Comments on Jan 28, 2025 Working group foundations discussion

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

Appian Way appreciates the opportunity to have presented at the January 28 meeting. Thank you and we look forward to additional comments.

In terms of general comments on the meeting, and the way forward for the stakeholder process, the comments below are meant to elaborate on several of the messages from our presentation at the January 28 meeting:

1. CRRs Are an Essential Element of the CAISO Market Design -- CRRs are an integral element of the market design orthodoxy in all ISO markets based on locational marginal pricing (LMP). As Professor William Hogan was quoted in Appian Way’s presentation, and worth reiterating:

“Now all organized wholesale markets in the United States are built around the essential elements of bid-based, security-constrained, economic dispatch with locational prices and financial transmission rights. The success and wide adoption of this market design reflects the basics of the underlying electricity system and the requirements of open markets. In short, this successful market design is the only way to organize a short-term electricity market that adheres to the principles of open access and nondiscrimination. [For the Commission,] the most important thing to remember is the critical role of this fundamental market design. There is no other way to organize system operations and adhere to the Commission’s mandate. Furthermore, the broad policy objectives of the green energy agenda only serve to reinforce this conclusion.”

FERC’s Order 888 introduced competition into electricity markets by requiring Transmission Service Providers (TSPs) to provide non-discriminatory open access to transmission service. Network service for LSEs or point-to-point service for wheeling power meant that competition was provided through a system of physical rights based on contract paths administered via OASIS. However, the system operator cannot ensure efficient, reliable operation of the grid by considering contract paths. Thus, the “successful market design” described by Professor Hogan evolved in the CAISO and ALL other organized wholesale markets (PJM, MISO, NYISO, ISONE, SPP, ERCOT). But whereas in the prior system, transmission capability and transmission access were made available through physical rights, in the new system, physical transmission rights are replaced by financial rights. Just as Order 888 required TSPs to make transmission available on a non-discriminatory basis in bilateral markets with physical rights, Order 888 requires an ISO to make transmission available on a non-discriminatory basis through financial rights and the CRR auction accomplishes this function. Many stakeholders have noted that FERC has weighed in on this fundamental Order 888 requirement multiple times and in multiple dockets, with a couple of the relevant passages below:

"FTRs were designed to serve as the financial equivalent of firm transmission service and play a key role in ensuring open access to firm transmission service by providing a congestion-hedging function.” ER22-797 3/11/22.

“We reject the arguments that the sole purpose of FTRs is to return congestion revenue to load and the market should therefore be redesigned to accomplish that directive.” EL16-6 1/31/17. [This is a direct rebuttal of the DMM proposal]

A few additional observations about the comparison of the non-ISO (bilateral) physical rights model vs. the ISO/CRR model:

1. Ratepayer Losses -- To say ratepayers “experience losses” from the ISO/CRR model is a significant distortion of what is actually going on. From the perspective of transmission ratepayers, they are better off, not worse off, in the ISO model with locational pricing and the CRR auction than they were in the prior system of physical rights (even without considering the competition-related and forward-contracting benefits of ISO-facilitated congestion mechanisms for ratepayers). In the prior system, valuable transfer capacity as physical rights were made available on a first-come, first-serve basis to power marketers without regard to the value of the rights being offered. In the ISO/CRR model, transmission ratepayers are able to keep the rights they need (converting ARRs to CRRs) for their own hedging and commercial activity and the remaining transfer capability is made available as ARRs through a competitive auction open to all qualified market participants. The distribution of available CRRs goes to those participants willing to pay the most. Transmission ratepayers receive the market value of the auctioned CRRs as payment for the ARR they have made available in the auction, unlike in the prior system when the rights were offered if they were available without compensation for their market value.

2. Open Access – The ISO/LMP/CRR model is a more efficient overall, and beneficial to ratepayers, way to organize competitive markets. The CRR auction effectively rations scarce transmission capacity based on a market mechanism (with raterpayers getting the economic benefit associated with the value of their ARRs). This system of rationing transmission capacity in an ISO/LMP/CRR market is equivalent to the Order 888 open access requirement that transmission be made available on a first-come, first-serve basis in bilateral markets (where rate-payers do not receive the value of scarce transmission). Comparing the two forms of open access, more transfer capacity can be made available in the CRR auction, benefitting the market overall in terms of efficiency (indeed reducing the inefficient use of the transmission grid is one of the key benefits of the ISO/LMP/CRR system). And ratepayers are able to obtain the scarcity value of transmission through a market mechanism that imbues their transmission rights (ARRs) with economic value (which did not occur in the prior market design).

Moreover, consider the open access question from the perspective of a power marketer or a generation/supply resource. Before the LMP system, spot/real-time settlements of imbalances (i.e. prices) would be uniform and determined without regard to location and/or whether the most efficient resources were dispatched to clear the market. A solar farm in a generation pocket might be partially curtailed if it could not get access to transmission, but at least it would receive the broader market’s uniform price for the power it was able to get to market. With the ISO/LMP/CRR model, the solar farm is now paid a lower price based on the marginal cost at its location, as prices are used to ration scarce transmission. But the quid pro quo is that the solar farm has the opportunity to purchase CRRs to hedge their exposure to the congestion in their pocket (i.e. open access to transmission capacity). If the CAISO were to decide, as the DMM proposes, that all congestion rents collected by the ISO are to be directly allocated to load, and not made available on an open access basis through a CRR auction mechanism, then the solar farm would not only face lower prices at its location but also be denied even the opportunity to access the ISO’s available transmission capacity for any price. When opponents of the CRR design say that transmission ratepayers are forced to sell transmission capacity with zero reservation price in the CRR auction, what they are really arguing is that transmission capacity should be reserved EXCLUSIVELY for transmission service providers and not made available to the market. Such an approach is entirely counter to the principles of open access, non-discrimination and market competition established under Order 888, as FERC has stated when confronted with the question. Order 888 requires that available transmission be offered even if the TSP (and by extention their ratepayers) is not able to capture the economic value of moving power from one location to another. 

3. The Need for Congestion Hedges -- Because of the replacement of the physical rights system with the ISO/LMP/financial rights system, prices can vary throughout the grid when there is congestion, creating basis risk for all kinds of market participants, and creating the need for a congestion hedging mechanism (the CRR). It is generally understood market design orthodoxy in ISO/LMP/CRR markets that the ISO has an obligation to facilitate the creation of a market for congestion hedges by administering the CRR auction. For instance, PJM’s white paper on FTRs stated that PJM has an “obligation to ensure the development and operation of market mechanisms to manage congestion.” Indeed, the January 28 CAISO morning presentation on the structure and function of CAISO’s CRR market is testament to CAISO’s own commitment in this regard.

While the CAISO CRR stakeholder process is just beginning, with only two meetings to date, many stakeholders have already spoken up regarding the need for CRRs, and desire to improve, not eliminate, the product. We would also point to the very strong statements coming from WPTF which represents many many stakeholders that participate in the CAISO markets.

4. Developing a Coherent Problem Statement – Appian Way would like to commend CAISO staff for their leadership at the early stages of the CRR stakeholder process. This is a complicated topic and focusing on foundations and analysis at the outset is necessary and extremely helpful to elicit engagement and better understanding. Ultimately though, the CRR stakeholders will need to choose on a problem statement and path forward. The DMM has come with a proposal to eliminate the CRR product and replace it with what the DMM refers to as a willing buyer/willing seller model. Other stakeholders propose to keep the CRR product and reform it to make it even more valuable and flexible at serving its intended purpose to facilitate the market for congestion hedging. It may be necessary for a two-stage process, with an initial problem statement to resolve what direction this CRR stakeholder process is going to take. The proposals to improve, reform and potentially expand the CRR product are not reconcilable with a proposal to eliminate CRRs and replace them with directly assigning congestion rents to load. Furthermore, the market design issues at stake in this working group are fundamental to the role of the ISO in an LMP system. We believe that the ISO does have the obligation to facilitate a market for congestion hedging by implementing a CRR auction both as a matter of FERC precedent and as a critical element of the California wholesale electricity market. Our hope is that this stakeholder process will lead to greater understanding of CRRs and their role in ISO market design and how the CRR construct benefits ratepayers and end users.

2. Reforming and Improving the CRR Product in CAISO – Assuming the problem statement for the stakeholder process focuses on reforming and improving the CRR product, Appian Way believes a comprehensive look at opportunities to improve the product is warranted. As noted up front on the CRR enhancement policy initiative web page: “In 2018’s Congestion Revenue Rights Auction Efficiency Track 1B, the ISO committed to: 1) assessing the impacts of both the Track 1A and Track 1B proposals.”

We believe this agenda should focus on making the CRR product more useful as a congestion hedging tool, particularly for physical market participants. This would include such items as:

1. 1. Addressing Revenue Inadequacy -- Improving the financial integrity of the CRR product by addressing potential revenue inadequacy cost allocation flaws, such as when costs are allocated to CRR holders that cannot be reasonably attributed based on cost-causation principles.
   2. More Flexible CRR Products and Tenors -- Evaluating whether the CRR product can be made more flexible to address the specific needs of battery or solar resources that would like different hourly CRR products.
   3. Balance-of-Period Auctions -- Implementing a balance-of-period actual to facilitate more liquidity in the CRR market and improving credit management of CRRs by affording more frequent auctions that allow existing portfolios to be marked to market on a more frequent basis.
   4. Impact of Reducing Nodes in Track 1A -- Evaluating the impact of Track 1A reforms to reduce the number of available nodes and whether this has compromised the ISOs efforts to sell the right amount of CRRs.

On this point, Appian Way is concerned that the Track 1A reforms have had an unintended consequence of potentially exacerbating gaps between the CRR and IFM transmission topology modelling. As a result of these gaps, CAISO’s implementation of the Simultaneous Feasibility Test (SFT) may be compromised so as to result in overselling of CRRs as compared to the actual transfer capability in the IFM. The reason for this may be the increase in CRRs sinking at LAPs and DLAPs which was an intended consequence of the track 1A reform. I.e. it was believed that a reduction in available nodes would reduce a significant category of very profitable CRRs, and this was justified based on the notion that the purpose of CRRs was to match supply delivery from generation to load. However, there may be an unintended consequence in that requiring CRRs to only sink at certain locations (predominantly DLAPs (Default Load Aggregate Points) and LAPs) may compromise the model alignment between the CRR and IFM (no other ISO restricts CRR nodes in this way). DLAP and LAP flow sensitivities to the grid inherently change over time and from day to day as load patterns change due to fundamental factors such as weather or large loads entering the grid or varying output. The more DLAPs and LAPs are used as sinks for CRRs the more potential to distort the actual physical flow representation on the grid in the CRR market compared to reality. In terms of model alignment and having source/sink pairs that match the actual physical flows on the grid, it may be far better to have more CRRs sinking at static locations that are not subject to significant variation over time depending on the day-to-day variability of load patterns on the grid.

Further analysis on this by CAISO is warranted to determine the extent of the problem, and if it is in fact a reason for modelling gaps (this analysis may not be hard to do, as it would simply involve creating new DLAP and LAP LMP points based on auction shift factors and seeing how CRR payouts would be different if these were used). Certainly, the potential that Track 1A might actually exacerbate mismatches between the CRR and IFM models and compromise the SFT was not understood at the time of the Track 1A reforms, and we believe this exactly falls into the mandate of this stakeholder process of “assessing the impacts of both the Track 1A and Track 1B proposals.” PJM actually has this problem with load aggregate points and it would be useful for CAISO staff to understand how PJM addresses it.

1. 5. OUTAGE Reporting -- Evaluating whether the Track 1A changes to outage reporting requirements have had the intended effect of improving model alignment between CRR and the IFM transmission topology. If not, what additional changes might be necessary to ensure that TSPs' outage scheduling practices comply with CAISO Tariff requirement.
   6. Global Derate Factor -- Evaluating a change in the Global Derate Factor (GDF) to the extent that improvements can be made in revenue adequacy cost allocation to allow for more CRRs to be allocated and sold.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

The Bay Area Municipal Transmission Group (BAMx^[1]) appreciates the opportunity to comment on the on the January 28^th meeting under the Congestion Revenue Rights enhancements initiative. BAMx supports continuing to pursue the willing sellers CRR auction design.[2] Additionally, we share the desire expressed by many of the presenters at the January 28, 2025 working group session[3] to develop a common understanding of the potential impacts of changing the CRR auction design. To support this, BAMx requests that CAISO develop and present analyses of the following in the upcoming February root cause analysis, and also in the March benchmarking to other CRR programs, working group meetings as described in our response to Q. 2 below.

[1] BAMx consists of City of Palo Alto Utilities and City of Santa Clara, Silicon Valley Power.

[2] CAISO Department of Market Monitoring, “Willing Seller Market Design for Congestion Revenue Rights,” October 23, 2024.

[3] California ISO – Congestion Revenue Rights Enhancements, “Working Group Session 2 – Foundations,” January 28, 2025.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

As mentioned above, BAMx requests that the CAISO develop and present analyses to identify:

• • The causes of revenue insufficiency in the current market design using historical data, including the revenue insufficiency attributed to the CRR allocation and the CRR auction for each type of market participant (e.g., Financial entities, Marketers, Generators, and LoadServing Entities) and also by type of transmission constraint (Interties, Internal Paths, etc).
  • The predominant source(s)/drivers of the CRR offset/clawback revenues.
  • The extent to which Auction CRRs are associated with physical deliveries (i.e. extent to which CRRs are being used as the financial equivalent of firm transmission vs. as a tool for market speculation).
  • Whether CRRs under the willing seller market design would accomplish the objective of CRRs serving as the financial equivalent of firm transmission as well or better than the current market design.
  • The degree to which Auction CRRs in the current market function as a tool to return revenue to load, and whether the willing seller market design would better accomplish this objective.
  • How loop flows are addressed in the CRR auction/allocation models vs. the DAM FNM. Do any mismatches in methodology or assumptions exist between the transmission network model and the day-ahead and real-time markets that might contribute to revenue insuffiency?
  • Would a price floor in the CRR auctions be necessary with a willing seller market design?

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

No questions at this time.

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

Several entities have pointed to the London Economics, Inc. (LEI) analysis of PJM’s ARR/FTR market design and have sought to apply the conclusions of that analysis to the CAISO CRR market.[1] LEI is careful to point out differences between PJM and CAISO markets in their analysis.

• • BAMx requests that the CAISO analyze whether the PJM ARR/FTR market design, the overall level of liquidity in the PJM ARR/FTR market, and the state of de-regulation/utility choice in PJM are directly comparable to what exists in the CAISO’s CRR auction markets.
  • To understand whether the conclusions of LEI’s PJM ARR/FTR analysis are applicable to the CAISO CRR market design, BAMx requests that CAISO compare the California CRR market design to the PJM ARR/FTR market design.

BAMx requests that CAISO seek to reproduce aspects of the LEI analysis for the CAISO market, such as the liquidity analysis, the churn analysis, and the analysis of the bid-offer spreads.

Regarding potentially adding storage resource charging as CRR sink locations, BAMx supports investigating this potential change, but urges careful consideration of the following:

• • CAISO should analyze the potential ramifications of this change on the CRR auction, since it could reverse the 2019 limitations on source-sink pairs that curbed the ability of auction participants to obtain low or negatively valued CRRs that often yielded large rents. There may need to be limitations placed on the load of the storage resources that are eligible for participation in the auction and/or limitations on the eligible sources for those sinks.
    • • BAMx notes that if the DMM willing seller market design is implemented, this concern would be alleviated.
  • CAISO should consider whether available storage charging sinks should be limited to standalone storage, since co-located and hybrid resources have on-site supply.
  • CAISO should consider whether sources for storage charging should be limited to Trading Hubs and/or Interties, if the intent of these CRRs is to facilitate hedging to liquid trading locations. 
  • Rules will need to be developed for determining how to adjust a party’s Seasonal Eligible Quantity to incorporate eligible storage loads.
  • It seems likely that these rule changes would need to be paired with changing the granularity of the CRR periods to align with expected charging intervals. The costs and benefits of the proposed changes should therefore be considered together.

[1] London Economics International LLC, “Review of PJM’s Auction Revenue Rights and Financial Transmission Rights (Updated),” January 22, 2021.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

In addition to the analyses identified in the above responses to Q.2 and Q.4, BAMx supports further analysis of CDWR’s proposed changing of the current CRR on and off peak time periods. In particular, BAMx suggests analyzing the feasibility of developing two-hour, four-hour or six-hour blocks of CRRs to replace the current on and off-peak time periods.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

The California Community Choice Association (CalCCA) appreciates the opportunity to comment on the California Independent System Operator’s (CAISO’s) Congestion Revenue Rights (CRR) working group meeting. In these comments, CalCCA requests the CAISO conduct two pieces of analysis:

• Identify all causes of revenue insufficiency and the dollar value associated with each cause; and
• Simulate the CRR allocation and auction results of a prior year as if the Department of Market Monitoring’s (DMM) willing buyer/willing seller proposal had been in place.CalCCA has no comments at this time.

These analyses will allow the CAISO and stakeholders to identify the sources and magnitude of issues within the current CRR market design and inform consideration of potential improvements.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

CalCCA has no comments at this time.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

CalCCA has no comments at this time.

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

CalCCA agrees with requests for an analytical step in the working group process. This analytical step should seek to identify all causes of revenue insufficiency, and the dollar value associated with each cause. This will allow the CAISO and stakeholders to prioritize solutions based on how they would contribute to reducing revenue insufficiency.

CAISO should also simulate the CRR allocation and auction results of a prior year as if the DMM’s willing buyer/willing seller proposal had been in place. This simulation should answer the following questions:

• How do the CRR allocation results compare to what they were previously? 
• How do the auction results compare to what they were previously? 
• What would the annual revenue sufficiency from these results be compared to what it was previously? 

This analysis will help stakeholders better understand the potential impacts of DMM’s proposal.  

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

See response in section 4.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

California Department of Water Resources (CDWR) comments on the January 28th meeting are based on the two topics CDWR had submitted its comments for the CAISO’s Initiatives Catalog stakeholder process – Global Derate Factors (GDF), and the split of the On-Peak Congestion Revenue Rights (CRRs) to two periods.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

On the morning presentation, the only comment CDWR would like to make is one that relates to the GDF.

CDWR understands that GDF had been introduced prior to the Track 1B implementation to enhance the CRR Revenue Adequacy associated with unforeseen outages.

CDWR suggests that, as part of this CRR Enhancements Stakeholder process, CAISO should run tests to see if the application of the GDFs brings the same level of protection to the CRR Revenues Adequacy as before and as after the Track 1B implementation for the following reason:

As discussed in the CDWR’s comments posted in the CAISO Initiatives Catalog, the application of the GDFs impacts LSE’s ability to hedge congestion rents significantly. CDWR’s load relies heavily on hydrology and there can be very significant changes to its load from the annual allocation process to the monthly allocation process time frame. It is to be noted that CDWR updates its forecast of loads and resources periodically on a monthly basis. CDWR has observed that its load used for monthly CRR allocation process can be multiples of the load used in the annual process in cases where dry water year is followed by wet water year. Due to CDWR’s inherent hydrology-based load variability, unlike other load serving entities (LSEs), its ability to hedge congestion is adversely impacted by the application of GDFs where GDFs lower monthly allocation amount to some extent. Due to the combined effect of limitation associated with the annual CRR Allocation process which offers CRRs only up to 65% of the CRR Total Transmission Capacity (TTC) and the monthly allocation process GDF related derates to 17.5% of the TTC for the monthly CRR Allocation processes, CDWR could be short in hedging its congestion rents as high as 80% of its entire congestion rents following the completion of each monthly CRR allocation process. Therefore, CDWR recommends that CAISO conduct studies to prove that the benefits due to the application of GDFs is realized for the CRR Revenue Adequacy prior to, and after the implementation of the Track 1B.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

No.

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

CDWR agrees with investigating the issue of constraint underfunding mentioned by Appian Way Energy Partners (AWEP). Particularly, as requested by AWEP, CDWR would like to know what factors in the CAISO Day Ahead CRR design and settlement determined that CRR revenues to be 50 - 700 % underfunded, and once these factors are identified, what could be the possible fixes.

CDWR agrees with Morgan Stanley regarding expanding the CRR product to include solar-hours and non-solar hours since the Morgan Stanley proposal aligns with CDWR’s initial proposal of splitting the On-Peak period.

CDWR supports Vistra’s proposal, with caveats, to split the CRR product since it aligns with CDWR’s initial comments on this issue. However, CDWR considers the split of the current On-Peak period into 4-6 new periods proposed by Vista too excessive for the following 2 reasons:

1. It is possible that 4 to 6 periods of CRR may create complexities for the CRR allocation and auction processes. CAISO may investigate whether that level of granularity is needed and if it is beneficial for the enhancement of congestion management to improve hedging.

2. To most LSEs in the CAISO territory, whose load profile is different from the battery resources’ charging load profile, this scenario may not provide enhanced ability to hedge congestion.

As presented in the initial proposal and in the following round of comments in the initiative catalogue stakeholder process, CDWR’s recommendation on CRR split is reflective of the period of solar generation profiles in the CAISO grid. Therefore, CDWR recommends that the CRR product be split into just 3 products: on-peak (HE 7-16), super-peak (HE 17-21), off-peak for the remaining hours. CDWR recommends that CAISO stakeholder process explore further through appropriate analyses to determine the best split of the current CRR construct.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

None.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

Comments on Congestion Revenue Rights Enhancements

Working Group Meeting #2 – January 28, 2025

Department of Market Monitoring

February 14, 2025

Summary

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the Congestion Revenue Rights Enhancements Working Group Meeting #2 – January 28, 2025.[1] In this working group meeting, the ISO presented an overview of the current congestion revenue rights (CRR) process, and multiple stakeholders presented their perspectives on CRRs.

Common themes in stakeholder comments and presentations include: (1) the potential market benefits of continued access to CRRs as a hedging product, and (2) the need to reconsider the time periods for which CRRs are offered, to better align with changing congestion patterns. Stakeholders also raised other potential issues that could lead to a significant expansion of scope of the CRR enhancements initiative. DMM recommends the ISO keep the scope of the current initiative relatively narrow, and remain focused on the pressing and longstanding issues of CRR auction efficiency. DMM also supports the development of a small number of new CRR products that better align with the hours of commonly observed congestion patterns. 

DMM continues to recommend that the ISO develop a CRR auction design based on willing sellers, and that development of such an approach be the top priority for the current congestion revenue rights enhancements initiative.[2] Losses for transmission ratepayers from the current CRR auction are significant and sustained, and ultimately the result of auction clearing based on CRRs that do not reflect the expected value of day-ahead congestion. This occurs under the design from the combination CRRs effectively offered for sale by the ISO at a $0 offer price, and bids to buy such CRRs that can be well below the true expected value of day-ahead congestion. In addition to addressing ratepayer losses resulting from the current CRR auction design, this willing seller design would mitigate several of the largest issues raised by various stakeholders, including: (1) problems encountered by load serving entities (LSEs) in the CRR allocation process; (2) the reduction in hedging benefits caused by the deficit offset charges; and (3) concerns about overall CRR revenue adequacy.

Based on some comments in working group meetings, DMM believes there may be some misunderstandings or mischaracterizations of DMM’s willing seller auction proposal with respect to the CRR allocation and auction process. As explained in DMM’s prior paper and comments on the willing seller design, the ISO would continue to allocate CRRs to load serving entities and exporters under the current allocation process.[3] Entities that are allocated CRRs in this process could continue to sell (or buy) additional CRRs as willing counterparties in the subsequent willing seller auction for CRRs. Furthermore, as explained in recent DMM comments in this initiative, restrictions placed on CRR allocations, bidding, and payouts in 2019 would be removed. This would increase the ability of LSEs to acquire the CRRs and CRR payments needed to hedge their sources of supply.[4]

Comments

DMM recommends a limited scope for the current CRR enhancements initiative, with development of a CRR auction based on willing sellers as a top priority

In the working group process, stakeholders have introduced a wide range of potential topics to include in the scope of the initiative. For example, some stakeholders have proposed enhancements to transmission outage reporting and modeling in an effort to improve convergence between the CRR model and the day-ahead market, or recommended the establishment of a reservation price for CRRs currently offered by the ISO for sale in the auction at a $0 reservation price. Others have expressed concern about the allocation process, or the diminished hedging value of CRRs in the context of deficit offsets. 

DMM recommends keeping the scope of the current CRR enhancements initiative narrow, and prioritizing the development of a CRR auction based on willing sellers. This would be an efficient and reliable solution to the long-standing issue of ratepayer losses from the CRR auction, and would also address numerous other concerns raised by stakeholders. As explained in DMM’s previous comments, the willing seller auction design will also address: (1) problems encountered by load serving entities (LSEs) in the CRR allocation process; (2) the reduction in hedging benefits caused by the deficit offset charges; and (3) concerns about overall CRR revenue adequacy.[5] DMM also supports the development of a small number of new CRR products that better align with the hours of commonly observed congestion patterns. 

DMM does not propose elimination of the CRR allocation or auction

Based on some comments in working group meetings, DMM believes there may be some misunderstandings or mischaracterizations of DMM’s willing seller auction proposal with respect to the current CRR allocation and auction process.

• First, DMM’s proposal calls for retaining (and improving) the current CRR allocation process. As explained in recent DMM comments in this initiative, restrictions placed to lower transmission limits used in the CRR allocation process in 2019 would be raised, thereby increasing the amount of CRR nominations that would clear in the allocation process. Entities that are allocated CRRs in this process can continue to sell (or buy) additional CRRs as willing counterparties in the subsequent willing seller auction for CRRs.  
• Second, DMM does not propose to altogether eliminate the CRR auction. Instead, DMM recommends modifying the current auction so that it only includes offers to sell CRRs from willing counterparties. In other words, this approach simply eliminates the additional CRRs that are essentially offered for sale by the ISO at a $0 offer price under the current approach. 

Analysis by DMM shows that even under the current auction, a substantial volume of CRRs are already being  offered for sale by willing counterparties that include LSEs (who are reselling a portion of their allocated CRRs), and financial entities submitting bids for CRRs in the counterflow direction of congestion (which clear at negative prices). With the willing seller approach, the ISO acts as a central clearinghouse for trading, and does not intervene to sell additional CRRs backed by congestion revenues that will otherwise be re-allocated back to transmission ratepayers. Analysis by DMM shows that the willing seller design is workable, and can provide an effective and efficient alternative to the current auction design.[6]  

The willing seller model will increase the ability to use CRRs as hedges in several ways

In the working group meeting, many stakeholders expressed a strong demand for CRRs as hedges. The willing seller design would allow the ISO to continue facilitating a liquid market for CRRs being bought or sold as hedges, while also addressing numerous other stakeholder concerns that have been raised about the current CRR allocation and auction process.[7] 

First, as noted above and explained in recent DMM comments in this initiative, restrictions placed to lower transmission limits used in the CRR allocation process in 2019 would be raised, thereby increasing the amount of CRR nominations that would clear in the allocation process.

Second, since all CRRs sold in the willing seller approach are financially backed by a willing counterparty (rather than out of congestion revenues), the willing seller approach is guaranteed to entirely eliminate ratepayer losses resulting from the current CRR auction design. For the same reason, the willing seller approach would address revenue inadequacy by ensuring ample congestion revenue available to pay allocated CRRs. The pool of congestion revenues available to pay allocated CRRs would no longer be eroded by payouts to auctioned CRRs that lack a counterparty. Consequently, the deficit offset charges that were implemented in 2019 to reduce revenue inadequacy and auction losses can also be eliminated. Eliminating these auction losses and deficit offset charges will allow for full funding of all CRRs provided through the allocation process. Similarly, since all CRRs sold in the auction would be financially backed directly by various counterparties, these CRRs would also be fully funded and not subject to any deficit offset charges. 

Third, since all CRRs sold in the willing seller approach are financially backed by a willing counterparty, the restrictions on source/sink combinations that could be bid into the CRR auction that were put in place in 2019 would also be eliminated. This would increase the ability of entities to submit CRR bids to sell hedges directly between the generation, load, and trading hubs that other entities may seek to purchase as hedges.[8]

DMM supports developing a limited number of new CRR products to better align with changing congestion patterns

DMM proposes limiting the scope of the current CRR enhancements initiative to focus on eliminating ratepayer losses from the auction, while maintaining the ability for all participants to buy and sell CRRs. However, DMM also supports the development of a small number of new CRR products that better reflect the hours of changing congestion patterns. 

Some stakeholders noted that the traditional peak and off-peak hour CRR products currently available no longer reflect commonly observed congestion patterns for which hedges may be desired. For example, the proliferation of solar generation capacity in the southern portion of the California ISO balancing authority area has created regular south-to-north congestion during the mid-day hours, when solar production peaks. 

DMM acknowledges such shifts in congestion patterns and believes there would be value in defining new CRR products that align with these patterns. However, in an effort to contain the scope of this initiative, DMM encourages the ISO to focus only on a small number of new products designed to capture the most prevalent and significant congestion pattern changes.

As described above, under the willing seller auction design, the transmission model in the CRR allocation could be less restrictive and more allocated CRRs could be released. The magnitude of these benefits could be assessed by re-running the CRR model with less restrictive transmission limits. By assessing different scenarios, the ISO could better understand the degree to which transmission limits could be relaxed in the allocation process without creating concerns about too much overall revenue inadequacy. DMM recommends that the ISO seek to perform such analysis as part of this initiative.

The willing seller design provides the only viable framework for facilitating a market for CRRs to hedge congestion costs in the context of a Western regional day-ahead energy market

The ISO and some stakeholders contend that the ability for hedging of day-ahead congestion costs through CRRs are critical for efficient forward contracting of energy, open access to transmission, and development of new supply resources. However, neither the ISO’s extended day-ahead market (EDAM) design or the Markets+ design include any provisions for the sale of CRRs to facilitate hedging of regional day-ahead market congestion costs.

Given the significant losses to transmission ratepayers incurred under the ISO’s current CRR auction design, DMM understands why entities that own or control transmission rights would not want to adopt the ISO current auction design as part of a regional day-ahead market. However, this raises the question of why the current CRR auction is needed for the CAISO footprint, but not for a broader regional day-ahead market. 

The willing seller auction design provides a viable framework for facilitating the market for CRRs to hedge congestion costs in the context of a Western regional day-ahead energy market, without requiring that entities that own or control the transmission rights needed to form such a regional market to incur losses from the sale of CRRs by the ISO, backed by congestion revenues. Under the willing seller approach:

• A process can first be used to allocate CRRs to transmission owners and load serving entities that pay for the cost of transmission. 
• After this allocation process, the ISO could then operate a market in which all entities would be free to seek to buy or sell CRRs to other entities based on prices that reflect the actual expected day-ahead market congestion costs and the value that CRRs provide against the risk associated with these costs to different market participants. 

This approach ensures that congestion revenues are allocated to transmission owners and load serving entities that pay for the cost of transmission.  A market is then run based on sales of CRRs only by willing sellers who serve as the financial counterparty to these CRRs, so that these CRRs are not backed by congestion revenues from the day-ahead market.

[1]  Congestion Revenue Rights Enhancements, Working Group Meeting #2, California ISO, January 28, 2025:  https://stakeholdercenter.caiso.com/InitiativeDocuments/Presentation-Congestion-Revenue-Rights-Enhancements-Jan-28-2025.pdf

[2]  Willing seller market design for congestion revenue rights, October 23, 2024, Department of Market Monitoring: https://www.caiso.com/documents/willing-counterparty-whitepaper-oct-23-2024.pdf

[3]  Willing seller market design for congestion revenue rights, October 23, 2024, Department of Market Monitoring,   pp 11 and 14: https://www.caiso.com/documents/willing-counterparty-whitepaper-oct-23-2024.pdf

[4]  Comments on Congestion Revenue Rights Enhancements Scoping Discussion, Department of Market Monitoring, December 13, 2024: https://www.caiso.com/documents/dmm-comments-on-congestion-revenue-rights-enhancements-scoping-discussion-nov-14-2024-working-group-dec-13-2024.pdf

[5]  Ibid.

[6] Willing seller market design for congestion revenue rights, October 23, 2024, Department of Market Monitoring: https://www.caiso.com/documents/willing-counterparty-whitepaper-oct-23-2024.pdf

[7] Comments on Congestion Revenue Rights Enhancements Scoping Discussion, Department of Market Monitoring, December 13, 2024:  https://www.caiso.com/documents/dmm-comments-on-congestion-revenue-rights-enhancements-scoping-discussion-nov-14-2024-working-group-dec-13-2024.pdf

[8] Since 2019, entities cannot submit bids to “sell” hedges through counterflow CRRs directly from a load point to a generation node. This restriction would be eliminated under the willing seller approach.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

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. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

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. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

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. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

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 a summary of your organization’s general comments on the January 28th meeting.

Calpine appreciates the opportunity to provide comments on the Congestion Revenue Rights (CRR) auction framework. In general, Calpine strongly supports the detailed review of the drivers of revenue insufficiency prior to jumping into solutions.  However, we do have a couple preliminary thoughts. 

First, Calpine has consistently observed that transmission outages are being submitted shortly after the annual and monthly auctions clear. The tariff contains certain prohibitions on late-submitted outages, but has no direct consequence to the submitter and we have no evidence that the cost of these outages is evaluated prior to approval or that the prohibition is materially enforced. 

It is our suspicion that the outages reduce transfer capacity and play a significant role in CRR underfunding – which subsequently causes short-pays. Our anecdotal observation should be a focus of the more diligent analysis of revenue insufficiency.  If, as we suspect, late-submitted outages drive a significant portion of the underfunding, remedial (such as cost review) and consequential actions (such as changes to allocation) should be developed.  

Second, while not discussed in depth during the workshops, Calpine offers that expanding the frequency of CRR auctions to include additional monthly balance-of-planning-year (BOPY) auctions would strengthen market liquidity, improve risk management for participants, enhance hedging opportunities, and improve the accuracy of CRR auction models that could help increase CRR revenue adequacy.  Calpine offers the following in support of this consideration. 

Improving Liquidity and Risk Management

The existing annual auction structure limits participants’ ability to adjust for unforeseen changes in congestion pricing, transmission constraints, and shifting system conditions. Regularly scheduled BOPY auctions throughout the planning year would allow market participants to adjust positions based on evolving market conditions ensuring better protection against congestion cost volatility. This would not only increase liquidity in the CRR market but also enable a more efficient bilateral market by providing participants with additional opportunities to manage congestion exposure.

 More Accurate CRR Auction Models and Pricing

A more frequent auction schedule would better align CRR valuations with updated system conditions, including transmission outages and congestion forecasts. Today the CAISO offers 65% of network capacity in the annual auction and the residual is made available only in the subsequent monthly auctions.  With a more frequent BOPY auction framework CAISO could tailor the release of incremental capacity as system conditions are better known, thereby reducing CRR revenue inadequacy. Also, this would mitigate inefficiencies caused by outdated pricing assumptions, ensuring that auction results more accurately reflect congestion expectations. Additionally, reducing reliance on fixed CRR positions would minimize risk premiums that market participants must factor into their contracts.

Aligning CAISO’s Market with Industry Best Practices

Other Independent System Operators and Regional Transmission Organizations have successfully implemented BOPY auction frameworks that support more frequent adjustments to transmission hedges. Expanding CRR auctions at CAISO would help harmonize market structures across regions, promoting consistency and facilitating a more robust and competitive market. Enhanced auction frequency would allow CAISO to offer a more adaptable and responsive mechanism for congestion hedging, in line with industry best practices.

Conclusion

Expanding the CRR auction framework to include additional balance-of-planning-year auctions is a necessary step to create a liquid bilateral market and ensure that the market remains efficient, resilient, and responsive to real-world system dynamics. A more flexible auction process would improve risk management, enhance market efficiency, and provide market participants with better tools for hedging congestion risks, ultimately reducing unnecessary risk premiums.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

See above.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

See above.

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

See above.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

See above.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

The California Energy Storage Alliance (CESA) appreciates the opportunity to comment on the Congestion Revenue Rights (CRR) Enhancements working group meeting. 

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

The CRR overview provided by CAISO staff was very well done.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

No comment.

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

CESA supports Vistra's proposal to allow nodes of storage resouces to be eligible CRR sinks.  This will enable storage operators to hedge exposure to charging costs.  CAISO should identify and post the eligible storage nodes prior to the annual and monthly allocation/auction processes.  The eligible storage nodes could be used by load serving entities as a sink in the allocation and as a sink by all market participants in the auction. 

CESA also supports evaluating the feasibility of offering CRR products with different time periods than the current on-peak and off-peak products.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

No comment.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

DC Energy appreciates the CAISO holding a working group session providing market participants an opportunity to explain why they value and use CRRs. 

These comments seek to highlight several questions and suggestions raised during the meeting, rather than reiterate points raised by Vitol, Appian Way, Morgan Stanley, and Vistra in their presentations. 

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

DC Energy commends the CAISO for putting together a thorough presentation educating stakeholders on the ISO’s current CRR process from allocation through settlement.

DC Energy thinks that other stakeholders raised an interesting series of questions during the CAISO’s presentation regarding transmission outage reporting:

• How has scheduled outage reporting changed since the CAISO adopted its Track 1 changes establishing its current planned outage reporting requirements?
• How much CRR underfunding since the implementation of the Track 1 changes is attributable to unscheduled transmission outages? 

In order to answer these questions, the CAISO should update the analysis conducted in 2017 related to Participating Transmission Owners (PTO) outage requests.[1] This analysis showed that 57% of outages subject to the 30-day rule were not submitted to the CAISO in time, meaning that these outages were not included in the CRR model. Once identified, the CAISO should rerun auctions with these outages modeled in order to identify how much underfunding may be attributable to late and/or inaccurate outage reporting by Transmission Owners.

Furthermore, the working group should consider how the CAISO can incentivize transmission owners to report outages in a more accurate and timely manner, given the likely magnitude of underfunding due to late and/or  inaccurate outage scheduling. 

Similarly, the CAISO should provide accurate and timely information regarding scheduled outages that have been reported prior to each CRR auction.  It is the CAISO’s practice to not update 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”).[2]  This practice prevents CRR auction participants from bidding with the most accurate (and otherwise available) information regarding scheduled outages.

DC Energy understands that the CAISO currently has a rule requiring it to maintain the same CRR model for allocations and auctions, as explained during the CAISO’s presentation.  This rule, however, should not prevent the CAISO from providing accurate and up-to-date information regarding scheduled outages to CRR auction participants, so that they can more accurately and efficiently value expected congestion. 

[1] See, CRR Auction Analysis Report, CAISO presentation (Nov. 21, 2017), available at: https://www.caiso.com/Documents/CRRAuctionAnalysisReport.pdf

[2] 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 

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

DC Energy agrees with the points raised by Vitol, Appian Way, Morgan Stanley, and Vistra regarding the benefits and utility of CRRs to individual CRR holders and to the market as a whole.  DC Energy further agrees that nearly all of the enhancements suggested by these stakeholders should be explored and ultimately adopted by the CAISO as a result of this stakeholder initiative.

DC Energy, however, does not support Vistra’s suggestion that the CAISO set a minimum reservation price for CRRs.  The CAISO should not be offering its perspective on the expected value of future congestion; this is a function of the collective input of CRR auction participants.  Valuing future congestion takes considerable effort to do properly and entails a substantial amount of financial risk. For instance, an ISO cannot value future congestion based on a simple historical look back.[1]

More sophisticated and accurate future congestion valuation would be an inefficient use of scarce ISO resources, and inaccuracies on the part of the CAISO likely would lead to market inefficiency.  For example, if a CRR was indeed worth less than the CAISO’s reservation price, and CRR auction participants recognized this at the time of the auction, then the CRR capacity would be effectively held back from the auction, garnering no auction revenue when it may have been possible that a market participant was willing to pay for the capacity.  If, however, 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 understand how an auction with minimum reservation prices would account for the reality that there are CRR paths that should be priced negatively because they are net counterflow. 

[1] See GreenHat Energy, LLC, 177 FERC ¶ 61,073 at P 9-11 (2021) (where PJM calculated the 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).

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

Given the level of stakeholder interest and the importance of underfunding to the viability of the CRR product, the CAISO should devote working group time to reviewing how congestion revenue underfunding is allocated in the CAISO and how this differs from the various approaches in other ISOs, including ERCOT. This topic should be a focus of discussion at the March working group meeting dedicated to benchmarking the CAISO’s CRR process with those at other RTOs.  The working group should consider:

• How much underfunding have CRR holders experienced in other ISOs?
• How is congestion revenue underfunding allocated in each ISO?
  • Do CRR holders experience widely varying levels of underfunding based on the components of their CRR portfolios or are congestion revenue underfunding costs allocated more evenly among CRR holders?
  • Has underfunding turned an asset into a liability in other ISOs?
• How are congestion revenue underfunding and surplus congestion netted in each ISO?
  • Does netting occur across locations?
  • What are the relevant time periods over which netting may occur?
• How are surplus congestion revenues allocated in each ISO? When does this occur?

Measures to ensure more transparency regarding the root causes of congestion revenue underfunding also should be discussed at the February working group meeting.  Appian Way and others made insightful observations regarding congestion revenue underfunding at the most recent working group meeting, with the discussion highlighting that more transparency is needed in order to better understand congestion revenue underfunding in the CAISO.  The CAISO should provide sufficient transparency regarding day-ahead line ratings and identify 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.  In addition, more information should be provided regarding unsettled flows in the day-ahead market from sources, 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,[1]the CAISO also should provide similar data for loop flows, which are unsettled.

Several presenters at the most recent working group meeting briefly advocated for enhancements to the times of use (TOUs) available for CRRs, which would adjust the hours designated as peak and off-peak and/or add additional TOUs for CRRs.  The CAISO should dedicate time at the March working group meeting to comparing the TOUs available for CRRs in other markets, although DC Energy recognizes that the CAISO’s unique level of solar and storage resource market penetration may warrant unique, revised TOU definitions. 

Morgan Stanley highlighted the benefits of Balance of Planning Period (BoPP) auctions in its presentation at the most recent working group meeting.  The CAISO should dedicate time at the March working group meeting to discuss the experience in PJM and other ISOs that have adopted BoPP style auctions.

In addition, the CAISO should dedicate time to the outage reporting issues outlined above in response to Question 2.

Each of these lines of inquiry should lead to reforms that enhance the utility and reliability of CRRs for market participants, consistent with Federal Energy Regulatory Commission precedent, sound market design, and the practice in other US ISOs.  If the CAISO enhances the reliability and utility of the CRR product, auction prices and participation will increase, ultimately improving “auction efficiency” as previously defined by the CAISO.

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

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

EDF Renewables (EDFR), as a renewable Independent Power Producer (IPP), emphasizes the critical importance of CRR availability and liquidity for mitigating congestion risk and ensuring project viability.  We are particularly concerned by the apparent prevalence of grid outages and transmission facility deratings observed in day-ahead and real-time markets that may not be considered in CRR or planning models and urge the CAISO to conduct a thorough root-cause analysis to address this issue, which significantly impacts congestion and CRR effectiveness.  Furthermore, we believe enhancing CRR availability and liquidity through mechanisms like increasing offerings, streamlining allocation, and fostering participation is crucial for renewable development.  We also request clarification on various aspects of CAISO's CRR offerings, including allocation processes, pricing, market participation, and the impact of grid operations. Finally, we suggest future working group meetings focus on deviations observed between day-ahead or real-time models and CRR or planning models that could be attributed to grid outages and transmission deratings, which may help with CRR enhancement, valuation, understanding of renewable integration impacts, and data transparency.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

EDFR appreciates the opportunity to provide comments on the structure and function of the CAISO's CRR market. As a renewable IPP, success hinges on the efficient and transparent operation of CAISO’s market. Access to CRRs is crucial for mitigating congestion risk and ensuring the financial viability of our projects. We strongly support initiatives to improve the CRR market's efficiency, transparency, and accessibility.

We are particularly interested in the proposed enhancements related to CRR allocation and liquidity.  As renewable resources are often geographically constrained, access to CRRs is critical for managing congestion risk and ensuring predictable revenue streams. We encourage the CAISO to explore mechanisms that increase the availability of CRRs, especially for longer tenors that better align with the project lifecycles of renewable assets.  

We also believe that greater transparency in the CRR market is essential.  Access to timely and granular data on transmission system conditions, congestion patterns, and CRR prices is crucial for informed decision-making.  We encourage the CAISO to enhance data accessibility and provide user-friendly tools for market participants to analyze and interpret this information.  Improved forecasting of transmission capacity and congestion is also needed to ensure market participants can make informed decisions.

Lastly, we believe that the CAISO should prioritize a thorough analysis of the impact of increasing renewable energy penetration on the CRR market.  The unique characteristics of renewable resources, such as their intermittent nature and geographical distribution, can significantly influence congestion patterns and CRR values.  Understanding these impacts and adapting the CRR market design accordingly is crucial for the continued growth of clean energy resources in the CAISO market.  

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

EDFR requests clarifications and offers questions on the following regarding the structure and function of CAISO's CRR offerings:

• CRR Allocation Process: How are historical CRR auction clearing prices made available and what is the typical timeframe for publishing such data?
• CRR Types and Tenors: Are there any plans to offer longer-term CRRs to better align with the project lifecycles of renewable resources?
• CRR Market Participation: Are there any implied restrictions or limitations on participation by different types of market participants, including renewable IPPs? If applicable, how are these restrictions or limitations be addressed?
• Impact of Grid Operations: How do real-time grid operations including transmission outages, transmission derates, and transmission constraints impact CRR values and payouts? How does the CAISO ensure transparency in the management of congestion and its impact on CRR holders?
• Interaction with other Markets: How do CRRs interact with other energy markets, such as the day-ahead and real-time energy markets? How does the CAISO coordinate these markets to ensure efficient dispatch and minimize congestion? 
• CRR Auction Clearing Prices and Transparency: How is information about historical CRR auction clearing prices made available to market participants? In example, historical revenues on CRRs by path (source-sink pairs). We would like the CAISO to make available historical revenue data for CRRs, since historical congestion prices may not accurately represent revenues received from holding a CRR. Is there sufficient granularity and timeliness in the publication of this data to support informed bidding strategies?  What is the typical timeframe for publishing such data?
• Treatment of Planned Outages: How are planned transmission outages factored into CRR allocation and pricing?  Is there sufficient transparency and predictability in the process for communicating planned outages and their potential impact on CRR holders?
• Impact of Resource Adequacy Requirements: How do Resource Adequacy (RA) requirements interact with the CRR market?  Are there any potential conflicts or synergies between these two mechanisms?  How are CRRs treated in resource adequacy availability assessments?
• Long-Term CRR Products: What is the CAISO's vision for the development of longer-term CRR products?  What are the potential challenges and benefits of introducing such products, and what steps are being taken to address these challenges?  How would these longer-term products interact with existing CRR offerings?
• CRR Pricing and Valuation: What tools or resources are available to market participants for CRR valuation and risk assessment?
• Congestion Forecasting Methodology: What is the CAISO's methodology for forecasting congestion and how is this information used in CRR pricing? How are forecast errors handled and what are the implications for CRR holders?
• Marginal Cost of Congestion: How is the marginal cost of congestion calculated and used in the CRR market? Is this information readily available to market participants?

By addressing these questions, the CAISO can further enhance the transparency and efficiency of the CRR market, ensuring that it effectively serves the needs of all market participants, including renewable IPPs.

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

Based on the Vistra presentation, EDFR provides the following comments, along with three questions for further consideration:

• Refinements to CRR design to allow storage hedging: This includes addressing source-sink path limitations and peak product definition challenges for storage resources.
• CRR revenue sufficiency improvements: This includes protecting CRR holders from shortfall risks and improving requirements for transmission outage and transmission derate submission.
• CRR expansion to include balancing auctions: This would provide more opportunities for risk management and price discovery.
• Current CRR design limitations: These limitations harm storage resources and should be addressed.
• Inaccurate transmission limits used in the auction: This can lead to overselling of CRR rights and should be mitigated.
• CRR auction overselling rights at prices below CAISO's expectation for congestion: This can undermine the purpose of the CRR mechanism and should be addressed.

Questions:

• Would allowing for constraint surpluses to offset constraint deficits be appropriate?
• Are there areas of improvement that could be made to the simultaneous feasibility test?
• Is there a non-zero value for the reservation price used when the auction acts as the counterparty that could be explored to mitigate risks of the CRR auction overselling rights at prices below CAISO's expectation for congestion?

In summary, we support the proposed enhancements to the CRR design, revenue sufficiency improvements, and expansion to include balancing auctions. We oppose the current limitations in the CRR design, inaccurate transmission limits, and overselling of CRR rights at prices below CAISO's expectation. We also have some questions regarding specific aspects of the proposed changes.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

EDFR provides additional topics that could be helpful to devote time to in future working group meetings on the CAISO's CRR market:

• Root-Cause Analysis of Transmission Deratings: A dedicated session to discuss the findings of the root-cause analysis of transmission deratings and explore potential solutions.
  • We are particularly concerned about the apparent prevalence of materially derated transmission facilities during operations. This phenomenon appears to be contributing significantly to increased congestion in both the day-ahead and real-time markets. We strongly urge the CAISO to conduct a thorough root-cause analysis of these deratings. Understanding the underlying reasons – whether they stem from maintenance practices, forecasting inaccuracies, equipment limitations, or other factors – is essential for developing effective solutions. These solutions should aim to minimize deratings and improve the overall reliability and predictability of the transmission system, thereby enhancing the effectiveness of the CRR market. If the deratings are to persist, they should be included in the CRR models to avoid underfunding and they should also be properly reflected in CAISO and TO’s planning models and studies.
• CRR Market Liquidity: Explore mechanisms to enhance CRR market liquidity, such as increasing the number of CRRs offered, streamlining the allocation process, and fostering greater participation. This could include discussions on potential new CRR products, such as longer-term contracts or flow-based CRRs.
  • We believe that CRR availability and liquidity are paramount for renewable IPPs. Limited availability can restrict our ability to hedge against congestion, making project financing more challenging and potentially hindering the development of new renewable resources. Low liquidity can exacerbate price volatility and create uncertainty in the market. We encourage the CAISO to explore mechanisms to enhance CRR availability and liquidity, such as increasing the number of CRRs offered, streamlining the allocation process, and fostering greater participation in the market. 
• Enhancing CRR Availability and Liquidity: A workshop to brainstorm and evaluate mechanisms for increasing CRR availability and liquidity.
• CRR Valuation and Risk Management: A training session or workshop on CRR valuation methodologies and risk management strategies.
• Impact of Renewable Energy Integration: Conduct a more in-depth analysis of the impact of increasing renewable energy penetration on congestion patterns and CRR values. This could include discussions on the potential need for adjustments to the CRR market design to accommodate the unique characteristics of renewable resources.
• Coordination with Other Markets: Explore opportunities for greater coordination between the CAISO's CRR market and other energy markets, such as the day-ahead and real-time energy markets. This could include discussions on potential interregional CRR products or mechanisms to better align CRR pricing with other market signals.
• Transparency and Data Availability: A review of data availability and transparency in the CRR market, including access to historical data, real-time market information, and transmission system status updates. This would include a discussion of the accessibility and usability of the data.
• Benchmarking to Other CRR Programs: Based on EDFR’s experience with other CRR markets, we recommend CAISO to review ERCOT's CRR design which provides options opportunities to hedge at a higher cost for a set direction/path vs obligation - bringing the exposure to real time LMP. ERCOT’s auction structure is 3 years out.

By addressing these topics in future working group meetings, the CAISO can continue to improve the efficiency, transparency, and fairness of the CRR market, which is crucial for supporting the continued growth of renewables in California. We appreciate the CAISO's commitment to stakeholder engagement and look forward to participating in future discussions.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

ETI advocates for open, transparent, competitive and fair electricity and related markets that result in consumer savings. Our members participate in the CAISO market and related bilateral markets in the west by serving load, wheeling power, helping to manage counterparty risk through trading, and by directly participating in the CAISO CRR and energy markets.

ETI would like to take this opportunity to strongly support the presentations provided by Vistra, Morgan Stanley, Vitol and Appian Way that highlighted the critical need for the existence of Congestion Revenue Rights (“CRRs”) as an important part of CAISO’s locational marginal pricing (“LMP”) market design.  These presentations reiterated ETI’s earlier comments on the need for a liquid CRR market as a fundamental tool to hedge and in turn decrease the costs necessary to facilitate the ongoing energy transition. Every market operator is currently having discussions around resource adequacy and the need for significant investment in our energy grid over the next decade. A forward curve is key to driving investment and allowing commercial participants to hedge their congestion exposure. ETI appreciates CAISO’s efforts in this stakeholder proceeding to address significant and persistent underfunding, which has become detrimental to the use of CRRs as a hedging tool, and we look forward to CAISO’s analysis at the upcoming meeting on February 27, 2025.

It has been clear from the comments and discussion during the initial two stakeholder sessions that many market participants (not just ETI members) in CAISO’s competitive market rely on CRRs as a tool to manage congestion risk and that flaws in the CRR market are inhibiting the market from working as intended. For instance, WPTF’s comments represent a significant consensus of many, many competitive market participants in CAISO for whom CRRs are necessary and who believe that the CRR market design is in need of improvement. This CRR stakeholder process should focus on making the CRR product more useful to market participants whereby CRRs can better serve their intended purpose. In particular, this means 1) improving the financial integrity of the CRR product and 2) making the product more flexible to meet the congestion hedging needs of CAISO participants. The stakeholder process should not entertain proposals to eliminate auctioned CRRs, as such proposals are inconsistent with the well-established and FERC-ratified role of the ISO to facilitate a market for congestion hedging.

Attached please find a presentation covering recent FERC precedent, recent independent analysis conducted in various other markets discussing the benefits of the CRR products as well data highlighting the extent of the underfunding issues in the CAISO market. 

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

Thank you for providing Morgan Stanley the opportunity to provide comments with respect to the ongoing CRR enhancement initiative process.

Morgan Stanley is an active participant across the North American ISOs and RTOs, providing liquidity to both load and gen. As it relates to FTRs and CRRs, we are active in CAISO, most of the Eastern Interconnect and ERCOT. This experience informs our perspective in dealing with all customer types and participating in congestion markets with a variety of constructs.

Based on our market experience, we share in the view of other stakeholders that the market would benefit from the continuation of the existing CRR market in CAISO with some necessary enhancements. Moving away from a CRR market entirely to a bilateral transmission rights trading market could have an adverse effect on liquidity due to a lack of willing sellers at the thousands of source/sink combinations that exist within CAISO. Adequate price formation requires the direct involvement of CAISO administering the CRR auctions. This is particularly critical for some of the less liquid paths. This would be in addition to the supplementary impacts which may not be fully appreciated. We caution against making broad expansive market changes where smaller, surgical fixes may be more appropriate.

Consider the PJM market’s introduction of balance-of-period auctions in addition to the monthly and annual auctions. This helps market participants better mark-to-market their positions. Stronger data quality enables market participants to be more confident with their MTM valuations. Additionally, PJM introduced more granular products to reflect the current needs of market participants.  For example, the off peak hours were split into 2x16 and 7x8 components. Similarly, in CAISO there could be a split between the solar and non-solar hour products with the introduction of an AAH (Availability Assessment Hours) product to increase participation from participants selling import RA.

To reduce underfunding, CAISO could consider financially incentivizing transmission owners to supply accurate outage forecasts as far out as possible as done within the PJM structure.  Currently, this incentive doesn’t exist, and consequently, poor transmission outage forecasts may be contributing to underfunding. Better data will enable market participants to have more accurate forecasts over time, and more conservative assumptions should be used around transmission line capacity.  And, similar to what is done within PJM, any entitlement excess in the balance of period time frame should be used to make whole the previous months in which a short fall occurred. Further, within the PJM model, any excess Transmission Congestion Charges are socialized amongst participants accounts, in part, based on the relevant participant’s net underfunded balance. This specific mechanism is designed to ensure net-credit participants are the first recipients of any excess funding.

Focusing only on the auction efficiency may lead to errant conclusions as to the cause of, or the solution to, the apparent funding problem. Any major changes impacting liquidity may not be fully understood for years to come as generators slowly begin seeing lower offtake prices or loads face higher supply costs and as the market begins factoring the cost of congestion volatility into their pricing. It will take years for these costs to slowly gross up the cost to ratepayers, assuming the relevant PPAs even get executed at all.

Lastly, thank you again for the opportunity to participate in this discussion. Morgan Stanley values well-structured, risk management tools in operating its power-marketing business across North America and considers the CRR product as such a tool.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

We appreciate the CAISO for its continued efforts in this stakeholder initiative and look forward to participating in future meetings and forums. Our main comment would be to object to the DMM proposal of the "willing seller model". We support adopting the super-peak hours as initially proposed by DWR; adopting elements to minimize under-collection (as presented by Appian Way); proper valuation through enhanced transparency (as presented by Vistra); putting in place and enforcing accurate and timely forecasts by the transmission owners; and adopting, after careful examination, of the proposals put forth by Morgan Stanley as their lessons learned from other jurisdictions. 

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

Can the CAISO present their interpretation of the CRR funding under-collection, mainly detailing the causes and what the CAISO might propose doing about it?  

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

San Diego Gas and Electric (SDG&E) appreciates the opportunity to comment on the Congestion Revenue Rights (CRR) Enhancements Working Group Session 2 discussion. SDG&E agrees with CAISO that taking a more measured approach to changes on the CRR model, including the auction design, is an appropriate path forward and supports the schedule as presented during the January 28 meeting. Further, SDG&E is encouraged by CAISO’s focus on education, analysis, and benchmarking, as these steps will be critical to implementing durable reforms that improve outcomes for ratepayers that are currently shouldering the cost of systematic losses. SDG&E’s subsequent comments outline areas for further examination in the upcoming root cause analysis

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

SDG&E appreciates the background on the CRR modeling practices, including outages, as it helped create an understanding of policy decisions the CAISO has made in the past to better align the CRR paths with the path of energy flow through the CRR Track 1B changes. SDG&E also found the discussion around the potential shortfall contribution from outage reporting and the resulting inefficiencies in the CRR markets useful, as it might be a good place for CAISO to focus its attention on when the root cause analysis is discussed further.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

SDG&E believes it is worth considering whether battery energy storage load could be considered eligible sinks in the CRR allocation process. While SDG&E does not take a position on this issue at this time, further discussion on the benefits and risks of extending eligibility to these resources is warranted.

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

While SDG&E does not have any direct response to the stakeholder presentations, it would be helpful to have further analysis to give context to the stakeholder perspectives presented in the January 28 working group. To that point, the following information could be used to better inform changes to the auction design, especially considering DMM’s Willing Seller proposal. 

• Performance of market participants in the CRR markets by category (i.e., Load Serving Entities, Financial Entities, etc...), particularly in the auction market.
• The extent to which auction CRR participants buy or sell energy in the CAISO markets that potentially could be hedged via auction CRRs, including the relative volume of physical transactions vs. the volume of auction CRRs held.
• Assessment of impacts of the Willing Seller proposal on liquidity in the CRR market.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

As for the next steps, SDG&E mirrors the request from other commenters that for the upcoming root cause analysis discussion, any analysis that will be used be posted at least one week in advance of the meeting. Allowing this time to prepare will enable the working group members to meaningfully engage with the data presented in the root cause analysis, rather than reacting in-situ.

SDG&E thanks CAISO for the opportunity to comment and looks forward to continuing its participation in this initiative.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

Six Cities Summary:  To facilitate further analysis of the currently effective CRR design, the Six Cities request that the CAISO respond to specific questions regarding the performance of the different types of CRRs and use of CRRs by different types of market participants.

Regarding the presentations in the afternoon of the January 28, 2025 working group meeting, the presentations that sought to support preservation of the existing CRR auction design (Vitol, Appian Way, and Morgan Stanley) failed to justify retention of the current, one-sided auction design that forces CAISO load to effectively sell rights to congestion revenues at auction prices systematically less than the congestion revenues paid out to purchasers of the auctioned CRRs.  Characterizing CRRs as the financial equivalent of firm transmission rights does not provide any justification for requiring CAISO load to underwrite payouts to auctioned CRRs that far exceed the prices paid by the holders of such CRRs.  FERC policy does not require native load customers to provide firm transmission rights to other entities for free or at subsidized prices.  Contentions that participation by financial entities in the CRR auctions provides benefits in terms of increased liquidity and competition are theoretical and unsupported by any quantitative comparison of such hypothetical or assumed benefits with the substantial shifts of congestion revenues in excess of auction proceeds from load to the holders of auctioned CRRs.  Assertions that auction prices provide valuable price discovery are particularly nonsensical, because auction prices in the CAISO CRR market have systematically underpredicted congestion on paths covered by auctioned CRRs, having the perverse effect of encouraging resource developers to locate new resources in areas likely to experience higher congestion than the levels suggested by the auction prices.

Regarding the presentation by Morgan Stanley, the Six Cities do not support use of surplus congestion revenues in some periods to offset underfunding of CRRs in other periods.  Rather, it is more appropriate to return surplus congestion revenues to load, consistent with the current practice.

Regarding the presentation by Vistra, the Six Cities support further exploration and evaluation of suggestions for changes to the CRR design to enable storage resources to hedge physical deliveries of charging energy or discharging energy from or to source-sink pairs, provided that eligible sources should not include a generator co-located with the battery storage facility.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

Six Cities Response:  The Six Cities appreciated the CAISO’s thorough and detailed description of the currently effective CRR market design and have no comments on that presentation at this time.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

Six Cities Response:  The Six Cities request that the CAISO provide data and analyses to address the following questions:

1.  Are there significant differences in revenue insufficiency for annual CRRs versus monthly CRRs?
2.  Are there significant differences in revenue insufficiency for allocated CRRs versus auctioned CRRs?
3.  What percentage of auctioned CRRs are used to hedge physical deliveries of energy?
4.  How many holders of auctioned CRRs hold both prevailing flow CRRs and off-setting counterflow CRRs for the same source-sink   pairs?
5.  Are LSEs permitted to request off-setting pairs of CRRs (i.e., prevailing flow and counterflow) for the same source-sink pair?
6.  What is the volume of allocated CRRs that constitute offsetting flows for the same source-sink pair?

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

Six Cities Comments: 

Re Auction Design - - The presentations that sought to support preservation of the existing CRR auction design (Vitol, Appian Way, and Morgan Stanley) failed to justify retention of the current, one-sided auction design that forces CAISO load to effectively sell rights to congestion revenues at auction prices systematically less than the congestion revenues paid out to purchasers of the auctioned CRRs.  There is an inherent and inescapable bias in an auction that compels sellers to participate as price takers while allowing buyers the option to buy at prices they consider acceptable.  Entities seeking to buy CRRs may face price competition from other prospective buyers, but they have the ability to limit their maximum bid price to a level that reflects their own assessment of the potential risks and rewards of holding a CRR.  CAISO LSEs, as sellers, have no ability to weigh whether or not the maximum offered auction price provides reasonable value for the rights they are compelled to transfer to the buyers.  It is not surprising that buyers of auctioned CRRs systematically underpay for the rights they acquire when the sellers are forced to sell, but it is unjust and unreasonable.

Characterizing CRRs as the financial equivalent of firm transmission rights does not provide any justification for requiring CAISO load to underwrite payouts to auctioned CRRs that far exceed the prices paid by the holders of such CRRs.  FERC policy does not require native load customers to provide firm transmission rights to other entities for free or at subsidized prices.  To the contrary, in the context of firm transmission rights purchased under Open Access Transmission Tariffs, purchasers of such rights generally are expected to pay a fully allocated share of the transmission facilities used to provide the service, or the incremental costs of facilities developed to provide the service, if greater.  The LSE holders of allocated CRRs under the current structure of the CAISO CRR market are paying the fully allocated costs of the CAISO transmission system.  There is no justification for requiring them to surrender the financial equivalent of firm transmission rights to others at prices substantially less than they are paying, through their on-going support of the entire transmission grid, to secure the same type of rights.

Contentions that participation by financial entities in the CRR auctions provides benefits in terms of increased liquidity and competition are theoretical and unsupported by any quantitative comparison of such hypothetical or assumed benefits with the very real and substantial shifts of congestion revenues in excess of auction proceeds from load to the holders of auctioned CRRs.  Assertions that auction prices provide valuable price discovery are particularly nonsensical.  Auction prices in the CAISO CRR market have systematically underpredicted congestion on paths covered by auctioned CRRs.  Such persistent undervaluing would have the perverse effect of encouraging resource developers to locate new resources in areas likely to experience higher congestion than the levels suggested by the auction prices.  The auction prices effectively create price disinformation, rather than price discovery.

For the foregoing reasons, the Six Cities continue to support prompt development and implementation of a willing seller/willing buyer framework for CRR auctions, as the Department of Market Monitoring has recommended for many years.

Re Suggestion to Offset Underfunding of CRRs for Source-Sink Pairs with Surplus Revenues from Other Periods (Presentation by Morgan Stanley) - - The Six Cities do not support use of surplus congestion revenues in some periods to offset underfunding of CRRs in other periods.  Rather, it is more appropriate to return surplus congestion revenues to load, consistent with the current practice.

Re Suggestions for Design Changes to Enable Hedging by Storage Resources (Presentation by Vistra) - - The Six Cities support further exploration and evaluation of suggestions described in the presentation by Vistra for changes to the CRR design to enable storage resources to hedge physical deliveries of charging energy or discharging energy from or to source-sink pairs, provided that, as clarified by the Vistra presenter, eligible sources would not include a generator co-located with the battery storage facility.

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

Six Cities Response:  The Six Cities request that future working group meetings include presentations on responses to the questions and information requests enumerated in response to Question 3 above.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

SCE commends CAISO for hosting an insightful meeting that offered stakeholders a comprehensive overview of the CRR structure and function. The session was informative and laid a solid foundation for stakeholders to deepen their understanding of the CAISO CRR market. 

As stated in SCE’s previous comments, the two main areas of concern that SCE believes CAISO should further analyze are revenue inadequacy and auction inefficiency.¹   SCE requests that CAISO conduct more extensive analysis on these issues prior to moving forward with other aspects of this initiative, even if it requires dedicating multiple meetings solely for analysis. 

Specifically, SCE requests that CAISO examine the modeling of CRRs. In SCE’s previous comments, it was noted that there are frequent discrepancies between the CRR market data used for modeling and the Day-Ahead Market (DAM).²  However, discussion at the workshop highlighted additional potential drivers for CRR Revenue Insufficiencies.  CAISO should analyze the relative contribution of the various potential drivers of CRR Revenue Insufficiency.  Areas to examine include: 

• Full Network Model (FNM) inconsistencies 

• FNM used for CRR market is inconsistent with that used for DAM. 

• What type of modeling errors does using different current models introduce (AC versus DC) and what’s the reason for using two types? 

• Transmission outage inconsistencies 

• FNM transmission line outages not reflected in the DAM. 

• Enforced constraint and nomogram inconsistencies between the CRR market and DAM.   

• Enforce contingency inconsistencies between the CRR market and DAM 

• Differences in the load distribution in LAPs or generation distribution in gen hubs 

SCE recommends that CAISO take a methodical approach in its analysis to find the problem areas.  This involves analyzing each area individually, comparing the data used for modeling against actuals. By examining each area separately, CAISO can determine which area has the greatest impact on revenue insufficiency and focus further on that specific area. 

Following this analysis, options to reduce revenue insufficiency should be explored, including existing rules limiting CRRs and the Global Derate Factor, or considering reducing the number of CRRs allocated or auctioned. 

The results should then be used to address CRR Auction Revenue Shortages. Reducing CRR Revenue Insufficiency should increase CRR value and mitigate auction shortages. Examination of the CRR Auction should include: 

• The Simultaneous Feasibility Test and how CRRs are valued  

• The impacts of the TOU periods on the CRR Auction values 

• The impact of only having demand price bids, and generally not having supply price bids 

If analysis proves to be too difficult to determine the root cause, SCE believes it is time to explore a re-design of the current CRR market which should ensure load receives appropriate CRR value. This may include re-designing the existing CRR Auction process to reduce shortfalls. The DMM Financial CRR market proposal should be considered and also SCE’s re-design idea under question 5.

¹ Southern California Edison Comments on Congestion Revenue Rights Enhancements:  Working Group Session 1 - Scoping Discussion, November 14, 2024 under question 2.  Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/83ff416f-27ce-445a-9560-a0ba23805201#org-95463c27-e68c-452f-b802-0118b7ed9d7f

² Southern California Edison Comments on Congestion Revenue Rights Enhancements:  Working Group Session 1 - Scoping Discussion, November 14, 2024 at “SCE: Observed CRR Market Data Discrepancies” under question 5.  Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/83ff416f-27ce-445a-9560-a0ba23805201#org-95463c27-e68c-452f-b802-0118b7ed9d7f 

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

No further comment 

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

No further comment 

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

No further comment 

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

SCE continues to support exploring the TOU proposal 

It appears SCE, among many other stakeholders, is very interested in exploring CDWRs proposal of splitting CRR into time-of-use (TOU) buckets.  SCE is unsure how many different TOU buckets are needed and believes this is an area that should be explored.   

SCE believes a CRR re-design may be needed 

Another option that SCE believes should be explored is a complete re-design of the CRR market. 

The inefficiencies in the current CRR market reveal that current and past design has led to significant financial shortfalls for CRR holders and load.  It is obvious that the current allocation process does not align with the actual grid conditions, leading to insufficient funds to cover all obligations. This discrepancy has resulted in hundreds of millions of dollars in losses to ratepayers and is currently devaluing the price of CRRs as a tool to hedge.   

For the CRR re-design, 100% of all CRRs value could be allocated directly to LSEs, rather than auctioning unallocated CRRs in the auction process.  This will ensure that congestion rents are returned to entities that fund the transmission system.  SCE acknowledges that some LSEs may be reluctant to take on the additional risks of holding CRRs, but to mitigate this, SCE suggests an allocation process where all the remaining dollars collected through congestion rent that is unclaimed through a CRR, be distributed back to load on a pro-rata basis.  Thus, the LSE allocation process would continue, but the net revenue from unallocated CRRs would fully return to LSE. This would ensure that 100% of the congestion revenue benefits load. 

Under this approach, no unallocated CRRs are available for the auction.  Rather, the auction will only clear CRRs between willing counterparties.  SCE is aware that there might be liquidity concerns with this current approach.  LSEs are more risk-adverse and are reluctant to nominate additional CRRs because the modeling of these CRRs can be hard to forecast.  SCE is addressing these concerns by advocating for reducing the number of trading points in the CRR auction to concentrate on liquidity.  For the auction, SCE suggests breaking the grid into fewer, more significant trading hubs, such as major load aggregation points, and generation hubs (possibly based on the existing Local Capacity Requirement areas), enhancing market efficiency and liquidity.    

SCE understands that this idea might not allow for perfect hedges, but still would allow for significant hedging between fewer, and hopefully liquid, trading hubs.  It also would require minimal changes to existing systems.  This approach should be explored as well as the DMM approach.

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

We appreciate the opportunity to provide feedback to the CAISO. In general, we believe the working group sessions have been productive and helped shed light on opportunities to improve the CRR product.  We support efforts to reduce CRR revenue inadequacy (“shortfall”) and expand the CRR auction structure.  We do not support proposals that seek to replace the auctions with a bi-lateral swap market, as proposed by the Department of Market Monitoring. In our comments below we advocate for structural improvements and ways to lower CRR revenue inadequacy through improvements to the allocation design and auction models. 

1. Structural improvements

• Vitol supports a review of the balance-of-planning period auction (BoPP) style auction structures operating today in MISO and PJM. Under a BoPP auction design each monthly auction offers all tenors remaining in the planning period.  More frequent opportunities to acquire and reconfigure CRR positions would allow market participants to better manage risk as market conditions change.  Today, after the annual auctions market participants may have to wait over 10 months to acquire or adjust existing positions.  Moreover, BoPP-style auctions enable improvements to CRR revenue inadequacy.  Under a balancing auction framework, auction capacity is released on a graduated scale at more frequent intervals.  This flexibility can help reduce CRR revenue inadequacy because capacity can be released as auction inputs become more certain.  We understand this could be achieved by lowering the capacity offered in the annual auctions, however that would defer the opportunity to acquire additional hedges or sell existing positions to the prompt month.  BoPP-style auctions can better manage this tradeoff because capacity releases can be tailored to balance the two objectives (i.e., providing hedging opportunities further out and alleviating revenue inadequacy).

Vitol  believes the Department of Market Monitoring’s (DMM) willing seller proposal is not an adequate substitute for the CRR auctions.  The flow-based clearing of CRRs in a network model that utilized the congestion funding of market transactions fosters liquidity and price discovery.  This in turn facilitates forward market transactions traded on exchanges external to CAISO.[1] The lower transaction costs and hedging benefits associated with a liquid forward market produces benefits to load.  In a study sponsored by PJM RTO and conducted by London Economic International it was determined that FTR auctions in the PJM region produce savings to load that exceed the missing congestion rent value allocated to load by up to 400%. [2]  It is uncertain that the DMM’s proposal would achieve the same level of liquidity, however it is certain it would disrupt the current market for hedging. Moreover, while the DMM’s proposal would return all congestion rents to load, it does not satisfy the other purpose of financial transmission rights (FTRs) as prescribed by FERC. That is, “to serve as the financial equivalent of firm transmission service and play a key role in ensuring open access to firm transmission service by providing a congestion-hedging function”. [3]

2. Enhancements to reduce CRR Revenue Inadequacy
   • Vitol supports the need to lower CRR revenue inadequacy (“shortfall”).  In general, there are two approaches to lowering shortfall.  One would be to revise the allocation of CRR shortfall and the other is to improve the CRR auction models with an eye toward lowering the overselling CRRs. Our November 14^th comments[4] go into detail about how to improve the allocation so we won’t repeat those here.  With regards to improving the auctions, Vitol believes there needs to be a review of outage schedule practices.  The concern is planned transmission outages submitted after the CRR auction model build process is leading to overselling of CRRs.  CAISO highlighted this issue in its CRR Market Analysis Report published May 12, 2020 under section 8.3 Drivers of CRR deficits. Vitol believes the analysis needs to be updated with specific focus on adherence to transmission outage submission rules.[5]  Also, the analysis should include an assessment of the impact of retaining the shift factor threshold of 2% for resource nodes in the Integrated Forward Market, which is a known driver of CRR shortfall.

[1] See Nodal Exchange Comments submitted to CAISO: https://stakeholdercenter.caiso.com/Common/DownloadFile/3767cf70-48e8-4fe3-85d3-673382088af5

[2] London Economics International LLC PJM ARR/FTR Review at P.17

[3] PJM Interconnection, L.L.C. Docket No.ER22-797-000 Order Accepting Proposed Revisions at 44: “Turning to the IMM’s argument that PJM’s proposal is unjust and unreasonable because the revisions do not return “sufficient” congestion revenue to load, we reject the IMM’s foundational argument that the sole purpose of FTRs is to return congestion revenue to load and the market should therefore be redesigned to accomplish that purpose.   PJM’s proposal returns more congestion revenue to load without significantly contributing to an overallocation of ARRs in Stage 1A.  PJM’s proposal is not rendered unjust and unreasonable simply because the IMM thinks a further allocation to load would be desirable.   Consistent with Commission precedent, we reiterate that “[t]he purpose of FTRs to serve as a congestion hedge has been well established.”   FTRs were designed to serve as the financial equivalent of firm transmission service and play a key role in ensuring open access to firm transmission service by providing a congestion-hedging function.”

[4]Vitol comments :  https://stakeholdercenter.caiso.com/Comments/AllComments/83ff416f-27ce-445a-9560-a0ba23805201#org-0c0cbc4a-e25a-4c6f-9bb7-bb49b715c7cd

[5] 30-day rule in CAISO Tariff section 36.4.3

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

Vitol was impressed with the focus on the use of CRRs to hedge nodal risk.  In a LMP market it is of prime importance that supply resources and marketers have the opportunity to hedge their nodal settlement risk.   We are also interested in exploring ways to evolve the CRR product to make it more useable for storage resources.  We support a review of adding a new CRR time-of-use that supports storage resource participation and also relaxing the CRR path restrictions to reflect the fact that energy storage resource can source and sink at their node. 

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

1. Please provide a summary of your organization’s general comments on the January 28th meeting.

WPTF appreciates the opportunity to provide these comments on the CRR Enhancements Jan 28 working group discussion. WPTF strongly believes that CRRs, and specifically the existence of a CRR auction, provides a fundamental role in a nodal energy market. All market participants representing load and supply need to have the ability to access a congestion cost hedging mechanism, and it is the CAISO’s CRR auction that provides this function. Having the ability for all participants to hedge congestion risk exposure allows more efficient procurement and contracting to take place, ultimately leading to a more efficient and cost-effective resource mix made available to serve load, which load then ultimately benefits from.

WPTF also believes it is vitally important to recognize that the existence of a CRR auction and benefits it provides extend beyond the CAISO market. WPTF has many members that use the CRR auction in their commercial operations and risk management functions through hedging. The auction also provides price discovery that helps improve the liquidity and transactions in other related exchange markets. If we as a stakeholder community opt to throw out the auction we will be removing a fundamental market element not only of the CAISO market but the overall bilateral energy market, creating significant inefficiencies and increased cost.  

To that end, WPTF strongly supports the CAISO considering improvements to the current CRR market to increase both the financial integrity and flexibility of the product as a hedging mechanism. When listening to all the other stakeholders during these discussions, there seems to be a general consensus that stakeholders want to improve the product we have today to make it a more effective hedging mechanism, rather than replace the auction with a market between willing buyers and sellers as suggested by the Department of Market Monitoring. Most stakeholders recognize the important role a CRR auction provides for the market and improving elements like aligning the product with operational hedging need and how the underfunding is allocated will likely go a long way in strengthening the ability for participants to effectively use CRRs as a hedging mechanism, which in turn will significantly benefit ratepayers.

2. Please provide your organization’s comments on the morning presentation on the structure and function of CAISO’s CRR market.

We appreciate CAISO's thorough discussion of the current CRR market, including the detailed analysis of the Simultaneous Feasibility Test (SFT). For WPTF, the discussion emphasized that CAISO must make several assumptions and simplifications when developing the CRR model. These assumptions introduce known discrepancies between the CRR and IFM models, which may contribute to underfunding—rather than being a result of transmission outages and derates that were not anticipated in advance.

WPTF noted in our December comments the importance of CAISO analysis to understand the drivers of CRR underfunding and specifically to “(4) identify gaps between CRR and IFM transmission topology and whether these can be closed.” For example, Appian Way’s presentation pointed out that CRRs sinking at LAPs and DLAPs may contribute significantly to these gaps between CRR and IFM transmission topology and begs the question as to whether the reduction in nodes from Track 1A reforms has exacerbated the modelling gap and increased revenue inadequacy. Further analysis on this by CAISO would be warranted.  

Lastly, during the stakeholder meeting, it was noted that while there is a requirement to report known outages to CAISO in time for them to be reflected in the CRR model, some outages are reported shortly after the annual CRR allocation and auction process is completed. WPTF believes it would be valuable to evaluate the effectiveness of the reporting requirement and explore ways to improve the timeliness of outage reporting.

3. Does your organization have any further questions about the structure and function of CAISO’s CRR offerings?

4. Please provide your organization’s comments on the stakeholder presentations from Vitol, Inc.; Appian Way Energy Partners; Morgan Stanley; and Vistra, Inc.

We truly appreciate the presentations made by stakeholders and the time and thought that went into each one. A common theme emerged from all the presenters, which WPTF fully supports: the recognition of the vital role CRRs play in the CAISO market, and the desire to improve CRRs as an effective hedging mechanism for all participants—rather than discarding the current system and replacing it with a market between willing buyers and sellers.

There appears to be considerable FERC precedent supporting the role CRRs play in a nodal energy market and the need for all participants to have equitable and competitive access to CRRs. If the CRR auction were replaced by a simple willing buyer-willing seller market, it would not only limit access but also create uncompetitive and illiquid conditions. Such a system would fail from the outset. WPTF strongly believes that under this construct, the negative impact on the overall energy market would far outweigh any perceived loss to ratepayers, as reflected in CAISO’s “auction efficiency” metric. The absence of a CRR auction would lead to significantly higher costs throughout the forward energy markets, which would ultimately be passed on to ratepayers through increased contracting and procurement costs.

We agree with the presenter’s perspective that the “auction efficiency” metric is a misnomer and not an appropriate gauge in this context. The CAISO calculates this metric as the ratio of the CRR auction price to the day-ahead (DA) value of the CRR. However, what this metric really reflects is how the CRR market price spread differentials compare to the actual price differentials resulting from the realization of the volatile and unpredictable spot market via the IFM. The metric does not represent how efficient the market actually is.

It’s reasonable to assume that both CAISO and stakeholders agree that perfectly predicting the DA market is impossible for multiple reasons, therefore, we should not expect the efficiency metric to be 100%. First, the CRR market is run up to a year in advance of DA market trade dates (i.e., annual auction takes place in Nov for CRRs valid the following Oct – Dec), so the inherent time gap creates differences between the two. There was discussion during the meeting regarding seasonal allocation and auction processes that take place 3 to 6 months in advance that would be worth further exploration. CAISO staff also pointed out several modeling differences between the CRR and IFM models, which are necessary for computational purposes. Second, forward prices always reflect an expected value of a wide range of possible spot pricing outcomes, not a deterministic view of what prices will actually be. The forward (CRR) prices will generally not incorporate extreme or very unpredictable events in their pricing. Third, the 2019 changes introduced additional risk for holding CRRs, particularly regarding underfunding allocation. The data so far shows that a significant number of constraints experience substantial underfunding, making holding those CRRs risky. Participants will reflect this risk in their offers by lowering their offer prices, which will also contribute to a lower auction efficiency metric. Finally, as discussed in more detail below, the product definitions no longer align with operational needs for hedging. Participants who only need to hedge a subset of the 16-hour on-peak CRR block will value these CRRs less than those who need to hedge the full 16 hours. As our resource mix has evolved to include more renewables and storage, our load shape has also evolved, and operational needs no longer align with the same 16-hour block CRR product.

In other words, there are several reasons to expect that the auction efficiency metric, as currently calculated by CAISO, will be less than 100%. Part of the difference is due to the inherent difficulty in perfectly predicting the spot market, part is due to necessary modeling assumptions in the CRR model, and part is due to participants adjusting their offers to reflect risk and product valuation. WPTF strongly believes that CAISO and stakeholders should focus on improving the current CRR market by (1) reducing the risk of holding CRRs through a better underfunding allocation approach, (2) improving product definitions to better align with operational needs, and (3) providing stronger incentives for transmission owners to report outages in a timely manner.

It is also crucial to remember that the CRR auction serves not only as a tool for acquiring hedging instruments but also provides critical information for various bilateral market functions. If the CRR auction were eliminated, there would be ripple effects in the bilateral market, creating significant inefficiencies there as well. The CRR auction plays a vital role beyond the CAISO market, as highlighted by comments from stakeholders, specifically Nodal Exchange. Nodal Exchange has unique insight into this matter, having practical experience with a willing buyer-willing seller design. In their previous comments, they emphasized that the “physical network model currently in place for clearing CRR auctions is uniquely capable of creating liquidity,” which, when applied effectively, enhances liquidity in exchange markets. CRR auctions run by CAISO and other ISOs/RTOs generate liquidity by allowing grid capacity to determine feasibility, rather than requiring exact matches between buyers and sellers. A willing buyer and seller market would “limit liquidity rather than encourag[e] a healthy market.”

5. Based on this meeting, does your organization have any new feedback on topics that would be helpful to devote time to in future working group meetings?

Bigger Picture of CRR Auction's Role in Energy Markets

We appreciated the way Appian Way presented the auction efficiency "loss" as a small sliver in a larger pie of dollars to really put it in perspective. That pie is even larger when you take a step back and consider the broader impact of the ability for all entities to effectively hedge, further supporting the point Appian Way was making and the auction efficiency “loss” becomes even a smaller sliver. Without the ability to hedge, resource owners will pass on the congestion cost exposure risk through higher priced contracts, and the procurement and contracting costs LSEs face will increase. These higher contracting costs are then passed on to ratepayers. In fact, WPTF suspects that when you view it from this perspective, there is no actual “loss” associated with the CRR auction—rather, it provides a significant benefit to ratepayers, which is what LEI found in its study for PJM stakeholders. Any market design that removes the CRR auction would create an actual loss to ratepayers, and that loss would be orders of magnitude larger than what the efficiency metric currently reports.

Auction Efficiency and Underfunding: The Need for Granular Reporting

WPTF believes it would be useful for the CAISO to report on underfunding and “auction efficiency” in a more granular way. The way it is reported on a system-wide basis masks underlying systemic issues that need to be addressed. For example, while CAISO reports funding levels at 80% (i.e., 20% underfunded), we know there are many constraints with significantly higher levels of underfunding. This broader, more detailed reporting would reveal the scale of the problem and better inform the necessary adjustments to the system, or adjustments to CRR underfunding cost allocation which is intended to follow cost-causation principles. Without this level of granularity, the true picture of underfunding and its impact on the CRR market is obscured, making it difficult to identify where improvements are most needed.

We believe CAISO should assess whether the reduction in available nodes in Track 1B reforms has exacerbated gaps between the IFM and CRR market modelling.

WPTF looks forward to the root cause analysis from CAISO at the next meeting. With respect to underfunding cost allocation, it would be helpful to categorize sources of underfunding into those that can be attributed on a causation basis and sources of underfunding that may be unrelated to causation (such as when an entity that causes congestion is not charged for the congestion they cause).