Comments on Draft final proposal and June 25 stakeholder meeting discussion

1. Please provide your organization’s feedback on the decision to remove the CRR auction bid and price floor concept from the Phase 1 scope.

Appian Way concurs with the decision to remove the bid and price floor concept from the Phase 1 scope.

This proposed policy would inherently and necessarily inhibit holders of allocated CRRs from being able to sell/transact their allocated CRRs in the CRR auctions and would likely have material unintended negative consequences for the CRR market's efficiency and price formation, and limit important trading and hedging opportunities that are the very purpose of CRRs. Furthermore, CAISO's own data demonstrates that CRRs that are sold which subsequently turn out to be profitable (what CAISO refers to as "auction inefficiency") are not disproportionately associated with CRRs that are priced low in the auction.  

2. Please provide your organization’s feedback on the updated Phase 1 scope consisting of modeling enhancements within the ISO’s existing tariff authority plus new authority to model loop flows in the annual CRR process?

Of course, better modelling of loop in the annual CRR process is welcome and should provide an opportunity to better align the CRR allocation quantities and CRR auction transfer capacity with expected congestion rents collected by CAISO. Fundamentally, the purpose of the CRR processes' Simultaneous Feasibility Test (SFT) is to ensure consistency between the allocation/auction of CRRs and the expected congestion rents that will exist in the IFM over the course of the year. Fundamentally, the SFT cannot fullfill it's intended purpose without explicit modelling of loop flows (this is also why it is critical to fix the shift factor threshold issue that CAISO has identified; CAISO has not provided sufficient explanation regarding why the shift factor thresholds cannot be lowered to reduce underfunding).  

Explicitly modelling loop flows begs an important question regarding the ability of CAISO ratepayers to use the transmission system that they pay for; a question that we believe it is incumbent on CAISO to answer for the members of the CRR Enhancements Stakeholder Initiative:

How much transfer capacity on internal CAISO congested paths, particularly along Path 15, is being consumed by loop flow from external entities; and how this compare with the previous historical usage from a different year (say 2019)?

Is a fair allocation that CAISO ratepayers are allocated 80% vs. 20% for external OATT right loop flows? Or is it 60/40? What is the estimated split today? What was it a few years ago and how has it changed? In cases where the Path 15 transfer capacity is derated due to transmission outages, how does the split change given that external OATT right loop flows are fully guaranteed while CAISO entity rights to use the transmission network must absorb the full impact of the derate?

We believe that answering these questions is of the utmost priority. 

3. Please provide any other comments on the draft final proposal and June 25th working group meeting.

Appian Way would like to offer serveral brief contextual responses and clarifications to the DMM comments on the June 2 meeting last month:

1. DMM proposes a constraint-based minimum shadow price as opposed to a path-based minimum bid/clearing price. The problem is that CAISO models hundreds of constraints that might bind under certain conditions, but from a practical standpoint never do. Or if an unusual constraint does bind it is often a proxy for a related/similar constraint along a similar path. If all of the constraints were given minimum shadow prices, they would overlap and pancake to such an extent that virtually no FTRs would ever likely be able to trade. DMM’s proposal is therefore unworkable.
2. The DMM argues “allocated CRRs are revenue adequate and underfunding comes only from auctioned CRRs.” This is a significant distortion of what is going on. Underfunding is coming from entities that cause congestion not paying for the congestion they cause (loop flows, shift factor threshold, etc) or from mismatches in transfer capacity between the market and the CRR allocation/auction (such as from transmission outages/derates). DMM’s observation that fewer CRRs being sold would ensure sufficient congestion rents to cover the obligation is tautological. If only one CRR was sold, there would be no underfunding (and CAISO ratepayers would be denied the financial and congestion hedging value of CRRs). In principle, the ISO uses the Simultaneous Feasibility Test as part of its tariff/business practices to ensure that CRRs released to the market will be able to be funded by the congestion rents. The market design problem is that this process is not working well and needs to be fixed (due to the loop flows, shift factor threshold, outages, etc.); the problem is not that CRRs are auctioned.
3. DMM also argues that there is (a little) more underfunding on the CRRs acquired by speculators vs hedgers. This is not causation. Rather, high underfunding on certain paths causes hedgers to exit and causes speculators to participate with discounted bids. It is not surprising and only logical that non-hedge CRR participants may pay a higher share of underfunding allocation.

Finally, we'd like to reiterate that when CRR financial integrity is compromised and highly uncertain, load/ratepayers are the entities that ultimately pay regardless of how revenue adequacy is collected via the Track 1B approach. Load pays because the allocated CRRs they retain for hedging or the additional CRRs they purchase in the auction are underfunded. And load futher pays when the allocated CRRs they want to sell in the auction are discounted below the fair value of the CRR price spread because of the buyers' expectation of underfunding; or because the excess transfer capacity that is released in the auction is discounted based on buyers' expectations of underfunding. Voluntary speculative participants in the market will surely discount their bids for CRRs, and require additional risk premia, when CRR financial integrity is so compromised, as it is uniquely in CAISO amongst all the ISOs.   

4. Please provide any additional comments, feedback, or examples. You may upload supporting materials using the attachments field.

1. Please provide your organization’s feedback on the decision to remove the CRR auction bid and price floor concept from the Phase 1 scope.

The Bay Area Municipal Transmission group (BAMx[1]) thanks the CAISO for its receptiveness to stakeholder feedback on the bid and price floor proposal. We support deferring additional discussion of this modification until Phase 2, given the modest benefits shown in our analysis, potential implementation issues, and the fact that these changes would not be necessary with participation limitations.[2] BAMx urges the CAISO to prioritize participation limitations, the willing seller design, and other structural reforms over the bid and price floor in Phase 2. BAMx will evaluate Phase 2 proposals based on their effectiveness in addressing the structural sources of auction inefficiency identified by the Department of Market Monitoring (DMM) and BAMx.

[1] The Bay Area Municipal Transmission group (BAMx) consists of the City of Santa Clara dba Silicon Valley Power and the City of Palo Alto Utilities

[2] See BAMx’s comments, dated Jun 16, 2026 on the June 2, 2026, Congestion Revenue Rights Enhancements presentation and associated straw proposal, dated June 1, 2026. BAMx’s analysis demonstrated that even at the highest proposed floor level, the underfunding reduction was modest and plateaued, supporting the conclusion that the floor should not be the leading Phase 2 reform concept.

2. Please provide your organization’s feedback on the updated Phase 1 scope consisting of modeling enhancements within the ISO’s existing tariff authority plus new authority to model loop flows in the annual CRR process?

BAMx supports SCE’s request for an additional workshop to discuss the details of the proposed loop flow modeling. We respectfully request transparency on the specific loop flow modeling methodology that the CAISO will apply for the 2027 annual CRR process, including which constraints will be modified and what historical data will be used.

BAMx is concerned that the recent application of the GDF to contingency constraints has significantly reduced CRR allocations to LSEs with a corresponding reduction in accessible CRR hedging value. The CAISO has not demonstrated that the improvement in revenue adequacy observed is attributable to the GDF change. It is evident from the Market Performance and Planning Forum Q2 presentation that the improvement to revenue adequacy actually occurred starting in November 2025, well before the GDF application to contingency constraints in March 2026.[1] . A more likely explanation for the improvement in revenue adequacy is the limited transmission congestion during the November 2025 – March 2026 timeframe. Furthermore, as the CAISO acknowledges, one month of data after changing the GDF application is not a sufficient sample to determine if it has had any meaningful impact on revenue adequacy. Reducing the availability of allocation CRRs runs contrary to the FERC-approved uses for financial revenue rights: returning congestion revenue to transmission ratepayers and serving as the financial equivalent of firm transmission.

Allocation CRRs have consistently been fully funded, while the proliferation of auction CRRs have been the driver of revenue inadequacy. DMM's May 12, 2025 analysis demonstrated that allocated CRRs have been fully funded in 16 of 19 quarters from Q3 2020 through Q1 2025, with allocated CRR notional value averaging a surplus of about 17% of congestion rent.^[2] After the auction, however, CRR revenue adequacy had shortfalls of about 25% of congestion rent.^[3]  While we understand the appeal of expanding the GDF to contingency constraints, BAMx encourages the CAISO to evaluate whether the current level of the GDF should be reduced, given the increased number of constraints to which it now applies. BAMx requests that the CAISO separately report on the impact of the expanded GDF application on allocated and auction CRR volumes by DMM CRR Holder category and evaluate whether allocation SFT assumptions can be calibrated independently of auction feasibility considerations. Without auction reform, the burden of addressing underfunding is falling disproportionately on allocated CRR holders, thwarting the purpose of the CRRs.

[1] CAISO, “Market Performance and Planning Forum Q2,” April 27, 2026, p.53

[2] Roger Avalos, CAISO Department of Market Monitoring, “Congestion revenue rights auction is fundamentally flawed – and continues to lose millions of dollars a year,” May 12, 2025, p.3. https://stakeholdercenter.caiso.com/InitiativeDocuments/Presentation-CRR-Enhancements-May-12-2025.pdf

[3] Id, p. 10.

3. Please provide any other comments on the draft final proposal and June 25th working group meeting.

BAMx supports requests from many other stakeholders to clarify how CRR Enhancements Phase 2 will coordinate with EDAM CRA Phase 2, particularly for settlement impact of financial transmission rights on non-CAISO BAA constraints and the treatment of parallel flow congestion revenue allocation.

BAMx respectfully requests that the CAISO develop and commit to specific timelines and milestones for the Phase 2 discussions.

4. Please provide any additional comments, feedback, or examples. You may upload supporting materials using the attachments field.

 No comments at this time.

1. Please provide your organization’s feedback on the decision to remove the CRR auction bid and price floor concept from the Phase 1 scope.

DC Energy supports the CAISO's decision to remove minimum bid and minimum clearing prices from its Phase 1 proposal in response to stakeholder feedback.  Stakeholders expressed concern regarding unanswered questions, potential unintended consequences, unresolved market design decisions, and inadequate comparative analysis to untangle these issues. The CAISO should conduct multiple auction simulations to better understand and evaluate whether the proposal actually would meet the stated goal of this initiative in improving auction efficiency. CAISO should provide stakeholders with this analysis prior to reconsidering this issue in Phase 2.

Imposing minimum prices should not be a priority in Phase 2.  Instead, the CAISO should focus on improving the utility of CRRs by adding a peak-solar Time of Use and expanding the ability to sink at storage locations.  The CAISO also should focus on further enhancements to address the root causes of congestion revenue underfunding, particularly, the shift factor cut-off threshold discrepancy.  Reducing and standardizing the shift factor cut-off threshold is particularly important in the new Extended Day Ahead Market (EDAM).  Within the CAISO BAA, the current shift factor thresholds will likely prevent collection of a significant amount of congestion revenue in other EDAM BAAs. This allows transmission customers in those BAAs to continue to consume the CAISO's transmission capacity at no cost, perpetuating a root cause of congestion revenue inadequacy in the CAISO.  The CAISO and stakeholders are considering enhancements to congestion revenue allocation under EDAM, but one cannot change the allocation of congestion revenue that is not collected.   

2. Please provide your organization’s feedback on the updated Phase 1 scope consisting of modeling enhancements within the ISO’s existing tariff authority plus new authority to model loop flows in the annual CRR process?

DC Energy supports the CAISO’s decision to focus on modeling improvements that address the root causes of congestion revenue inadequacy in Phase 1.  

3. Please provide any other comments on the draft final proposal and June 25th working group meeting.

The approach to loop flow modeling outlined in the Draft Final Proposal should only be the first step to better aligning the CAISO’s CRR model with expected loop flow in the day-ahead market. “Targeted, manual adjustments to some high-market-impact constraints based on historical loop flow information,” is a reasonable temporary, interim step in the effort to model loop flows.  As the Draft Final Proposal acknowledges, “modeling loop flows as injections and withdrawals as opposed to constraint derates” should be pursued as a longer-term solution.   An injection and withdrawal approach would allow the CAISO to model the effect of loop flows on all constraints throughout the network.  

If the CAISO modeled loop flows (and outages) more accurately across its network, then it could reduce or eliminate the Global Derate Factor (GDF).  The GDF is a blunt instrument that limits capacity on whole classes of constraints regardless of their actual exposure to loop flows and derates. A more accurate approach to modeling could increase the allocation of useful CRR capacity and decrease the allocation of capacity that ends up underfunded, providing more value to the CAISO's transmission customers and improving congestion revenue adequacy.   

DC Energy appreciates the CAISO’s recognition of “stakeholder interest in the details of loop flow modeling” and requests greater transparency regarding the constraints selected for derates under the CAISO’s initial approach to loop flow modeling.  Line limits in the 2027 CRR model alone will provide an inadequate understanding of the CAISO’s approach.  Market participants would benefit from greater transparency regarding the historical data, underlying assumptions, and criteria the CAISO relies upon to make manual adjustments to certain constraints due to expected loop flows.

Furthermore, the CAISO cannot accurately model loop flow until it adopts a peak-solar TOU.  A significant portion of loop flow originates with solar generation in the Southwest.  A CRR model that accounts for capacity consumed by loop flow will only be accurate if it differentiates solar peak and non-solar peak hours.  Therefore, TOU reform should be a top priority in Phase 2 in order to build on improvements implemented in Phase 1. 

4. Please provide any additional comments, feedback, or examples. You may upload supporting materials using the attachments field.

1. Please provide your organization’s feedback on the decision to remove the CRR auction bid and price floor concept from the Phase 1 scope.

Support the decision to remove the CRR auction bid and price floor concept Phase 1 scope

Pacific Gas & Electric (PG&E) appreciates the opportunity to comment on the California Independent System Operator’s (CAISO) Congestion Revenue Rights (CRR) Enhancements Draft Final Proposal on Auction Efficiency and Revenue Adequacy. PG&E would like to thank the CAISO for their responsiveness to stakeholder feedback on the initiative’s June 1st straw proposal and agrees with removing the CRR auction bid and price floor concept from the Phase 1 scope. A well-developed price floor proposal was not achievable in the Phase 1 timeframe proposed by the CAISO, and a rushed price floor proposal was likely to have unintended negative consequences on the auction.

2. Please provide your organization’s feedback on the updated Phase 1 scope consisting of modeling enhancements within the ISO’s existing tariff authority plus new authority to model loop flows in the annual CRR process?

Need for greater transparency and stakeholder engagement on modeling enhancements 

PG&E recognizes the CAISO’s desire to address the issues associated with the CRR market in a timely manner and appreciates its efforts to implement reforms before the 2027 annual process with the updated Phase 1 scope. While we support the goal to improve modeling of the CRR markets, the CAISO needs to provide greater transparency and stakeholder engagement on any enhancements. We respectfully request the CAISO for further details and discussions on the proposed and already-implemented (application of the global derate factor (GDF) to contingency constraints in March 2026) changes. This should include a fully, documented explanation of any proposed changes with analysis of the expected impacts, and in the case of the already-adopted GDF to contingency constraints, additional analysis of its impacts.

3. Please provide any other comments on the draft final proposal and June 25th working group meeting.

CAISO and stakeholders should continue to focus on the auction-caused revenue inadequacy in Phase 2 

PG&E recognizes the CAISO’s desire to address the issues associated with the CRR market in a timely manner and appreciates its intention to begin Phase 2 shortly in Q3. PG&E believes that the auction is a main driver of revenue inadequacy. While we recognize the merits of a minimum bid and price floor as a reasonable short-term fix, we believe it’s only a partial solution to the revenue inadequacy that stems from the CRR auction. Phase 2’s time is best spent on developing comprehensive reforms to the CRR auction that conclusively address revenue inadequacy that stems from it. As stated in our comments on the June 1st straw proposal, we believe a good starting point is further discussion and exploration of DMM’s Willing Seller Auction design. This could be in combination with or separate from the Bay Area Municipal Transmission Group’s (BAMx) proposed limitation on auction participation based on historical transmission use.

4. Please provide any additional comments, feedback, or examples. You may upload supporting materials using the attachments field.

1. Please provide your organization’s feedback on the decision to remove the CRR auction bid and price floor concept from the Phase 1 scope.

San Diego Gas and Electric (SDG&E) supports the ISO’s decision to remove the CRR auction bid and price floor concept from the Phase 1 scope. As identified in the draft final proposal, this concept was controversial amongst stakeholders and the proposal development needed to reach consensus would not have been possible with the Phase 1 implementation timeline.

2. Please provide your organization’s feedback on the updated Phase 1 scope consisting of modeling enhancements within the ISO’s existing tariff authority plus new authority to model loop flows in the annual CRR process?

SDG&E supports the modeling improvements and tariff changes outlined in the draft final proposal, including the loop flow modeling in the annual CRR process. As these enhancements are developed and implemented, SDG&E requests that the ISO keep stakeholders informed of the planned changes and market impacts, particularly any effects on the 2027 CRR cycle. Continued transparency will help stakeholders understand and assess the effectiveness of these measures. However, SDG&E remains committed to more meaningful improvements that would resolve the revenue inadequacy that has resulted from the CRR auctions. To that end, SDG&E supports moving expeditiously to longer-term reforms.

3. Please provide any other comments on the draft final proposal and June 25th working group meeting.

No comment.

4. Please provide any additional comments, feedback, or examples. You may upload supporting materials using the attachments field.

 No comment.

1. Please provide your organization’s feedback on the decision to remove the CRR auction bid and price floor concept from the Phase 1 scope.

Six Cities’ Comments: The Six Cities appreciate the CAISO’s responsiveness to stakeholder feedback and support its removal of the CRR auction bid and price floor concept from the Phase 1 scope. As stated in their comments on the June 2, 2026 meeting, the Six Cities do not oppose continued examination of the auction bid and price floor concept as part of Phase 2. However, the auction bid and price floor concept evaluation should not have precedence in the Phase 2 agenda at the expense of other longer term solutions, including the willing buyer and seller framework and the BAMx proposal to limit the CRR auction to entities that use the transmission system and have a need for hedging. Such solutions may make the auction bid and price floor concept unnecessary. The Six Cities encourage the CAISO to proceed with Phase 2 as soon as possible and support the CAISO’s intention to begin Phase 2 in Q3 of 2026.

2. Please provide your organization’s feedback on the updated Phase 1 scope consisting of modeling enhancements within the ISO’s existing tariff authority plus new authority to model loop flows in the annual CRR process?

Six Cities’ Comments: As stated in their comments on the June 2, 2026 meeting, the Six Cities do not have concerns with adoption of modeling enhancements and improvements to loop flow consideration in the annual CRR process as part of the Phase 1 scope.

3. Please provide any other comments on the draft final proposal and June 25th working group meeting.

Six Cities’ Comments: The Six Cities request the CAISO give further consideration to enhancements to the shift factor threshold. While the “AC powerflow optimization and timing limitations limit the ability of the ISO to adopt near term solutions in these areas,” the Six Cities request that the CAISO explain why the CRR model cannot be modified to be closer to the day-ahead optimization model. (See Revised Straw Proposal at 9). The Six Cities also request further explanation as to what the CAISO means by “near term” when referring to shift factor enhancements (See id.)

4. Please provide any additional comments, feedback, or examples. You may upload supporting materials using the attachments field.

Six Cities’ Response: The Six Cities have no additional comments at this time.