicted the realized CRR values:

• 2021: unexpected economic recovery from COVID
• 2022: gas prices / war in Europe
• 2023: unexpected solar congestion
• 2024: winter storm/unexpected solar congestion”

Regarding the goal on slide 22 of “Allow hedging costs of congestion in the context of a day-ahead energy market,” the stated goals are high-level and sufficiently broad and the CAISO team has done a nice job in capturing the role of the ISO in facilitating a market for congestion hedging.

• “The CRR market’s products and processes should facilitate hedging tools and maintain the hedging value of CRRs to the extent possible
• Day-ahead energy market participants exposed to congestion risk should be able to hedge that risk efficiently”

Appian Way would offer a third bullet or a clarification on the second:

• Day-ahead energy market participants exposed to congestion risk should be able to hedge that risk efficiently, and
• The CRR auction should enable the optimal reconfiguration of network transfer capacity to allow all market participants to have open access to the specific CRR congestion hedges that best meet their business needs to the extent possible.

In our view, it is important to recognize a critical benefit that a competitive, well-designed CRR market creates. The CRRs that are allocated to load through the allocation process are not the same set as the CRRs that are needed and desired by non-LSE market participants such as Gencos, power marketers, banks and others. These entities also require non-discriminatory open access to transmission (in the form of CRRs) to be able to equitably participant in the LMP system and hedge basis risk. A key aspect, and welfare increasing benefit, of the CRR auction mechanism is the facilitation of optimal reconfiguration of transmission network transfer capacity into CRR source/sink pairs reflecting the revealed preference of all market participants as reflected in their bids and offers that give rise to CRRs auction outcomes.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

In terms of the five problem statements on slide 29, Appian Way has comments on statements 3, 4 and 5.

On problem statement 3, we would like to explicitly include variable shift factors at load zone sink node as a potential source of model divergence along with “loop flows, shift factors and transmission outages.” Appian Way has raised the question earlier in the stakeholder process of whether the Track 1A restrictions on sink nodes has exacerbated underfunding by forcing CRRs to predominantly sink at locations whose shift factors change depending on the DA hourly load profile of the relevant load zone. We think additional analysis of this question and its materiality is warranted by CAISO staff. I.E. – how much, if any, revenue inadequacy is due to the difference in load zone shift factors between the auction and the IFM? We believe this is not a difficult analysis for CAISO to conduct. As discussed below, there may be several worthwhile fixes to this issue for the group to consider.

On problem statement 4, the statement is a great start. We believe it is important to reference cost-causation as a principled basis for allocation of shortfall revenues. We would suggest the following added language:

4. The method for allocating revenue shortfalls should strike the best balance practicable between allocating congestion revenue back to transmission customers and maintaining the hedging value of CRRs. Allocation of revenue shortfalls should follow cost causation principles, and consideration should be given to how to better align the Track 1B reforms with cost causation principles.

We have pointed out that the extreme levels of revenue inadequacy allocation occurring on numerous constraints suggest that material amounts of revenue inadequacy is not cost-causation based. Certainly, that is the case when shortfalls occur because certain entities are not charged for the congestion that they cause as is the case with the shift factor cutoff and loop flows and potentially other factors.

With regard to problem statement 5, we would like to include consideration of adding additional availability of FIXED sinks nodes to provide CRR users with more efficient congestion hedging options and reduce a potential source of revenue inadequacy.

Appian Way has raised the question of whether the Track 1A restrictions on sink nodes has exacerbated underfunding by forcing CRRs to predominantly sink at locations whose shift factors change depending on the DA hourly load profile of the relevant load zone. Adding back a sufficient set of FIXED nodes (gen bus, transmission bus, or aggregates) as allowed CRR sinks may lessen this problem and also offer important hedging opportunities for physical assets. For instance, renewable assets in Southern California (or those hedging on their behalf) may find more efficient hedging opportunities for their commercial needs from CRRs that sink at FIXED locations downsteam of Path 15 to manage their specific basis risk challenges associated with this chronic congestion, rather than having to sink at what may be imperfect hedges at load zones per se. In many cases, the most efficient hedging and CRR purchases for Gencos and other market participants would be paths that sink at fixed locations on the grid, not paths that sink at load zones. Paths that sink at fixed locations also have the advantage of representing the intended physical market flow of the CRR consistently between the auction and IFM models, whereas we believe paths that sink at load zones can distort market flows between the auction and IFM models. As we have mentioned, PJM actually has an FTR settlement rule that addresses this problem, and consideration of the PJM approach here would be a worthwhile endeavor for the CRR Enhancements group.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

See comments above regarding amendments to certain problem statements and goals. 

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

BAMx appreciates the opportunity to comment on the May 12 working group meeting. BAMx agrees with the CA Load Serving Entity (LSE) Group that the changes made to the CRR Auction process in the Track 1b process moved in the right direction, and that there are additional changes that should be explored to improve the CRR Auction.

BAMx supports investigating changes to the Time-of-Use definitions to better accommodate morning and afternoon net-peak periods, improvements to shift factor modeling, and better accounting for outages in the modeling process.

Additionally, we wish to express strong support for the statements made in the Energy Trading Institute presentation regarding the dual purposes of firm transmission rights like CRRs as defined by FERC: to serve as the financial equivalent of firm transmission and as a vehicle to return revenue to transmission ratepayers. We agree with the importance of providing entities that use CAISO transmission the ability to obtain the financial equivalent of firm transmission by having the opportunity to obtain CRRs to hedge their congestion exposure. Requiring load serving entities to pay for underfunding of the CRR product is not consistent with these two purposes. Indeed, such a design likely obscures any price discovery benefits that might arise from the CRR auction by effectively requiring LSEs to accept any bid price, regardless of whether they were willing to accept that price.

BAMx continues to support the willing seller market design presented by DMM at the May 12 working group. A design of this nature will ensure that load does not continue to pay for underfunding of CRR instruments. The willing seller auction market design proposed by DMM meets the two purposes of CRRs as defined by FERC described above.

BAMx appreciated the opportunity to present at the May 12 working group meeting. It is our finding from analyzing CRR auction data and FERC Electronic Quarterly Reports data that many financial entities have significant participation in the CRR auction market, but we have been unable to uncover any corresponding deliveries of physical energy from or to those entities in EQR data. It is notable that these entities, despite apparently having little-to-no participation in physical energy deliveries in the CAISO market, hold more than half of the total auction CRR volume and contribute more than 60% of the revenue shortfall in the CRR auction,[1] as seen in Figure 1. Entities that appear to be using CRRs as the financial equivalent of firm transmission (i.e. to hedge actual energy deliveries) tend to hold fewer Auction CRRs than their actual physical energy deliveries, usually by a factor of two or more.

Figure 1: Cumulative Share of Auction CRR and FERC EQR, by Entity and Type

Most financial and marketing entities do not appear to be using CRRs as the financial equivalent of firm transmission, or as a tool to return revenue to load. The majority of these entities either do not participate in physical energy transactions and thus use no transmission or participate to a di minimus degree relative to their CRR Auction market participation. It is unlikely that the participation of these entities has a material impact on liquidity in the physical energy market, given their immaterial participation in the physical markets. Entities that do not use the transmission system for physical transactions, yet collect congestion revenues, reduce the congestion revenue available to the entities that actually use CRRs to hedge their physical transmission risk, and to entities that pay for the transmission system.

BAMx also noted several marketing entities that have physical EQR market participation aligned with or greater than their participation in CRR Auctions, which suggests that these entities are using Auction CRRs to hedge their physical energy deliveries. BAMx does not desire to stifle legitimate use of the CRR product to hedge risk or return revenue to load, and so we propose limiting participation in the CRR Auction to the amount of physical energy any entity can demonstrate they have historically delivered. Limiting entities’ CRR Auction participation to their demonstrated use of the transmission system should not prevent any entity that actually uses CAISO transmission from being able to obtain the financial equivalent of firm transmission. Indeed, CAISO imposes load-based limits on all LSEs in the CRR Allocation process and still affords those entities the financial equivalent of firm transmission.

[1] CRR auction inefficiency estimates assume that the system average CRR Offset of approximately 20% is applied to each CRR Auction participant’s notational CRR values. Individual entities may have lower or higher offset amounts.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

BAMx supports both possible goals listed on slide 14 and draft goals listed on slide 22 of the CAISO presentation.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

BAMx supports the problem statements listed on slides 21, 25, 28, and 29 with the following comments:.

Regarding problem statement 2 on slide 29, BAMx suggests referring to congestion revenues rather than transmission revenues. We propose rewording to “explore whether the congestion revenues received from different types of auction participants are commensurate with their funding of the transmission system and their payments for auction CRRs.”

Regarding problem statement 4 on slide 29, BAMx notes that entities which take speculative positions in the CRR auction market should have no expectation of consistent gains from speculation on these products. Entities that pay for transmission or are hedging actual physical energy deliveries do have a reasonable expectation, based on FERC precedent, of the CRR product serving both as a hedging tool and a tool to return revenue to transmission customers. We do not believe that protecting the revenues of speculators is consistent with either of these purposes.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

BAMx proposes the following:

• Limiting the amount of equivalent firm transmission made available through the CRR Auction, similar to how limitations are applied to Allocation CRRs based on historical usage of the transmission system.
• Any entity that is responsible for actual physical energy deliveries or demand should be able to demonstrate a history of physical energy sales or purchases, via data submitted by their Scheduling Coordinator (or CAISO’s own records of Day Ahead Market awards to buy or sell energy at CAISO scheduling points, pNodes or APNodes). Such entities should be permitted to participate in the CRR auction up to the volume of demonstrated transmission usage.
• Evaluate whether a willing seller auction design such as proposed by the DMM could provide reasonable hedging opportunities for all entities that participate in the CRR Auction and have the need of such hedges.

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

It is plausible that some entities would factor in a downside risk premium when considering purchases of CRR instruments in the Auction. However, BAMx notes that risk traditionally represents the full probability distribution of possible outcomes on both sides of a point estimate. In other words, there is also upside risk in the CRR Auction market and it appears that it is this upside risk that is being speculated on by financial and marketing entities. It is misleading to consider only the cost impact of perceived downside risks on some entities’ bids when it is evident that other entities are willing to pay simply for the ability to speculate in the CRR market without any apparent physical transactions to hedge. 

Similarly, it is appropriate to consider the time value of money when bidding on futures products such as CRRs. Typically, the time value of money represents an entity’s cost of borrowing, either via debt, equity, or some combination of the two. While it is true that current economic conditions suggest higher costs for debt, it is less clear that current conditions would also lead to higher costs of equity. In any case, even in an extreme case of a 20% discount rate for a CRR product purchased a full year ahead of time, such should only justify a 20% discount on the auction revenues for the Q4 CRRs purchased in the annual auction. For products that “mature” in less than a year’s time, we would expect the discount to some fraction of that 20%. 49% of the auction CRRs are procured in the monthly auctions, which are conducted about two weeks prior to the delivery month. In any case, any risk premium associated with the time value of money cannot fully explain the 40-50% underfunding seen in the CRR Auction in recent years.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

Boston Energy thanks all the presenters in bringing their perspectives to the working group discussions. Boston Energy remains supportive of efforts to improve the CRR market and move the auction design forward as we enter a world of increased renewables and ISO day-ahead market expansion.  As the numerous presenters shared CRR’s are an effective and efficient tool for both allocating congestion revenues and a hedge against congestion costs.

Boston Energy continues to oppose replacing the ISO standard CRR auction design with a market limited to willing buyers and sellers, per the DMM. This approach is not aligned with long standing FERC precedent. Furthermore, it would significantly limit market participants like Boston Energy in providing hedges to renewable developers.  Our hedge conversations with renewable developers routinely focus on nodal hedging needs given the basis risk the renewable energy resource faces given contracts typically settle at a major hub, not the project pnode.  Without a CRR market such nodal hedges would be very difficult to obtain and fairly valued, leading to renewable developers being unable obtain necessary hedges.

Boston Energy agrees with the California LSE group of presenters that the focus should be to move forward, not backward, on the recent progress made in the CRR market.  The ISO’s soon to be released enhanced CRR application is a great first step in the advancement of the ISO’s CRR market structure. We continue to support CAISO’s efforts to address the shift factor threshold issue and improve loop flow modeling.   We also feel that modifying the reallocating of surplus revenues approach to offset deficits more broadly is warranted. Due to CAISO’s rather large underfunding compared to other ISO’s participants must factor in risk premiums, when placing their bids. This 100% leads to lower clearing prices as CRR bidders need to discount their expected market value to account for underfunding.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

CAISO need to expand on what it says CRRs from the auction should be a reasonable approximation of expected payouts.  This statement seems to suggest that CAISO expects CRR participants to perfectly predict the future when auctions are run and that market participants should assume 100% funding on all paths purchased in the auction.  That is not possible given current underfunding rules, time delays between the auction and delivery period, market fundamentals and weather.

The CAISO should focus on things it can control.  Addressing the root causes of the underfunding issues to the best extent possible, and maybe modifying home much capacity it releases between the annual and monthly auctions are things that have been mentioned in the working group session that Boston Energy believe are tangible steps the ISO can take now.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

No comments at this time.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

No comments at this time.

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

No comments at this time.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

The California Community Choice Association (CalCCA) has no comments on the presentations from stakeholders.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

The California Independent System Operator (CAISO) presented two draft goals: (1) fair allocation of transmission revenues to customers paying the embedded costs of the transmission system; and (2) allow hedging congestion costs in the context of a day-ahead energy market. CalCCA supports these goals for this initiative.  

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

The CAISO presented five draft problem statements. In summary, the problem statements include: (1) auction benefits not fully justifying foregone congestion rent allocation costs; (2) different types of auction participants should contribute fairly to the allocation of transmission revenues; (3) divergence between monthly CRR modeling outcomes and day-ahead market outcomes causes revenue inadequacy, reducing the hedge value of CRRs; (4) revenue shortfall allocation should balance allocating congestion revenue back to transmission customers and maintaining CRR hedging value; and (5) CRR products should match evolving hedging needs by revisiting the time of use periods, facilitating hedging of congestion risk associated with storage charging load, and revisiting the auction schedule. 

CalCCA supports these problem statements. Specifically, CalCCA observes the following problems with the CRR market design. First, systemic revenue inadequacy in the CRR market results in costs borne by California ratepayers. Second, the auction routinely undervalues CRRs. Third, the current on-peak and off-peak CRR product definitions may adversely impact the ability to hedge congestion risks. As renewables on the system have increased, the CAISO’s load shape and generation patterns have changed, affecting energy flows and congestion patterns on the system.The current definitions do not align well with how the grid has evolved.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

CalCCA does not recommend any other goals and/or problem statements. Those identified in sections 2 and 3 above adequately characterize the issues that should be addressed within this initiative. The CAISO should transition this initiative into the policy development phase to begin assessing potential solutions, their impacts on market participants, and their ability to address the identified goals and problem statements.

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

CalCCA has no additional comments at this time. 

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

Comments on Congestion Revenue Rights Enhancements

Working Group Meeting #6 – May 12, 2025

Department of Market Monitoring

May 27, 2025

Summary

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the Congestion Revenue Rights Enhancements Working Group Meeting Session #6 – May 12, 2025.[1]

Comments

DMM agrees with the ISO’s goal statements:

1. Fair allocation of transmission revenues to customers paying the embedded costs of the transmission system
2. Allow hedging costs of congestion in the context of a day-ahead energy market

The willing seller design is a market based solution meant to accomplish these goals. As an initial part of policy development, the ISO needs to assess the willing seller design—including other potential elements or details that might be added to the design—as a means to achieving these goals.

Minor suggested edit

We suggest one minor change to sub-goal statement #1 on slide 14 from referencing expected payouts to referencing expected costs. This would allow for recognizing that the cost to sell a CRR is the expected payouts, and potentially an additional risk premium less a net present value discount. DMM proposes edits as follows:

CRRs in the auction should be priced at a reasonable approximation of the cost payout of taking on obligations to make payments at congestion rent in the day-ahead market prices

Transmission customers receive approximately commensurate value for the costs of taking on obligations to make payouts made to CRR rights purchased in the auction

Financial entities have pointed out that a buyer might discount the value of CRR payouts they receive because of the risk of the uncertain payouts (as opposed to a buyer who is using the CRR to hedge a risk and being willing to pay a premium). This does not mean that the ISO’s persistent selling of CRRs well below their payouts is somehow “efficient”,[2] because that would completely ignore the cost of supplying the CRRs and ignores the intent that CRRs be purchased to be used as hedges. If a buyer values a CRR less than the cost of the CRR, then an auction result where that buyer receives that CRR is inefficient. This suggested clarification might help stop such confusion in the future.

[1] Congestion Revenue Rights Enhancements: Working Group Meeting #6 Goals and Problem Statements, May 12, 2025. https://stakeholdercenter.caiso.com/InitiativeDocuments/Presentation-Congestion-Revenue%20Rights-Enhancements-May-12-2025.pdf

[2] And that the measures of auction losses somehow needs to be adjusted for this.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

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.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

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.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

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.

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

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. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

No comments at this time.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

CDWR welcomes any CAISO and stakeholders’ suggestions for developing analyses supporting:

1. the goal defined on slide 14: “Fair allocation of transmission revenues to customers paying the embedded costs of the transmission system. This function speaks to the equity of how congestion rent is distributed, separately from the CRR market’s ability to provide a hedging tool”, and

2. The possible goals also defined on slide 14 as: “– CRRs in the auction should be priced at a reasonable approximation of the expected payout of congestion rent in the day-ahead market – Transmission customers receive approximately commensurate value for payouts made to CRR rights purchased in the auction.”  As mentioned in the previous rounds of comments to the CRR Enhancements Initiative, CDWR suggests that upcoming CAISO analysis should investigate if the split of the current CRR design On-Peak Time of Use (TOU) period into two periods, On-Peak HE07-HE16 and Super-Peak HE17-HE22, could improve the overall performance of the CRR product, and if this improvement would implicitly lead to achieving the goal and possible goals as stated above. 

Furthermore, CDWR considers that the above proposed split of the current CRR design On-Peak TOU would help towards achieving the goals defined in slide #22 of the CAISO presentation.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

No comment on the draft problem statement presented on slide 21.

The Updated draft problem statements listed on slide 25 states that: “– Divergence between monthly CRR modeling outcomes and day-ahead market outcomes causes revenue inadequacy that reduces the value of CRRs as a hedging tool”. CAISO should evaluate, and where feasible, adopt measures for reducing this divergence, including those related to loop flows, shift factors, and transmission outages in support of the CAISO statement “–The method for allocating revenue shortfalls should strike the best balance between allocating congestion revenue back to transmission customers and maintaining the hedging value of CRRs.”

In relation to this Updated draft problem statement, CDWR suggests that the split of the current CRR design On-Peak TOU analysis as mentioned in the CDWR comments at #2 above, should be included in the evaluation of the measures for reducing the divergence between the annual and monthly CRR modeling outcomes (when CRR are allocated and auctioned) and day-ahead outcomes (when CRR settlements are calculated and invoiced to the Market Participants). 

Following is the CDWR comments on relation to the draft problem statements mentioned on slide 28: 

Although CDWR was the supporter of the two draft problem statements from Discussion Paper listed on slide 28, CDWR believes that the revision of the Counter-Flow CRR should be postponed.  Meanwhile, CAISO and stakeholders should focus the efforts towards investigating the split of the current CRR design On-Peak TOU and if the use of the Global Derate Factor (GDF)bring any benefit to the CRR Revenue Adequacy.

CDWR supports the updated draft problem statement, defined by CAISO as follows: “Hedging needs are evolving alongside the composition of the CAISO BAA’s generation fleet. The products available in the CRR market and the processes by which they are distributed should be updated to match evolving hedging needs. This could include revisiting the time of use periods, developing measures to facilitate hedging of congestion risk associated with storage charging load, and revisiting the auction schedule”.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

No other comments than what has been said above.

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

In regard to the presentation made by Flynn RCI, on page #8 of their presentation slides, CDWR would also like to see an analysis performed by CAISO to show whether the application of CRR offset calculations are better done for each entity versus using system averages. Currently, CRR offsets provide a significant de-rate to CRR revenues, as observed by CDWR. This de-rate is further exacerbated during the summer months during tighter system conditions where more constraints are prevalent within the CAISO BAA. Offset calculations by entity instead of current system averages could provide Load Serving Entities an expected range of the potential de-rates, thus improving the hedge forecasting done by LSE’s in at least the monthly allocation periods.

CDWR would like to thank CAISO and stakeholders for their efforts on the CRR Enhancements Initiative. Furthermore, CDWR is grateful that CAISO is willing to explore further revenue inadequacy issues at a constraint level since constraints have been a prevalent driver of revenue inadequacy since the implementation of Track 1B. Day-ahead energy market CRR allocation participants have been increasingly exposed to congestion risk. Therefore, such an analysis performed by CAISO will hopefully lead to a better conclusion regarding more probable and more efficient hedging methods.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

The California Energy Storage Alliance (CESA) appreciates the opportunity?to comment on the Congestion Revenue Rights (CRR) Enhancements working group meeting.?  The materials presented during the workshop were very informative and CESA thanks the presenters for their engagement. 

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

No comment. 

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

CESA supports CAISO’s recognition of storage-specific CRR concerns in their updated draft problem statement II.  The inclusion of “revisiting the time of use periods” and “developing measures to facilitate hedging of congestion risk associated with storage charging load” will enable storage operators to hedge exposure to charging costs, resulting in more effective operation of these units. 

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

No comment. 

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

No comment. 

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

It has been suggested that no entity with an open position would apply a risk premium when bidding on a CRR to hedge that position, because entities with open positions should be willing to pay a premium to acquire a hedge.  This assumption is flawed.  An entity seeking to hedge an open position must consider the risk of its position and the extent to which an apparent hedge may offset that risk.  CRRs are forward financial contracts with their own underlying risks and limitations that must be assessed and balanced against the open position an entity would like to hedge. Any mismatch between a CRR hedge and a resource’s output, such as a battery attempting to hedge with an On-Peak CRR, leaves the hedger with risk exposure.  Also, CRR underfunding, which could erode, eliminate, or even reverse the settlement value of a CRR, introduces an underfunding risk premium, irrespective of whether an entity has open positions that it wants to hedge.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

Maximize Allocations to Transmission Customers

Rather than a goal to allocate more congestion revenue to transmission customers, the CAISO’s, and therefore the working group’s, goal should be to: (1) maximize the revenue generated in CRR auctions; and (2) maximize the allocation of CRR capacity to transmission customers.  Congestion revenue is allocated to CRR holders in the CAISO, similar to every other US RTO. Instead of allocating congestion revenues to transmission customers directly, the CAISO allocates CRR auction revenue as well as CRRs to transmission customers.

Therefore, the CAISO’s goal should be to maximize these two allocations to transmission customers consistent with fundamental market design and principles of open access. Specifically, as discussed in more detail below, the CAISO’s goal should be to:

• Maximize revenue generated in CRR auctions by reducing risk premiums and offering a more reliable and useful hedging product; and 
• Maximize the allocation of CRR capacity to transmission customers.

            CRR Auction Revenue

With the exception of the extraordinary event at the Malin intertie in January 2024, CRR auction revenue has been fairly similar to congestion revenue over the last year. In the Market Performance Update presented to the Joint ISO Board and WEM Governing Body on February 12, 2025, auction efficiency was around 90% for the remainder of 2024.[1]  Six of the remaining 11 months of 2024 had auction efficiency greater than 100% where auction revenues were greater than pro-rata CRR payments.[2]

Auction revenue can and should be maximized with practical, incremental enhancements that do not require a major market redesign or violate the bedrock principle of open access.  Practical improvements to enhance market participant confidence and better align CRRs with the day-ahead market would make CRRs a more reliable and useful hedging product, reducing risk premiums and ultimately maximizing auction revenue.

Several incremental enhancements that would help maximize auction revenue include:

• • Reforming and/or expanding the current Times of Use (TOUs) beyond the current On-Peak and Off-Peak definitions. This enhancement would allow market participants to bid with more confidence on CRRs for the hours they believe congestion will follow a particular pattern, with less risk that flow patterns will change or reverse during a portion of the hours covered by a CRR. 
  • Allocating less capacity in the annual process and shifting that capacity to the monthly allocation and auction process would reduce the amount of infeasible capacity allocated and auctioned off as there would be more modeling certainty regarding outages and loop flow. The improved confidence in modeling would lower perceived risk of CRR underfunding. This in turn, would reduce risk premiums, resulting in higher auction revenues.
  • Increasing the frequency of CRR auctions to include Balance of Planning Period style auctions would allow market participants to bid with more confidence in annual and other auctions because they could rebalance and adjust their positions incrementally as market conditions develop over time. 
  •  Each of the following enhancements would improve access to timely and accurate information, allowing CRR auction participants to bid with more confidence and lower risk premiums:
    • Providing greater transparency regarding day-ahead line ratings, including process changes to ensure that line ratings in the CRR model are as consistent as practicable with the line ratings used to settle the day-ahead market; 
    • Providing more information regarding unsettled flows in the day-ahead market, such as unscheduled loop flows. In addition to providing interval-level net settled flow data for all binding constraints in the day-ahead market as a part of the CRR Aggregated Revenue Adjustment Data on OASIS,[3] the CAISO also should provide similar data for loop flows that are unsettled;
    • Incentivizing transmission owners to report outages in a more accurate and timely manner; and
    • Eliminating the CAISO’s practice of not updating its daily scheduled outages posting when notified of a future scheduled outage within a certain number of days (typically 20 days) before a CRR auction (“freeze period”).[4] 

CRR Capacity Allocation

In addition to maximizing CRR auction revenue, the CAISO should look for ways to maximize CRR capacity allocation to transmission customers.  Eliminating or reducing the Global Derate Factor would increase the allocation of CRR capacity to transmission customers without requiring a major market redesign or violating open access requirements.  The CAISO could reduce or eliminate the Global Derate Factor if it better accounted for unscheduled loop flows in its CRR allocation and auction models with tailored element derates based on historical loop flow estimates.  This change would better align CRR allocation and auction models with day-ahead market outcomes.  If the CAISO further addressed congestion revenue inadequacy with a lower, uniform shift factor cut-off and improved outage reporting and transparency, it could allocate more CRR capacity to transmission customers.  Other enhancements to the CRR allocation process, such as shifting allocation capacity from the annual to the monthly process, as well as expanding the allowable source and sink locations in the CRR allocation process, could maximize the capacity allocated to transmission customers without jeopardizing feasibility.

Improve the Reliability and Efficiency of CRRs as a Hedging Instrument

The CAISO’s, and therefore the working group’s, goals also should include enhancing CRRs’ utility as a hedging instrument.  The CAISO can make practical improvements to (1) enhance the reliability of CRRs by reducing underfunding and (2) enhance the efficiency of CRRs by better aligning the product with the needs of market participants, without requiring a major market redesign or violating open access requirements. These enhancements would increase the demand for the CRR product as a hedge and further the goal of maximizing auction revenue along with the enhancements noted in the previous section.

            Enhancing the Reliability of CRRs

Currently, a substantial portion of CRRs may be severely underfunded in a given month.[5]  Unlike CRRs and their equivalents in other US RTOs, individual CRR paths in the CAISO can be so severely underfunded that they experience a settlement reversal.  This is an unacceptable state of affairs.

The CAISO consistently experiences higher levels of congestion revenue inadequacy than other US RTOs. The CAISO also provides much less netting of congestion revenue shortfalls with surpluses than other US RTOs before allocating revenue inadequacies to CRR holders. This has resulted in significantly higher levels of CRR funding uncertainty in the CAISO than equivalent instruments in other US RTOs.  CRR underfunding is volatile and difficult to predict on a given path and has proven difficult for market participants to predict collectively on a market-wide, monthly basis.[6]

The CAISO’s current levels of CRR underfunding make CRRs a more unreliable hedge.  Rational CRR auction participants consider the risk of CRR underfunding when bidding for CRRs (i.e., apply a risk premium), even if they have exposure to day-ahead congestion risk that they are otherwise willing to pay to hedge. This additional risk premium ultimately reduces auction revenue as market participants adjust their bids according to their view of underfunding risk. Auction revenue is further eroded as other market participants choose to leave some or all of their day-ahead congestion risk unhedged due to the unreliability of CRRs in the CAISO.

Practical improvements to reduce day-ahead congestion revenue inadequacy and thus enhance the reliability of CRRs as a hedging instrument are:

• Include unsettled day-ahead market parallel flows (i.e., loop flows) in the model used for CRR allocations and auctions.  Including unscheduled loop flows in the CRR model would improve congestion revenue adequacy by better aligning the CRR market with actual flows in the day-ahead market.
• Reduce and standardize, or eliminate, the shift factor cut-off.  Today, load/generation within the CAISO does not pay for its contribution to congestion on every constraint in the CAISO due to shift factor thresholds as well as the application of different thresholds to different types of settlement location.  Reducing and standardizing the shift factor cut-off so that a lower, uniform cut-off applies to all types of settlement locations would mitigate this issue.  It would be better, however, if the CAISO eliminated the shift factor cut-off entirely or followed MISO’s example and did not include a shift factor cut off in its day-ahead congestion revenue settlements in order to more accurately reflect all contributions to congestion.  
• Better align the CRR and day-ahead market models:
  • Identifying process changes that will ensure that line ratings in the CRR model are as consistent as practicable with the line ratings used to settle the day-ahead market; and
  • Incentivizing transmission owners to report outages in a more accurate and timely manner.

Incremental improvements to congestion revenue inadequacy alone may not be enough to ensure that CRRs are subject to reasonable levels of funding in the CAISO.  The allocation of congestion revenue inadequacy also must be reformed.  The CAISO’s constraint-by-constraint approach to underfunding allocation assigns day-ahead congestion revenue shortfall or surplus on the basis of each specific network element pair in each hour.  As a result of this overly specific allocation, similarly situated element pairs may be deemed under- or over-funded based on the vagaries of minute changes to system operations.  Arbitrary outcomes resulting from overly specific allocation of congestion revenue inadequacy are then passed directly to CRR holders without reasonable offsets from congestion revenue surpluses. 

Practical improvements to the allocation of congestion revenue inadequacy would reduce the uncertainty around CRR funding and enhance the reliability of CRRs as a hedging instrument.  Specifically, the CAISO should implement the following:

• • Allocate congestion revenue inadequacy to CRR holders more broadly on a volumetric basis, rather than on a constraint-by-constraint basis, similar to MISO and PJM.
  • Allow greater netting of congestion revenue shortfalls with surpluses.  Similar to PJM and MISO, the CAISO should initially net congestion revenue inadequacies and surpluses 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 should continue to balance inadequacy over the course of the settlement year. This would ensure that CRRs are funded to the extent possible based on congestion revenue collected within the settlement year and allocate any remaining surplus to load.

 Enhancing the Efficiency of CRRs as Hedging Instruments

The CAISO can improve the efficiency of CRRs with practical enhancements that would also make CRRs more useful for market participants.  The CAISO has substantial and growing solar and storage resources in its footprint, which are continuing to change load and generation profiles, including the hours in the day that typically have the most and least demand.  Meanwhile, CRRs are available in On-Peak and Off-Peak TOUs that were defined prior to the integration of substantial solar resources and the commercial viability of current storage technologies.  As a result, a market participant seeking to hedge congestion associated with peak demand must purchase CRR capacity in hours when it does not anticipate peak demand.  A market participant seeking to balance the cost of over-hedging for a number of hours will likely bid at volumes below its maximum expected need, leaving the market participant over-hedged for a number of hours and under-hedged in the few hours when congestion costs are greatest.  Moreover, storage resources cannot both source and sink CRRs from their settlement locations despite sometimes acting as a generation resource and sometimes pulling power from the system like load. Thus, the CAISO should implement the following:

• • Reforming and/or expanding the current TOUs beyond the current On-Peak and Off-Peak definitions would make CRRs a more effective congestion hedging instrument given the growth of renewable resources and storage technologies in the CAISO.
    • Similarly, reformed TOUs would also allow the CAISO to more accurately model system conditions that vary by hour, such as line limits and loop flows.
    • Allowing CRRs to both source or sink from battery resource locations would allow for more efficient and useful hedges.

[1]Market Performance Update at slide 7, available at: https://www.caiso.com/documents/market-performance-update-feb-2025.pdf.

[2] The CAISO’s “auction efficiency” metric itself is flawed.  CRR’s are a forward financial product, the price of which should reflect the market’s collective expected value of future congestion, minus risk premiums, which can be reduced but not entirely eliminated. Also, the CAISO’s auction efficiency metric does not include all sources of revenue to LSEs under the current congestion market design, including the congestion revenue surplus allocated to LSEs, interest earned on held auction revenues, and revenues paid directly to LSEs from the sale of previously allocated CRRs.  It also does not include harder to quantify benefits of an open, liquid financial transmission rights market, such as lower power purchase prices because resources can better manage their congestion risk.

[3]  See CRR 1B Post Implementation Issues, CAISO presentation, at slide 5 (Jan. 12, 2019), available at: https://www.caiso.com/documents/crr1bpostimplementationissuesupdate_june122019.pdf.

[4] See the CAISO Transmission Outages webpage, listing roughly 20-day cut off periods for inclusion of scheduled outages in the model of upcoming CRR auctions, at: https://www.caiso.com/market-operations/outages (certificate required for access); see also, https://www.caiso.com/documents/outagemanagementsystemtransmissionoutagereport-faq.pdf 

[5] See Congestion Revenue Enhancements, CAISO presentation, at slide 81 (Feb. 27, 2025), available at: https://stakeholdercenter.caiso.com/InitiativeDocuments/Presentation-Congestion-Revenue-Rights-Enhancements-Feb-27-2025.pdf. 

[6] See DC Energy’s March 26, 2025 comments submitted to this working group submitted.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

In light of the goals and comments above, the draft policy statements should be replaced with the following:

The CAISO should seek to maximize the two allocations to transmission customers, including load serving entities, under the current market design, without violating open access requirements.

1. The CAISO should seek to maximize CRR auction revenue by enhancing auction participant confidence and the reliability and utility of CRRs as hedging instruments.
2. The CAISO should seek to maximize CRR capacity allocation to transmission customers, including improving the CRR allocation and auction model to allow for the elimination or reduction of the Global Derate Factor and making other improvements to enhance the allocation of CRR capacity without jeopardizing feasibility.

The CAISO should seek to enhance the reliability of CRRs as a hedging instrument by reducing CRR underfunding, first by reducing congestion revenue inadequacy and second by allowing congestion revenue shortfalls to net with surpluses before allocating any remaining shortfall to CRR holders.

The CAISO should seek to enhance the efficiency and utility of CRRs as a hedging instrument by better aligning the product with current market participant needs by reforming and/or expanding the currently available times of use and allowing CRRs to both source and sink at battery resource locations.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

The CAISO’s draft goals correspond with only two of the three purposes of CRRs that the CAISO has identified from FERC precedent. (See CAISO Staff presentation from May 12, 2025 at slide 13).  Namely, allocating revenues and providing a hedge to day-ahead congestion costs.  The CAISO’s goals also should include FERC’s third purpose of CRRs, providing open access. 

Non-discriminatory open access is a bedrock FERC principal and CRRs “play a key role in ensuring open access to firm transmission service by providing the opportunity to all market participants to acquire congestion hedges.”[1]  Open access for all market participants includes new market entrants, project developers, and financial entities.  Restricting CRR market participation to load serving entities, physical transmission customers, or any other class of market participants would be discriminatory and violate open access.  On a more practical level, restricting market participation would reduce CRR auction revenue. 

The CAISO’s CRRs may eventually and will likely provide the model for EDAM-wide CRRs.  Maintaining non-discriminatory open access in the CAISO CRR market, therefore, is vital for the future evolution of EDAM into a competitive, efficient day-ahead market, perhaps with direct access for market participants, including independent power producers. 

[1] PJM Interconnection, L.L.C., 178 FERC ¶ 61,170 at P 44 (2022). See also, DC Energy’s Dec. 12, 2024 comments to this Working Group; and ETI’s presentation at the May 12, 2025 Working Group meeting for further supporting precedent.

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

At the May 12, 2025 working group meeting, some participants voiced concern regarding CRR capacity auctioned with no reservation price clearing at or close to zero dollars per megawatt hour. In response to this concern, the CAISO suggested setting minimum auction bid/clearing prices. Administratively set, non-market minimum prices, however, are an unworkable and unnecessary measure. The current open CRR auctions can set higher, market-driven reservation prices if the CAISO makes the enhancements designed to maximize auction revenue outlined above and market participants exercise their current ability to set reservation prices.  

CRRs that cleared for prices at or close to zero do not account for an outsize portion of congestion revenues paid to CRR holders.  According to data presented by Dr. Guillermo Bautista-Alderete at the February 27, 2025 working group meeting, CRRs acquired for prices ranging from $0MWh through $0.2MWh did not experience particularly high or the highest profits among CRRs by clearing price range in any month since 2019.[1]  In some months, CRRs acquired for auction prices in the highest auction price range are the most profitable, with profits varying among the various prices ranges month to month.[2]  If a CRR clears at or just above zero, it reflects the market’s collective determination that the path is unlikely to experience congestion or could experience congestion in both directions that net close to zero. In most cases, this collective determination is correct given the low profitability of CRRs that clear in this price range. 

The CAISO should not set a minimum reservation price for CRRs; this is a function of the collective input of CRR auction participants.  Furthermore, valuing future congestion takes considerable effort to do properly.  For instance, the CAISO should not value future congestion based on a simple historical look back.[3]  More sophisticated and accurate future congestion valuation would be an inefficient use of scarce CAISO resources.

 Valuing future congestion entails financial risk for the CAISO, as forecast inaccuracies would lead to market inefficiency.  For example, if a CRR was worth less than the CAISO’s reservation price, then the CRR capacity would be effectively held back from the auction, garnering no auction revenue even when market participants were willing to pay some amount for the capacity.  On the other hand, if a market participant relied on the CAISO’s valuation of future congestion and bid at the minimum reservation price, and congestion was less or flowed in the opposite direction during the settlement period, would the market participant who relied on the CAISO’s valuation have recourse against the CAISO? 

Furthermore, DC Energy does not know how the CAISO could realistically establish a reservation price on all potential paths within the auction clearing mechanism itself.  The CAISO cannot simultaneously offer all possible combinations of simultaneously feasible CRR awards. That is, the CAISO cannot a priori offer the available capacity in the network as a set of CRR paths offered at reservation prices with volumes that together match the available capacity.  The CAISO cannot pre-process market bids, e.g., eliminate CRR bids with prices below the reservation price, because if there is not sufficient volume bid to consume capacity, then the market would clear at zero dollars, defeating the purpose of a reservation price.  The CAISO also cannot post-process market awards, e.g., cancel awards that are priced below the reservation price, because this could lead to infeasible solutions that would exacerbate revenue adequacy.

It is unnecessary for the CAISO to attempt to set minimum reservation prices, because CRR allocation recipients already have the ability to set minimum reservation prices through the existing auction process.  When a CRR holder offers to sell CRRs in an auction, whether acquired via allocation or prior purchase in an annual auction, it does so with a stated offer price.  This offer price is the reservation price for that CRR capacity.  The offeror bases its offer price on its expectation of the future value of congestion. If the offeror’s internal valuation is higher than zero, the offer price should reflect this expectation.  Furthermore, when a load serving entity or any other market participant submits a bid to purchase CRR capacity, it is effectively setting a reservation price on that capacity. 

 Because the volume of CRR capacity offered for sale at auction has increased over time, it is clear that at least some transmission customers agree that offering allocated CRRs for sale at auction provides commensurate value compared to their internal valuations of expected future congestion.[4]  Furthermore, the high rates at which offered capacity clears at auction indicate that auction prices are higher than reservation prices.[5]  

[1] See Congestion Revenue Enhancements, CAISO presentation, at slide 31 (Feb. 27, 2025), available at: https://stakeholdercenter.caiso.com/InitiativeDocuments/Presentation-Congestion-Revenue-Rights-Enhancements-Feb-27-2025.pdf

[2] Id.

[3] See GreenHat Energy, LLC, 177 FERC ¶ 61,073 at P 9-11 (2021) (where PJM calculated expected congestion value of FTR paths based on historical congestion for FTR collateral purposes, which GreenHat, LLC used to acquire a massive FTR portfolio with effectively zero collateral).

[4] See Congestion Revenue Enhancements, CAISO presentation, at slide 8 (Feb. 27, 2025), available at: https://stakeholdercenter.caiso.com/InitiativeDocuments/Presentation-Congestion-Revenue-Rights-Enhancements-Feb-27-2025.pdf

[5] Id.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

 Attached are our comments submitted as part of the shift factor cut-off proceeding. These comments reflect our perspective on the current underfunding allocation, which we believe is structurally opaque and misaligned with how risk should be allocated. We aim to highlight the shortcomings of the existing framework and emphasize the need for greater transparency in how underfunding risk is distributed among market participants. A more transparent and well-aligned structure would enhance confidence in the market and increase the value of CRRs to load. 

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

California LSE Group.  The Coalition generally agrees with the California LSEs’ presentation and agrees with the three goals that the California LSEs highlighted, particularly the goal of avoiding solutions that might create additional problems.  We also agree with the California LSEs’ position that CRRs are generally working well, though there is some room for improvement, including to drivers of underfunding and modeling.

Energy Trading Institute.  The Coalition found ETI’s presentation on the legal underpinnings of financial transmission rights to be helpful to this process. 

Nodal Exchange.  The Coalition generally agrees with Nodal’s presentation, which highlighted certain critical elements of the CRR auction.  As Nodal pointed out, CRR auctions drive liquidity in the hedging ecosphere, and support healthy and competitive forward markets.  Changes to the CRR auction process could result in negative unintended consequences in forward hedging.

CAISO DMM.  The Coalition has previously expressed its opposition to the CAISO DMM’s position on CRRs, including in its December 12^th comments.  As previously noted, the CAISO DMM’s assumptions are fundamentally flawed.  The goal of CRRs is not to return congestion rent to load; FERC has repeatedly rejected that position.  The DMM’s method of calculating “auction losses” in FTR markets is also flawed.  Most significantly, the DMM’s proposed solution, of a willing seller auction design, is likely to create significant unintended consequences across both the CAISO market and forward hedging in other markets.

BAMx. BAMx’s analysis methodology, of comparing CRR auction transactions to EQR data to see if the CRR is linked to a physical electricity purchase or sale, is an interesting analysis but does not take the importance of liquidity and price discovery into account. The BAMx analysis dismisses the importance of liquidity and price discovery that financial entities participating in the market provide to the market.  This, in turn, benefits hedging entities. Absent this participation, with its resulting competition and liquidity, the market would perform less efficiently to the detriment of hedging entities – and ultimately, consumers.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

CAISO sets out goals related to “fair allocation of transmission revenues to customers paying the embedded cost of the transmission system,” as well as “allow hedging costs of congestion.”

Fair allocation of transmission revenues.  As the Coalition has previously commented, CAISO’s goal related to fair allocation of transmission revenues is unclear and uses inaccurate metrics.  As discussed in our March 26^th comments and cited on slide 16, the auction efficiency metric is flawed.  At bottom, CAISO asks here how CRRs should be priced.  Several fundamental elements must be included in any conversation on fair pricing:

• The entity buying the CRR will build in a risk premium to account for volatility, the amount of which will depend on the level of risk the entity calculates for the given CRR path and term.  More volatile and congested paths involve greater risk, while less congested paths involve less risk.  Longer-term CRRs involve greater risk, while shorter-term ones involve less. 
• Entities will build in an expected return and cannot be expected to purchase CRRs for $0 gain.  At a minimum, the time-value of money dictates that longer-term products should yield a higher return as the entity is tying up its funds for a period of months.
• Lost opportunity cost also plays a role, as DC Energy has commented.  An entity choosing to buy one particular CRR is foregoing the opportunity to deploy that capital elsewhere, whether in another CRR, a convergence bid or another market altogether.
• Ideally, fair market prices are derived from robust competition in a liquid market.  Price discovery occurs through various means, including day-ahead, real-time and shadow prices, as well as other CRR auctions.  If CCRs are routinely being undervalued, CAISO’s response should be consideration of market structures impeding liquidity and competition.  In this stakeholder initiative, market participants have raised a number of those concerns, including those outlined in Problem Statements #3 and 5.

Allow hedging.  The Coalition concurs that congestion hedging must remain a fundamental goal of the CRR market and concurs with the draft goals.  These goals are aligned with FERC’s purpose in creating long-term financial transmission rights in the first place.  FERC created such rights for the purpose of hedging.  FERC has held that hedging is a “key role in ensuring open access.”[2] As several stakeholders have noted, various improvements could be made to the CRR market construct to improve its functionality as a hedging tool.

• Note that for CRRs to be a viable hedging instrument, someone must take the opposite position from the entity seeking to hedge its generation or load.  Here, trading entities, sometimes referred to as “speculative traders” by CAISO and DMM in a derogatory fashion, play a critical role as they shoulder the risk, provide liquidity and serve as a counterparty to entities hedging physical assets and load.

[1] Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ¶ 31,036 (1996), order on reh’g, Order No. 888-A, 62 FR 12274 (Mar. 14, 1997), FERC Stats. & Regs. ¶ 31,048 (1997), order on reh’g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002).

[2] ETI Presentation at 5, citing PJM Interconnection, L.L.C., 158 FERC ¶ 61,093 at P 11 (2017).

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

Of the five problem statements, the Coalition supports two, is neutral on two and opposes one.

Problem statement 1, auction mechanism does not justify cost.  The Coalition disagrees with this problem statement.  First, this is not a problem statement as CAISO verbally defined the term during the meeting.  This does not question whether the auction mechanism might justify the costs but appears to make a finding.  At a minimum, CAISO should restate this problem statement to evaluate whether the auction mechanism justifies the cost in foregone congestion revenue.

Problem statement 2, different types of auction participants.  The Coalition is neutral on this problem statement.  While this exploration may provide an opportunity to highlight the different roles that different types of auction participants play, it also provides the opportunity for undue discrimination against certain types of market participants.  If CAISO pursues this problem statement, it must bear in mind that all types of auction participants bring value to the CRR auction process and CAISO needs a wide variety of differing auction participants for the market to remain liquid and competitive.

Problem statement 3, addressing revenue inadequacy.  The Coalition strongly supports this problem statement.  Auction participants have highlighted areas where further refinements could reduce CRR revenue inadequacy, including loop flows, shift factors and transmission outages.  Exploring these areas and resolving drivers of revenue inadequacy should be this stakeholder initiative’s top priority.

Problem statement 4, revenue shortfall allocation.  The Coalition is neutral on this problem statement.  This problem statement should explore what the balance should be, and should not assume that both goals are equally balanced.

Problem statement 5, evolution of hedging.  The Coalition strongly supports this goal as hedging is a key function of CRRs and this goal must be a key element of this stakeholder initiative, as noted above.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

No further comment. 

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

Slide 13:  this slide presents “precedent” at FERC and CAISO.  This slide appears to misunderstand the meaning of precedent.  FERC is a quasi-judicial, regulatory agency bound by its prior decisions, and its decisions are binding on those entities it regulates.  Open access, for example, is a bedrock FERC principle enshrined in multiple rulemakings, starting with Order No. 888.[1]  CAISO’s policy preferences regarding the distribution of congestion rents are not precedential, nor are they equivalent from a legal perspective to FERC’s binding legal precedent.

[1] Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ¶ 31,036 (1996), order on reh’g, Order No. 888-A, 62 FR 12274 (Mar. 14, 1997), FERC Stats. & Regs. ¶ 31,048 (1997), order on reh’g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002).

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

N/A

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

MCE supports the goal to allow hedging costs of congestion in the context of a day-ahead energy market.  As noted in the May 12, 2025 meeting on slide 26 of the CAISO’s presentation, a relevant policy option involving CRR product and process design includes Load Migration process updates.  MCE submits that for any Load Migration proposal considered as part of this working group, the CAISO should emphasize the importance of transparency of Load Migration calculations.  Under Section 36.8.5 of the CAISO Tariff, “The CAISO shall track Load Migration between LSEs through Load Migration data provided to the CAISO by each UDC, MSS Operator or other entity that provides distribution serve to customers.”  The Load Migration data provided to the CAISO is described at a high level in Tariff Section 36.8.5.1.  Further, Section 36.8.5 describes the import of this data to affected LSEs:  “Load Migration will be reflected in appropriate adjustments to each affected LSE’s Seasonal CRR Eligible Quantities and Monthly CRR Eligible Quantities in subsequent annual and monthly CRR Allocations, as well as its PNP Eligible Quantities in the next annual CRR Allocation.”

Any enhancements to the CRR allocation process should ensure that data validations are accurate and appropriately influence monthly and annual CRRs.  LSEs rely on CRR allocations to adequately hedge against congestion for their use of the system to serve customers.  Data submitted to the CAISO that over- or understates the load that has migrated from one LSE to another skews the accurate allocation of CRRs, and such errors can compound over time.   Affected LSEs should be able to have visibility into the data used to calculate the load migrating with sufficient, advance notice such that LSEs can work with submitting UDCs, MSS Operators, or other entities to correct that data such that errors do not exist within CAISO systems that carry over from one allocation period to the next.  Tariff Section 36.8.5.7 describes how the CAISO provides Load Migration data received from the UDC, MSS Operator, or other entity to the affected LSE as well as a short, four calendar day period, to dispute Load Migration data.  The process of providing Load Migration data in a manner that provides affected LSEs sufficient time to review and resolve disagreements with the UDC, MSS Operator, or other entity could be achieved through appropriate process, rule, or tariff changes.

Additionally, in considering any enhancements to Load Migration processes, the CAISO should consider whether the CAISO's current practice of using historical Load Migration data for estimating peak load and ultimately setting CRR eligibility is the optimal approach.  Load forecasts, instead of using historical Load Migration data from the prior year, could provide a more accurate means of calculating Load Migration, in that the CAISO would not be placed in the position of estimating peak load applying Load Migration. Using load forecasts is consistent with the Resource Adequacy program.  While it may be early to ask the question of whether to use load forecasts instead of historical data to calculate Load Migration, MCE raises this point to illustrate that there is useful dialogue to be had on the subject of Load Migration methodologies.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

The draft problem statement on slide 28 states in part, “The products available in the CRR market and the processes by which they are distributed should be updated to match evolving hedging needs.”  MCE submits that improved transparency and verifiability of Load Migration data used to calculate LSE CRR allocations would enhance the current CRR hedging product.  See also MCE response to question 2, above.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

N/A

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

N/A

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

Thank you for the opportunity to engage in the ongoing dialogue regarding enhancements to the CRR framework. Direct Energy Business, LLC appreciates the stakeholders' commitment to pragmatic, incremental improvements that aim to strengthen the CRR mechanism as a reliable hedging instrument, while preserving the integrity of competitive auctions. In particular, efforts to reduce CRR underfunding are essential not only to increase auction revenue but also to enhance participant confidence in the market. Similarly, reforming the time-of-use definitions beyond the current on and off peak structure would serve to increase accuracy and efficiency of the CRR market.

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

We agree with the CAISO's stated and distilled goals. However, we request that the CAISO rephrase the first proposed goal on Slide 14 to read: CRRs in the auction should be priced at a reasonable approximation of the expected payout of congestion rent in the day-ahead market, with the expectation of addressing under-collection of revenues.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

The CRR enhancements discussed throughout the stakeholder process might have impacts beyond what is contemplated by the stakeholder process, namely as they relate to EDAM. We are witnessing a growing recognition of the potential for CRRs to serve as the primary long-term hedging tool for congestion revenue allocation, provided that the framework can be made more robust and well-funded. With broader implications, the CAISO and the stakeholders should dedicate the necessary resources and attention to advancing practical, well-scoped reforms to the CRR process. 

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

• PG&E supports CAISO proposed goals and problem statements with the exception of problem statement #4, which we need more information and clarity on before we can support.  

• PG&E notes that, following the 2019 enhancements, CRRs have generally functioned well as a hedge, despite ongoing underfunding challenges for California LSEs. PG&E recommends any future improvements build upon the foundation of the 2019 reforms. 

• PG&E reiterates its recommendations that CAISO should: 

• Address underfunding through targeted, incremental enhancements. 

• Evaluate the auction efficiency of unallocated transmission (post-CRR Allocation). 

• PG&E suggests that a subset of stakeholders work on suggested new CRR products (or changes to the CRR product definitions to address the changing needs of participants) and bring their recommendations back to this group for consideration.  

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

• PG&E supports CAISO’s characterization of the goals of congestion revenue rights (slides 14 and 22) but believe the initiative goals need to be more specific. PG&E notes that the goals of “fair allocation of transmission revenues to customers…” and “allowing hedging cost of congestion in the DAM” are long-standing goals that will not change. But the goals of this initiative may vary based on whether we’re talking about pre-EDAM implementation or post-EDAM; or whether we are talking about issues specific to the CAISO BAA or looking at the intersection with EDAM-wide CRR-like products.  PG&E suggests defining specific initiative goals that focus on the fundamental issues of underfunding and market efficiency.  

• PG&E recommends that CAISO define clear metrics?to evaluate the effectiveness of enhancements aimed at achieving these goals. 

• PG&E suggests a focused sub-set of stakeholders work on potential new products under the CRR framework in a separate working group or incremental phase of this initiative and bring the results back to this stakeholder process. PG&E acknowledges that the current CRR products and market design have inherent limitations, as they were developed under a different historical context. While it is important to develop new products to meet the changing needs of market participants, we believe that this is secondary addressing the issues of underfunding and low auction efficiency.  

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

• PG&E generally supports the proposed problem statements except for #4 which PG&E needs more information. 

• PG&E requests clarification and recommends revisions to several statements: 

• Problem Statement 1-4:?PG&E recommends any future improvements begin from the 2019 reforms. PG&E emphasizes that following the 2019 enhancements, CRRs have generally functioned well as a hedge. Recognizing these in the problem statements might be necessary to keep stakeholders focused.  

• Problem State 1: PG&E requests that CAISO clearly define how “per dollar improvements” are calculated. We also recommend that future enhancements include stakeholder-approved metrics to assess auction performance, especially given confusion around the term “auction efficiency.” 

• Problem Statement 4:?PG&E needs more information and clarity before we can support problem statement 4. We are unclear on what CAISO means by “the balance between fair allocation and hedge value.” To us, these two aspects of CRRs are not always in tension; the hedge value is determined by many factors and market condition, not by CAISO or any post-market process. PG&E requests clarification before we can support.  

• Problem Statement 5:?PG&E agrees that VERs and storage, particularly batteries, introduce new requirements for CRR products. However, the core hedging need—mitigating congestion cost risk—remains unchanged. We recommend the following revised statement: 

“CRR products and distribution processes should evolve to reflect the changing generation mix in the CAISO market. This includes revisiting time-of-use periods, enabling hedging for storage charging load, and updating the auction schedule.” 

PG&E reiterates that this issue is secondary addressing the issues of underfunding and low auction efficiency and suggest that a subset of stakeholders work on a proposal to bring back to this group for consideration.  

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

• Goals: PG&E believes enhancements to the CRR process and instruments should be guided primarily by the overarching goals of promoting wholesale market efficiency and maintaining grid reliability. Therefore, any proposed changes that could create misaligned incentives—such as discouraging the offering of all available supply or distorting offers away from true opportunity costs—should be carefully scrutinized and ultimately avoided. 

• Problem Statement: Based on California LSE’s presentation, PG&E proposes the following problem statement:  

“The large volume of unallocated transmission capacity that is auctioned likely is a significant source of auction inefficiency. CAISO should analyze the auction efficiency of unallocated transmission and explore solutions that resolve this source of inefficiency while maintaining liquidity.” 

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

As co-sponsors of the California LSEs’ presentation during the May 12, 2025 stakeholder meeting, the Six Cities reiterate and emphasize their support for the statement of key points and the description of the purposes for congestion revenue rights (“CRRs”) as summarized on the first two slides of the California LSEs’ presentation.  Collectively, the presentations during the May 12th meeting and the related discussion contributed strong support for focusing the CRR Enhancements initiative on two primary topics: (i) the usefulness of CRRs as hedging instruments; and (ii) the appropriateness of the current CRR auction design. 

The overview of FERC precedent regarding the intended purpose of financial transmission rights (“FTRs”), including CRRs, in the Energy Trading Institute (“ETI”) presentation was useful, but, regrettably, omitted important details and context.  For example, the ETI presentation (at slide 5) emphasized that the Energy Policy Act of 2005[1] ( “EPAct 2005”) provided the basis for FERC Order No. 681 and required the establishment of long-term firm transmission rights in organized markets.  To be clear, the focus of EPAct 2005, specifically in a section entitled “Native Load Service Obligation,” is on enabling load-serving entities to procure transmission rights to meet their service obligations to their customers.  As this section directed: 

The Commission shall exercise the authority of the Commission under this chapter in a manner that facilitates the planning and expansion of transmission facilities to meet the reasonable needs of load-serving entities to satisfy the service obligations of the load-serving entities, and enables load-serving entities to secure firm transmission rights (or equivalent tradable or financial rights) on a long-term basis for long-term power supply arrangements made, or planned, to meet such needs.^[2] 

In implementing the directives of EPAct 2005 in the Order No. 681 series,[3] the Commission emphasized the focus of the Act on facilitating service by load-serving entities to native load customers.  See Order No. 681 at PP 78-80.  Order No. 681 recognized EPAct’s 2005 “overall focus on protecting the transmission rights of load-serving entities with service obligations.”  Id. at P 322.  Order No. 681 further states:

. . . [S]ection 217 of the FPA provides a general “due” preference for load serving entities to obtain long-term firm transmission service.  Moreover, section 217(d), which provides that the Commission may make transmission rights that are not used to meet a load serving entity’s service available to other entities, strongly indicates that Congress intended for load serving entities to be “first in line” for long-term transmission rights that are made available. 

Id. at P 320.

In addition, the Order No. 681 series tied the priority for load-serving entities to on-going financial support of the transmission system.  The Commission stated in Order No. 681-A:

A load serving entity is entitled to a preference in the allocation of long-term firm transmission rights within a transmission organization’s region only to the extent that the transmission organization plans and constructs its transmission system to support the load of the load serving entity, and the load serving entity contributes to the cost that the transmission organization incurs for that purpose.  It would be unreasonable to require a transmission organization to provide a load serving entity with a preference in the allocation of firm transmission rights for specific loads, either long-term or short-term, when the transmission organization has not planned and constructed its system to accommodate those loads, and when the loads have not contributed to the system’s embedded costs. 

Order No. 681-A at P 78.  Order No. 681-A went on to clarify that load-serving entities located outside the boundaries of a transmission organization can qualify for the priority in access to transmission rights by committing to provide financial support to the transmission system on which it seeks a transmission right.  See id. at PP 78-80.

The emphasis in EPAct 2005 and Order No. 681 on the ability of load-serving entities to meet their service obligations to native load reinforces the nature of equivalent financial rights as relating to hedging for physical deliveries of energy.  Furthermore, nothing in EPAct 2005 or the Order No. 681 series requires a transmission organization to provide financial transmission rights to entities that do not use them for hedging at the expense of load-serving entities. 

The presentation by the Bay Area Municipal Transmission Group (“BAMx”) at the May 12th meeting established a clear distinction between the purposes for which allocated CRRs and most auctioned CRRs are used.  The BAMx analysis showed (at slide 5) that approximately 90% of auctioned CRRs have been purchased by entities representing less than 10% of physical transactions in the CAISO market as reported in Electric Quarterly Report (“EQR”) forms submitted to FERC.  This provides strong evidence that CRRs purchased in the CAISO auctions are not predominantly used for hedging purposes.  In addition, the Department of Market Monitoring (“DMM”) presentation at slide 10 demonstrated that allocated CRRs as a group are revenue adequate and, indeed, have produced surpluses.  The Six Cities agree with observations by BAMx that CRRs are not functioning as the equivalent of firm transmission for entities that are not using CRRs for hedging, and that entities that do not use the transmission system are reducing congestion revenues available to entities that are using the transmission system and paying for that use.  The Six Cities therefore support the recommendations on slide 8 of the BAMx presentation.

The Six Cities also support parallel suggestions (including by an ETI representative) to analyze levels of underfunding by market participant type or, alternatively, distinguish between CRRs used for hedging of physical deliveries versus CRRs not used for hedges of physical transactions.  Efforts to identify measures to reduce underfunding explored in this initiative should focus on addressing underfunding for CRRs actually used for hedging.  In addition, the CAISO should reject any suggestion that underfunding of CRRs not used for hedging of physical deliveries should be charged to load.  Such an approach would be patently inconsistent with both of the recognized core purposes of CRRs, which are providing an opportunity for hedging of physical deliveries and returning congestion revenues to load.

With respect to the appropriateness of the current design for CRR auctions, the Six Cities continue to support the willing seller/willing buyer design proposed by the DMM and supported by the DMM presentation at the May 12th meeting.  The willing seller/willing buyer design will continue to allow participation in the auctions by all market participants, but it will no longer compel load-serving entities to fund sales of CRRs purchased at deeply discounted prices. 

Proponents of retaining the current auction design argue that financial participants who purchase CRRs at deeply discounted prices provide liquidity and price discovery benefits that justify their collection of congestion rents far in excess of the prices paid for the CRRs at the expense of load serving entities who have paid and continue to pay for the transmission system.  Not one of the stakeholders supporting retention of the current auction design has offered any evidence based on CAISO market data that there are market benefits sufficient to justify the magnitude of congestion revenue transfers from load to financial participants that the CRR auctions routinely have produced.

Rather than producing evidence of benefits provided by financial market participants based on data from the CAISO markets, defenders of the current CRR auction design rely heavily (and exclusively) on analyses of PJM[4] and MISO[5] market data by London Economics International LLC (“LEI”).  See, e.g., Slide 6 of the ETI Presentation.  Notably, LEI’s analysis of PJM’s FTR framework stated:

[T]he average annual cost to load associated with the current FTR construct is not a small number ($223 million a year, historically).  However, the absolute size of the “leakage” is not demonstrative of whether load is harmed by the current design.  Whether this amount of “leakage” is reasonable should be answered by analyzing the benefits provided by non-load participating in the FTR market, and whether the benefits outweigh the costs . . . . 

See LEI PJM Report at 81 (footnote omitted).

LEI’s analysis of PJM’s market data led it to conclude that benefits provided by non-load participation in the PJM FTR market did exceed the congestion revenues transferred to such participants by load in that market.  See LEI PJM Report at 86-87.  Proponents of retaining the CAISO’s current auction design simply assume, without any empirical demonstration or even critical analysis, that observations expressed by LEI in the context of its study of different markets in different regions of the country with different FTR frameworks necessarily apply to the CAISO’s CRR design and market dynamics. 

As an initial matter, the bare assumptions that the LEI analyses of PJM and MISO provide any relevant information regarding the CAISO’s CRR auction design ignore significant differences between the design constructs and market structures in the different markets.  LEI’s analysis of the PJM auction revenue rights (“ARR”)/FTR design itself includes a section comparing the FTR approaches taken by different markets as well as differences in market structure.  See LEI PJM Report at 96-105.  Some notable differences in market structure as of the 2020 data included in LEI’s analysis are:

• PJM, covering 13 states, had approximately 2.31 times more installed capacity than the CAISO and peak load approximately 3.35 times the CAISO peak load. Id. at 97, Fig. 45;

• The CAISO system appeared relatively more congested, with the PJM system, having 3.35 times the peak load of the CAISO, collecting only approximately 1.7 times the CAISO Day-Ahead congestion revenues.  Id.  This comparison would be affected by relative prices in the two regions, but it suggests a higher degree of overall congestion in CAISO;

• PJM collected more than twice the volume of FTR auction revenues/MWh of consumption than CAISO. Id. at 99, Fig. 46 and 47;

• PJM’s market included substantially higher volumes of futures trading in relation to load than CAISO. Id. at 100, Fig. 48.

Most importantly for the purposes of this initiative, the PJM auctions produced proportionally more revenues in relation to FTR congestion payments to non-load entities than the CAISO auctions have been producing.  LEI estimated that PJM auction revenues fell short of congestion payments to non-load entities by approximately 7% in years with normal weather conditions, or by an average of approximately 13% in the six year period evaluated.  See LEI PJM Report at 79-80.  In contrast, CAISO auction revenues have fallen short of congestion payments by an average of 35% from 2019-2024 (with pro-rata congestion payouts) or by 50% of notional congestion charges.  See, e.g., Slide 21 of the CAISO 11.14.24 Working Group Presentation.

The proportional differences in auction efficiency undermine any application of conclusions about auction benefits in the PJM market to the CAISO.  LEI estimated that, in PJM, “indicative benefits over the longer term” ranging from $523 million - $1,207 million outweighed $223 million in profits paid to non-load participants.  LEI PJM Report at 92.  Contentions by stakeholders in this proceeding (several of whom acknowledged their lack of familiarity with CAISO markets) that the LEI estimate of costs versus benefits for PJM provides any useful information regarding the costs versus benefits of the current form of the CAISO’s CRR auction are fundamentally misleading, because they ignore the substantial differences between the PJM and CAISO markets with respect to both the magnitude of auction inefficiency and market structure and dynamics.  Comparing the average level of profits to financial participants in the CAISO’s market of $120 million/year with scaled calculations of LEI’s estimated benefits yields the following:

The scaling factors for the foregoing calculations are derived from Figure 45 of the LEI PJM Report (CAISO peak load relative to PJM peak load) at page 97 and Figure 48 of the LEI PJM Report (2019 CAISO forward transactions relative to PJM forward transactions) at page 100.  The scaled estimates of benefits do not provide any basis for confidence that the proportionally higher levels of payments to financial entities in the CAISO’s CRR auctions are likely to be outweighed by market benefits, even presuming (again without empirical support) that market benefits necessarily are equivalent to benefits received by load required to bear the costs.

The presenter for the Nodal Exchange at the May 12th meeting also asserted (without supporting data) that the CAISO’s CRR auctions contribute to price discovery in national markets.  See Slide 4 of Nodal Exchange Presentation.  Even if that is accurate, it provides no justification for imposing such a substantial burden for national or even regional price discovery on CAISO load.  Such an outcome represents the antithesis of the cost causation principle, which requires that benefits relating to an allocated cost be roughly commensurate with the level of cost imposed.[7]  There has been absolutely no evidence provided to demonstrate that the benefits to California load are roughly commensurate with the revenues they are forced to transfer to financial participants through the CRR auction design.

DMM’s willing seller/willing buyer proposal would not exclude financial participants and would not prevent purchase of CRRs by any eligible entity.  The stakeholders opposing DMM’s proposal appear to view the willing seller/willing buyer auction framework as the equivalent of having no auction at all, seemingly based on an assumption that there would be limited interest in participation.  That assumption, however, lacks support.  Data included in the CAISO’s February 27 and March 12 presentations demonstrate, for example, a trend of increasing offers of allocated CRRs in the auctions and increasing clearing rates for those offers.  An auction involving willing sellers and willing buyers will still produce auction prices for CRRs, and there is no reason to simply assume that the prices produced by that type of auction would contribute less to forward price discovery than the prices produced by the current auction design.  To the contrary, the current auction design produces prices that consistently under-predict congestion, thereby providing a flawed price signal to the market.  It is more logical to assume that a willing seller/willing buyer auction, in which both sellers and buyers contribute to auction price formation, would produce prices that would be better predictors of congestion and provide price signals more beneficial to the market.  In addition, a willing seller/willing buyer auction design would eliminate underfunding for any auctioned CRRs and would enable the elimination of any restrictions on eligible source/sink pairs for auctioned CRRs.

[1] Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 549 (2005).

[2] See EPAct 2005 at § 1233(a), 119 Stat. at 957, adding FPA § 217(b)(4) (emphasis added).

[3] Long-Term Firm Transmission Rights in Organized Electricity Markets, Order No. 681, 116 FERC ¶ 61,077 (2006), order on reh'g, Order No. 681-A, 117 FERC ¶ 61,201 (2006), order on reh'g, Order No. 681-B, 126 FERC ¶ 61,254 (2009).

[4] See London Economics International, LLC, Review of PJM’s Auction Revenue Rights and Financial Transmission Rights (Jan. 22, 2021) (“ LEI PJM Report”).

[5] See London Economics International, LLC, Independent Evaluation of MISO’s Auction Revenue Rights and Financial Transmission Rights (Jan. 12, 2023). 

[6] See California ISO Department of Market Monitoring, Willing seller market design for congestion revenue rights at 29 (Oct. 23, 2024), available at https://www.caiso.com/documents/willing-counterparty-whitepaper-oct-23-2024.pdf.   

[7] See, e.g., Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000-B, 141 FERC ¶ 61,044, at P 66 (2012) (order on reh’g) (describing cost causation principles). 

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

The Six Cities support the following proposed goal:

Fair allocation of transmission revenues to customers paying the embedded costs of the transmission system

This goal is well-aligned with one of the two key purposes of CRRs as discussed in the California LSE presentation on May 12th, which is to return congestion costs to load-serving entities that are responsible for funding the costs of the CAISO transmission systems. 

The May 12th presentation at slide 14 also identifies two additional “possible goals”:

CRRs in the auction should be priced at a reasonable approximation of the expected payout of congestion rent in the day-ahead market

Transmission customers receive approximately commensurate value for payouts made to CRR rights purchased in the auction

The Six Cities generally support consideration of these concepts in conjunction with the goal of ensuring that transmission revenues are fairly allocated to CAISO customers that have responsibilities for funding the transmission system, but a broader question in this initiative is whether the current auction process should be reformed.  These two possible goals should not be premised on retention of the current auction structure.  The Six Cities remain supportive of the willing seller model as proposed by DMM.

The Six Cities also generally agree with the CAISO’s goal as identified on slide 22:

Allow hedging costs of congestion in the context of a day-ahead energy market

The following two draft goals, also identified on slide 22, seem to appropriately disaggregate this initially-proposed goal, but the Six Cities would support modification of the first draft goal as follows:

The CRR market’s products and processes should facilitate hedging tools and maintain the hedging value of CRRs for physical energy transactions to the extent possible

Day-ahead energy market participants exposed to congestion risk should be able to hedge that risk efficiently

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

In general, the Six Cities concur in the problem statements listed on slide 29. 

With respect to the first proposed problem statement, the Six Cities reiterate that auction reformation should be the top priority in this initiative, as discussed in the California LSE presentation on May 12th.   

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

The Six Cities do not have additional goals or problem statements to propose at this time. 

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

The Six Cities have no further comments at this time.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

Sunline appreciates the ongoing work of the group to improve CRR auctions, and we appreciate the opportunity to submit comments.

We generally agree with the comments of the LSE Group, ETI, and Nodal Exchange; e.g. we agree that CRRs are generally working well, other than the main problem of revenue inadequacy (underfunding). Reducing underfunding via auction modeling improvements is the area we recommend focusing on for CRR auction improvements.

We are opposed to the proposal to replace the auction with a market limited to willing buyers and sellers per the DMM. This approach is not aligned with long-standing FERC precedent. We believe such a design would also reduce market participation and market efficiency.

We generally disagree with the CAISO DMM arguments that the CRR market design is flawed. Our understanding is that the CRR auction as designed is meeting the objectives for CAISO consistent with FERC standard market design. In response to the DMM presentation slide 11 which summarizes the DMM’s views on auction design, we offer the following counter arguments to two specific points:

1. We disagree with the DMM’s notion that “transmission ratepayers…” are “…taking on risk for negative expected value”. This perception misses the bigger picture that absent a CRR auction, ratepayers would shoulder congestion risk and cost due to the lack of a well-functioning congestion hedging mechanism for the market.
2. We disagree with the statement “Most CRRs are not purchased by entities hedging risks in energy markets”. We were curious about this point, so we endeavored to categorize the CAISO market participants and add up all transactions in the auctions for the past 24 months. What we observe is that at least 50-60% of the transaction count (e.g. number of buys or sells) were executed by a load serving entity, generator owner, an agency serving load, or a broker serving load. The range offered here is uncertain as the exact categorization of every entity is not fully known to us. However it seems to us that the DMM characterization is not consistent with market data. Trading entities that compose the remainder of auction activity, sometimes referred to as “speculative traders” by DMM in a derogatory fashion, play a critical role as they shoulder risk, provide liquidity and often serve as a financial counterparty to entities hedging physical assets and load, which extends the impact of the CRR auction into the financial markets.

Regarding the notion that offering contracts at $0 is a fundamental flaw of the CRR auction (e.g. see DMM slide 2), we disagree with this concept. We believe the CRR auction design is consistent with standard market design and is very similar to any well-designed auction. In a competitive market, the auction clearing price is the true value of the CRR, the initial offering price is irrelevant. The auction clearing price should reflect the risks and rewards of purchasing the CRR as a hedge to congestion. If an entity does not buy the CRR, they instead are serving load (for example) without a hedge, and this congestion risk exposure has a cost. So they should be willing to pay an amount commensurate with the value of the avoided risk. The auction clearing price is the market’s consensus view on this value. Entities that believe the value is higher are willing to pay more, and entities that believe the value is lower will bid less (and then not clear the CRR and accept market congestion risk instead).

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

Regarding the goal of “fair allocation of transmission revenues to customers paying the embedded cost of the transmission system” we have concerns with this goal as it is currently defined. We agree with prior comments of the Financial Marketers Coalition e.g. we feel CAISO’s goal related to fair allocation of transmission revenues is unclear and uses inaccurate metrics and key terms that need to be better defined. For example “commensurate value” (slide 14) should encompass all revenue streams that LSEs receive from participating in the CRR auction.

Regarding the goal of “allow hedging costs of congestion” (slide 22) we concur that congestion hedging must remain a fundamental goal of the CRR market.  These goals are aligned with FERC’s purpose in creating long-term financial transmission rights in the first place.  FERC created such rights for the purpose of hedging.  FERC has held that hedging is a “key role in ensuring open access.” As several stakeholders have noted, various improvements could be made to the CRR market construct to improve its functionality as a hedging tool.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

Of the five problem statements on slide 29, we disagree with #1 and #2 and generally feel that #3 is the main one of most importance (addressing revenue inadequacy). We also support #5 (adding new CRR products to match hedging needs). We are neutral on #4.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

No further comments beyond those already submitted on 3/26. We support a problem statement which will prioritize the necessary CRR auction improvements noted last time e.g.:

1. Model differences between the CRR and DA market need to be resolved, as clearly this difference is driving revenue inadequacy. It appears that line rating and outage schedule differences are the main discrepancies in addition to shift factor thresholds being set too high, and effort should be made to more closely align the model assumptions with reality.
2. CAISO should lower (or eliminate) the shift factor threshold given the negative impacts this issue apparently has on CRR settlement reversals and revenue inadequacy.
3. CAISO should consider establishing more frequent overlapping auctions for the same future period(e.g. balancing auctions that enable market participants multiple opportunities to buy or sell the same upcoming future period as are utilized in other ISOs including NYISO, PJM, MISO and ERCOT); this design should help auction results converge more closely to actual DA congestion outcomes.
4. CAISO should consider reducing available transmission capacity for sale in each annual auction and correspondingly increasing the capacity in monthly auctions (and any balancing auctions) to help more closely match the DA market.
5. CAISO should consider abandoning the CRR derate factors. Since CRR underfunding is allocated to CRRs, there is no need to derate CRRs in the auction.
6. CAISO needs to do further analysis on the drivers of loop flow. Clearly there are cases in which loop flow negatively impacts CRRs but more analysis needs to be done to determine drivers and potential solutions.

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

No further comments.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

SCE, as a part of the California LSE group, agrees that the changes adopted in 2019 have been effective in making the CRR market function more efficiently and return a larger share of congestion revenue to CA LSEs whose customers pay for the transmission system. Therefore, SCE strongly believes that any changes to the CRR market must build on the 2019 modifications and not contemplate reversing them. Additionally, SCE finds the information provided in both the DMM and BAMX presentations to be illuminating and helpful.

SCE believes that the conclusion to be taken from data and analysis provided in both the DMM and BAMX presentation is that many of the parties procuring CRRs through the auction process are not engaging in hedging activities. Rather, BAMX’s analysis clearly shows that many of these parties purchasing CRRs in the auction have few if any transactions in the energy marketplace, implying that the transactions are not for energy contract hedging. Similarly, the DMM analysis shows that after the implementation of the 2019 changes that reduced the pay-outs to CRRs but resulted in an increase in the auction efficiency supports the same conclusion. Were the CRRs purchased in the auction employed primarily for hedging energy deals, it would reasonably be expected that the risk premiums buyers are willing to pay would be the primary driver of the prices. Under such conditions, when the expected revenue from the CRR is decreased, the risk premium should not change, and we should expect to see the prices of the CRRs decrease reflecting the constant risk premium and the lower expected revenue. Yet, the analysis appears to demonstrate that the price of the auctioned CRRs has not decreased and does not seem to be dependent on any risk premium for hedging. This is further emphasized by the fact that the overall efficiency of the auction, when measured not against the actual revenue received but rather against the full value revenue, remained very similar after the changes. Overall, one can conclude that the driver for many CRR purchases is to exploit opportunities to recover more revenue from CRRs than is needed to acquire the CRRs in auctions. This is antithetical to the underlying purpose of having CRRs to manage congestion cost variability brought about by locational marginal pricing in the day-ahead market.

One difference between CRRs and OATT transmission rights is that in CRR markets, the holders of the CRRs receive revenue without a requirement to schedule energy; i.e., parties don’t necessarily need to incur additional costs to realize congestion revenue. However, in the OATT world, transmission rights are only valuable if power actually flows. Entities procuring OATT transmission rights are obviously doing so to facilitate energy procurement, because those rights have no value without an associated energy transmission. In the CRR world that is not true. CRRs can provide holders with revenue in the absence of any energy transactions, thus making it much less risky to take speculative positions. Given the apparent one-sided nature of the current CRR auction market, where demand bids into the market, but most of the supply is provided by the CAISO with a zero bid, there is a need to bring balance to the market such as through the willing-buyer-willing-seller design.  

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

SCE generally agrees with the goals presented but offers the following brief comments.

In the first Goal, it should state that if the CRR auction is functioning properly, i.e. efficiently providing opportunities for both buyers and sellers of the CRRs to participate in the market, the auction prices should be within a close percentage of the expected CRR revenue. The current auction efficiency of 68% does not meet this assumption. Given that CRRs are not purchased that far in advance, the time value of money should not be very large, and if the CRRs are purchased to hedge contracted energy contracts, the risk premium should lead to prices exceeding the CRR revenues at least some of the time. The goal should be to make the CRR auction efficient and determine appropriate prices for the auctioned CRRs.

The goal should include language stating that in addition to an efficient auction that allows entities which wish to procure hedges to participate, it is also important the CRRs revenue suffiency must also be improved. Providing entities with hedging requires both efficiencies: the CRRs that are auctioned must generate sufficient congestion revenue to provide an efficient hedge, and the market that distributes the CRRs must also efficiently price them.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

SCE generally agrees with the revised problem statements but offers the following comments.

In the second problem statement, consideration of CRR market changes should also further explore potential methods to ensure the market is composed of buyers and sellers who respectively submit bids and offers into the market. The market should not have the great majority of supply-side participation be comprised of CAISO-offered supply at zero priced bids.

The third problem statement should also include studying and possibly adopting measures related to either the global derate factor, or constraint specific derate factors to reduce the revenue shortfall.

The fourth problem statement should state that customers paying for the transmission grid should not be required to fund revenue shortfalls to guarantee the CRR hedging values. The changes adopted in 2019 should not be reversed but should be the starting point for future modifications.

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

None.

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

SCE agrees with the presentation by Sidley Austin LLP that the primary, if not sole purpose, of CRRs (and FTRs) is to allow market participants and competitors to hedge congestion in an LMP-based market, as affirmed in multiple FERC Orders. (Sidley Austin LLP May 12, 2025, presentation. pg. 4-5) However, SCE does not believe that the current CRR market construct has any resemblance to a liquid, efficient market.  There is not broad, competitive bidding on both the supply and demand side. This prevents any sort of efficient price discovery, as the nominal/zero cost offers by the CAISO allows prices to be determined without competitive supply bids.  Further, that CRR prices consistently deviate below expected value is strong evidence that the market is highly inefficient.  As such, SCE does not believe that arguments made by parties in support of CRR transactions not tied to physical energy provide liquidity or market benefit in the CAISO’s current CRR market.

1. Please provide your organization’s comments on the presentations by/on behalf of the California LSE group, the Energy Trading Institute, Nodal Exchange, the CAISO Department of Market Monitoring, and the Bay Area Municipal Transmission Group.

WPTF appreciates the time and effort of all presenters in bringing diverse perspectives to the working group discussions. Broadly speaking, WPTF supports efforts to improve the CRR market so that it continues to serve as an effective and efficient tool for both allocating congestion revenues and providing a congestion cost hedge for all market participants. WPTF members leverage the CRR market to serve multiple purposes, each of which provides direct and indirect benefits to end-use customers. It is important therefore to treat these purposes with equal importance and avoid narrowly focusing on one metric or single objective above others when considering enhancements. Accordingly, we believe there is a range of potential enhancements that can help strike the right balance between these goals while also addressing the issues raised throughout this working group process.

We do not believe it is justified to replace the current CRR auction with a market limited to willing buyers and sellers, as suggested by the DMM. This approach appears to prioritize the objective of returning congestion rents to ratepayers above all else. As highlighted in the ETI presentation, this is not aligned with long standing FERC precedent. Furthermore, as the market prepares for the implementation of EDAM, it is critical to ensure that all market products continue to function effectively and equitably. A fundamental shift in the CRR framework that limits the ability of participants to hedge against congestion exposure could negatively affect the success of EDAM. We therefore urge CAISO and stakeholders to focus on targeted improvements to the current CRR framework to enhance its effectiveness for all users.

Regarding specific proposals, WPTF agrees with the California LSE group that the goal should be to build upon, not roll back, recent progress. We strongly support CAISO’s efforts to address the shift factor threshold issue and improve loop flow modeling within the CRR construct, both of which have been identified as key contributors to persistent underfunding. While there may be opportunities to refine changes made under Track 1A and 1B, we view these adjustments not as regressions, but as thoughtful evolutions informed by new experience. For example, enabling some resource locations to serve as sink nodes could improve the ability of storage resources to hedge during charging periods. Additionally, reallocating surplus revenues to offset deficits more broadly, now that the main drivers of underfunding are better understood, would better reflect cost-causation principles and improve fairness in the allocation process. Additionally, it has been raised whether the Track 1A restrictions on sink nodes has exacerbated underfunding by forcing CRRs to predominantly sink at locations whose shift factors change depending on the DA hourly load profile of the relevant load zone. We think additional analysis of this question and its materiality is warranted by CAISO staff. Adding back in a set of fixed sink locations may help alleviate this problem while also providing for more effective hedges.

WPTF continues to have concerns with DMM’s proposal to transition away from the current auction structure. DMM presents two primary “design flaws” to justify this shift. The first is the notion that all CRRs and congestion revenues belong exclusively to ratepayers. While returning congestion revenues to ratepayers is an important aspect of CRRs, it is not their sole nor necessarily their primary function in a nodal market. This broader role is supported by numerous FERC Orders, including those discussed in the Sidley Austin presentation. The second issue relates to differences between the transmission models used in the CRR auction and the IFM. While such differences exist, they are expected and justifiable given the forward looking nature of the CRR model, as CAISO’s own root cause analysis acknowledges. Rather than replacing the auction, we believe these differences can be managed through continued improvements to model alignment, without compromising market function or the principles of the SFT.

We also appreciate DMM’s efforts to clarify the relationship between congestion rents and what it characterizes as a “loss to ratepayers.” However, we believe the current analysis omits several key revenue streams available to LSEs. First, while we appreciate DMM's inclusion of congestion revenue surplus in its analysis (Slide 4), it is important to note that this revenue is not captured in the auction efficiency metric, even though it represents a real financial benefit to LSEs. Second, interest earned on held auction revenues also contributes to overall value and should be considered in any comprehensive evaluation. Third, LSEs have been allowed to sell previously allocated CRRs in the auction since 2019, creating a direct revenue stream that is not reflected in the auction efficiency metric. According to CAISO’s March 2024 analysis, these sales yielded approximately $100 million in 2024. Finally, the ability of suppliers to acquire CRRs through a transparent, competitive auction allows LSEs to negotiate lower contract prices, as suppliers can better manage congestion cost risk. Though this benefit is difficult to quantify, it likely offsets much of the perceived “loss” reflected in the auction efficiency metric.

Moreover, it is important to contextualize the difference between auction prices and eventual payouts. This gap is not necessarily indicative of inefficiency. Participants factor in risk premiums, especially since the implementation of pro-rata funding, and the time value of money when placing their bids. As noted in CAISO’s March analysis, these are legitimate economic considerations that explain why auction revenues might fall short of future congestion rents, without suggesting market failure. Finally, as CAISO’s analysis of the January 2024 cold event showed, electricity markets are volatile and extreme CRR profits can occur during unusual events, which are not uncommon in electricity markets. Auction prices are “efficient” based on whether they are competitive with respect to the market’s ex-ante expectations of price spreads. Measuring “auction efficiency” based on ex post outcomes is simply flawed and leads to poor public policy decision-making.

We also value the perspectives shared by ETI and Nodal Exchange. The recent FERC precedent and insights from comparable cases reinforce the importance of improving the existing CRR market rather than replacing the auction entirely. A move to a willing buyer and seller model introduces both FERC compliance risks and the potential for reduced liquidity and competition across related energy markets. The prospect of diminished liquidity at trading hubs, for instance, could have broader negative impacts on market transparency and efficiency.

Lastly, during BAMX’s presentation, concerns were raised about how CAISO categorizes different participant types, particularly financial entities. We share these concerns. Some entities currently labeled as "financial" may, in fact, be procuring CRRs as part of a hedging service offered to their customer base. In these cases, although they may not appear to be LSEs, they are nonetheless using CRRs to manage congestion exposure in a way consistent with the product’s intended purpose. This nuance should be considered in future discussions and analyses to ensure accurate representation of market behavior

2. Please provide your organization’s feedback on the draft goals presented at the meeting on slides 14 and 22 of the CAISO presentation.

For Goal #1, there needs to be a more detailed discussion around the definitions of key terms. Specifically, "commensurate value" should encompass all revenue streams that LSEs receive from participating in the auction, not just direct auction revenues. This broader view of value should include benefits such as lower contracting prices enabled by auctioned CRRs, surplus revenues, interest earned on auction proceeds, and any additional income generated from selling CRRs, whether they were previously allocated or acquired through the auction. Furthermore, the concept of value should account for the time value of money, considering that payments are made well in advance, as well as the risk adjustments participants factor in when submitting offers for CRRs. Lastly, “reasonable approximation of expected payouts” makes it sound like we need to ensure prices are essentially equal to congestion revenue absent significant market events. As noted in much detail above, this is an inappropriate expectation for various valid reasons. We suggest rewording the goal to ensure any comparison made between auction prices, auction revenues, and congestion rent reflect the expectation that auction prices should not be at the same level as expected payouts. For example, this could include expanding what is meant by “reasonable”.

In addition to clarifying Goal #1, there should be explicit goals that address the broader objectives of the CRR framework. One goal should ensure open access to a fair and competitive market, positioning CRRs as the equivalent of firm transmission rights. Another goal should aim to strike an appropriate balance between the two primary purposes of CRRs: effectively allocating congestion and providing all market participants with a reliable hedge against congestion costs. These elements are essential to ensure that CRRs function equitably and efficiently within the market structure.

3. Please provide your organization’s feedback on the draft problem statements presented at the meeting on slides 21, 25, and 28 (and all repeated on slide 29) of the CAISO presentation

Problem statement #1 (Slide 21): We appreciate the updated problem statement wording as it no longer reflects the expectation that auction prices should be equivalent to CRR payouts. However, it may be useful to expand on the term, or clarify what is meant by the term, “benefits of the auction” to reflect all the benefits ratepayers receive from the existence of the auction – lower contract prices, congestion revenue surplus, revenue from selling allocated CRRs, interest on auction revenues, etc. Moreover, as explained in the Sidley presentation, FERC precedent has affirmed the essential purpose of CRRs for congestion hedging above prioritizing redesigning the market to return congestion revenue to load. Problem statement #1 as written currently does not acknowledge the dual purpose of CRRs to serve as a mechanism for congestion rights to be assigned to load and facilitate a market for congestion hedging.

Problem statement #2 (Slide 25): We appreciate the updated problem statements and ask that the second problem statement include some consideration of allocating costs based on cost-causation. There was extensive discussion during the policy process leading up to the 2019 changes around allocating the shortfalls based on cost-causation that resulted in the constraint by constraint methodology. However, CAISO’s data analysis has shown that what we thought would be the remaining drivers of underfunding and justify the constraint by constraint method are not actually the main drivers. Thus the existing allocation approach no longer entirely aligns with cost-causation and we should explore ways to modify the allocation approach. We suggest modifying the problem statement number 4 on slide 29 to add: “Allocation of revenue shortfalls should follow cost causation principles, and consideration should be given to how to better align the Track 1B reforms with cost causation principles.”

With regarding to problem statement #3 on slide 29, we would like to explicitly include variable shift factors at load zone sink node as a potential source of model divergence along with “loop flows, shift factors and transmission outages.”

4. Are there any other goals and/or problem statements your organization recommends adding to those above?

5. Please provide any other comments your organization has on the May 12th meeting and discussion.

WPTF recognizes that the implementation of EDAM and new day-ahead market products in 2026 are likely to significantly impact CRR market outcomes for all market participants and believes CAISO should attempt to incorporate its own and stakeholders’ expectations in planning future enhancements. In its EDAM Congestion Revenue Allocation Draft Final Proposal, CAISO states that EDAM can enhance transmission constraint modeling across balancing areas, improving CRR modeling and enabling allocation of new congestion revenues to support CRR revenue sufficiency. CAISO also proposes near-term enhancements to retain and allocate parallel flow congestion revenues, both for hedging CRRs impacted by neighboring constraints and for economically-bid schedules tied to legacy transmission contracts (TOR/ETC), to boost market efficiency and ensure fair revenue distribution. Thus, WPTF encourages the CAISO to incorporate each of these considerations in its assessment of next steps within the CRR Enhancements initiative as each would have a bearing on CRR market outcomes and how entities interact with the CRR market as well as encourages the CAISO to consider the broader impacts that EDAM and the new day-ahead market products will bring to CAISO’s CRR market when considering future enhancements.