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.

The Alliance for Retail Energy Markets (“AReM”) thanks CAISO for its careful consideration of party feedback in this initiative. AReM supports the decision to defer the bid and price floor concept to Phase 2. With that change, AReM does not oppose the Phase 1 Draft Final Proposal. AReM looks forward to working with other stakeholders on refinements to the CRR process in Phase 2.

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?

AReM has no further comments at this time. 

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

AReM has no further comments at this time. 

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

AReM has no further 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.

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.

The California Community Choice Association (CalCCA) appreciates the California Independent System Operator’s (CAISO) efforts and coordination with stakeholders in the Congestion Revenue Rights (CRR) enhancements stakeholder process. The CAISO is correct to remove the bid and price floor from the phase 1 scope. While the proposal may have been successful in some regards, there were too many potential unintended consequences that could offset any potential gains. Given the short time to evaluate and modify the proposal before going to the CAISO Board, the only reasonable solution is to move the bid and price floor discussion to phase 2 where it can be evaluated more completely and in comparison to other potential solutions to the identified problems of auction efficiency and revenue sufficiency.  

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?

The CAISO should improve its CRR network model to more likely reflect the network in operation at the time energy flows and congestion is realized. While network modeling will never perfectly match the network in operation, known issues such as loop flow should be captured as accurately as possible.

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

CalCCA has no additional comments. 

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

CalCCA looks forward to working with the CAISO to evaluate data from the CAISO’s prior auctions to assess the impacts of the variety of proposals modifying the CRR auction process. The CAISO should begin evaluation of all alternative proposals and provide data on the impacts of those alternatives as soon as possible so that market participants can evaluate their efficacies. Importantly, that analysis should not exclude previously identified proposed solutions.   

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.

Comments on Congestion Revenue Rights Enhancements

Phase 1 Draft Final Proposal on Auction Efficiency and Revenue Adequacy

Department of Market Monitoring

July 2, 2026

Summary

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the Phase 1 Draft Final Proposal on Auction Efficiency and Revenue Adequacy.[1] In phase 1, the ISO proposes to “…retain the modeling improvements under the existing tariff and expanded ISO authority to model loop flow.”[2] The expanded loop flow modeling “will consist of targeted, manual adjustments to some high-market-impact constraints based on historical loop flow information.”[3] The proposal does not indicate if this loop flow modeling will be made in addition to or in place of Global Derate Factors that are already used to limit the amount of transmission capacity in the congestion revenue rights (CRR) model used in the allocation and auction.

DMM does not expect these limited changes to have significant effects on reducing ratepayer losses in the CRR auctions. DMM also has concerns that the ISO may not be able to carry out analysis needed to effectively implement such loop flow modeling in time for the 2027 annual CRR auction. If not based on accurate modeling of actual loop flows (and any appropriate adjustments to Global Derate Factors), these changes could even have detrimental impacts, including a reduction in CRRs available to load serving entities (LSEs) in the allocation process.

The ISO also proposes to continue discussing the auction bid and price floor in another phase of this initiative alongside other proposals. DMM does not believe the ISO should continue with work on a single uniform minimum price for all CRR point-to-point paths now or in a future phase of this initiative. The proposed single minimum price would suffer from adverse selection problems, where auction participants could pick CRR paths that have a minimum price below the value of that path, and avoid paths where the minimum price was above the CRR value. Further, this minimum price could interfere with the ability of parties wanting to trade CRRs with each other in the auction, among other issues. A single minimum price for all CRR paths is not a solid foundation for an effective fix to the CRR auction.

If the ISO wants to continue exploring reserve prices, they should consider constraint-specific reserve prices. This approach would provide an efficient and accurate foundation for introducing reserve prices that reflect the actual value of every possible source-to-sink path, and would not interfere with parties wanting to trade with each other. In these comments, we describe the benefits of constraint-specific reserve prices, and an approach to implementation that derives from a generalized version of the current auction model.

DMM continues to recommend the willing seller auction design. The ISO should consider this design, and any potential measures to provide additional liquidity deemed appropriate, in the second phase of this initiative. DMM has offered suggestions for addressing the main concerns expressed by stakeholders about the willing seller design through (1) enhancements to the allocation process (to reduce the need for load serving entities to rely on the auction for procuring the CRRs needed to hedge their energy procurement) and (2) including a backstop mechanism to ensure that entities needing CRRs to hedge actual energy transactions have access to CRRs.

Comments

Incorporating loop flows into CRR model

The only specific change being proposed by the ISO is “expanded ISO authority to model loop flow”, which “will consist of targeted, manual adjustments to some high-market-impact constraints based on historical loop flow information.”[4] The proposal does not indicate if this loop flow modeling will be made in addition to or in place of Global Derate Factors that are already used to limit the amount of transmission capacity in the CRR model used in the allocation and auction.

DMM is not aware of any extensive analysis that has been performed by the ISO of actual loop flows—and the ISO’s ability to accurately model and predict loop flows in advance, as will be required to incorporate these into the CRR model. Some data on loop flows that DMM has observed suggest that loop flows may be difficult to accurately predict and represent in the level of granularity of the CRR model (i.e., 16-hour blocks by season and month). For instance, DMM suspects that loop flows may vary significantly over the 16 peak hours, with loop flows during the peak solar hours being much different than during the peak net load hours (18-22).

Consequently, DMM recommends that prior to incorporating any loop flows into the CRR model, the ISO conduct and provide analysis to stakeholders for review and discussion. DMM has concerns that the ISO may not be able to carry out analysis needed to effectively implement such modeling in time for the 2027 annual CRR auction. The ISO should also clarify if this loop flow modeling will be made in addition to or in place of Global Derate Factors that are already used in the allocation and auction. If estimated loop flows are simply applied on top of these Global Derate Factors, these changes could even have detrimental impacts, including a reduction in CRRs available to LSEs in the allocation process.

Uniform bid/reserve price limits

In the short time since a uniform minimum bid/reserve price approach was proposed by the ISO, a variety of theoretical and practical problems with this approach have been identified. One of these concerns was that placing minimum bid limits on source-to-sink paths could prevent transactions between willing counterparties offering to sell/buy CRRs at prices outside of these uniform bid limits.

Another major problem with the uniform minimum bid/reserve price approach is that in practice, the value of all possible source-to-sink CRRs varies tremendously, so that any uniform bid/price limits selected will be significantly over or under the actual value of most CRRs. The ISO has indicated that the sheer number of all possible source-to-sink pairs in the ISO market model would make setting CRR-specific reserve prices administratively infeasible. 

DMM believes these problems with the uniform bid/reserve price approach proposed by the ISO can be avoided through an alternative approach based on constraint-specific reserve prices, as described in the following section.

Constraint-specific reserve prices

CRRs are settled based on the nodal price difference on specific source-to-sink paths. However, the value of each CRR is actually the sum of congestion shadow prices on a bundle of different transmission constraints (taking into account the shift factors of these constraints relative to the CRR source and sink). Thus, each different source-to-sink CRR has a value that varies based on congestion and shift factors for a bundle of different transmission constraints. 

The limits on these transmission constraints are set by the ISO in the CRR model, but additional transmission capacity on each constraint can also be available in the CRR model from counterflows created by CRRs offered by other participants in the auction. These counterflow CRRs include CRRs allocated to LSEs being resold in the auction as well as counterflows created by CRRs bid into the auction by financial entities and traders.

For example, a participant could bid to buy a CRR sourcing from A→B that is bought in full from another participant offering a CRR from B→A without using any CRR product purchased from the ISO. Placing a minimum bid price on this A↔B path would affect the price at which these two participants can trade without being a reserve price on anything the ISO sold.

Removing this misalignment by placing reserve prices on the specific constraints being offered would be a much more efficient and effective way to implement reserve prices. Constraint-specific reserve prices would:

• align with the product that the ISO offers in the auction (the constraint limits),
• not restrict what bid prices auction participants could submit,
• allow trades between market participants even if their bids are below the reserve price,
• not create a mismatch between path flow and counterflow prices,
• significantly reduce adverse selection problems relative to both single path price and status quo,
• likely reduce transmission ratepayer losses in the CRR auction, and
• provide all entities with the ability to procure CRRs being used as hedges at a reasonable cost that reflects the expected value of these hedges.

The ISO could implement constraint-specific reserve prices similar to how it relaxes constraints for penalty prices in the energy markets. For each constraint, there could be a relaxation resource (R) that only provides counterflow to one constraint. The relaxation resource R would enter the objective function as a choice variable with a bid equal to the reserve price (r) and a max bid quantity equal to the constraint limit. The constraint limit used in the optimization would then be set to zero. With the inclusion of the relaxation resource, the ISO is still offering to sell up to the constraint limit, but only if the reserve price is met.

As an example, consider a constraint with a 100 MW limit. The ISO calculates a reserve price of $2 per MW. The current auction would model:

Where bid quantities (mwi) and price (pi) are submitted by market participants and the shift factors (SFik) map the bids to constraints.

Implementing the constraint-specific reserve price would change the model to:

Thus, the ISO still offers 100 MW of constraint k “capacity” but at a reserve price of $2 rather than $0.

The current auction model is equivalent to this formulation with the reserve price set at $0. In the current auction model, the full transmission constraint limit of 100 MW is used with no cost assigned to awarding CRRs that impact this constraint. The formulation with the constraint-specific reserve price is simply a generalized version of the current auction model that allows the reserve price to differ from $0, and for this reserve price to enter the objective function when determining what portion of the transmission constraint limit is used to award CRRs.

Illustrative example

This section provides a simplified example of an auction that uses constraint-specific reserve prices. This example has only one constraint and bidding only takes place at two nodes (A and B). The ISO offers 30 MW of capacity on this constraint at different reserve price levels. This 30 MW of transmission capacity is represented by a reserve resource that allows the transmission constraint to be relaxed at the reserve price used in each scenario. CRRs from A→B have a shift factor of .67 relative to this constraint while CRRs from B→A have a shift factor of -.67 to this constraint. 

Figure 1 shows four cases with different reserve prices and bids to buy/sell CRRs by market participants. Each scenario assumes that participants submit bids for 100 MW of CRRs from A→B and from B→A at different prices. The reserve price enters the optimization as a “bid price” the same way that the CRRs are bid into the auction. The examples assume that the shadow price on this constraint has an expected value of $4 over the CRR period.[5]  

Figure 1. Simplified single constraint auction with reserve resource

The examples illustrate that with this approach, CRRs can clear against the ISO constraint, against willing counterparties, or from a mix of the constraint and willing counterparties.

• Case 1 is equivalent to the current auction with the reserve price set at $0. Participants submit bids for 100 MW of CRRs from A→B at $.05 and 100 MW from B→A at -$2.50. In this case, 45 MW of CRRs from A→B would clear at a price of $.05. For this 45 MW to clear, the reserve resource would reach its maximum limit of 30 MW.[6] None of the CRRs bid in the counterflow direction from A→B at -$2.50 clear. At a $0 reservation price, the auction clears at prices well below the average payouts of the CRRs.  
• Case 2 assumes the reserve price is set at $4. Participants submit bids for CRRs from A→B at $3 and CRRs from B→A at -$3.25. In this case, 45 MW of CRRs from A→B would continue to clear, but the price would be $3. This case illustrates how the constraint-specific approach can be designed to ensure that all participants could purchase CRRs at a price that reflects the value of these CRRs, even if no participants offer CRRs in the counterflow direction at a price that would clear.
• Case 3 assumes the reserve price is set at $4, but participants submit bids for CRRs from A→B at $2.50 and counterflow CRRs from B→A at -$2.00. In this case, no capacity from the reserve resource would clear at the $4 reserve price, but all 100 MW of CRRs from A→B and from B→A would clear at a price of $2.50, representing the price at which market participants were willing to transact. This case illustrates that participants can trade with each other below the reserve price which they could not do under the uniform minimum bid/reserve price approach proposed by the ISO.
• Case 4 assumes the reserve price is set at $4, with participants submitting bids for CRRs from A→B at $3.25 and CRRs from B→A at -$3.00. In this case, the reserve resource would clear at is maximum constrained value 30 MW. The full 100 MW of CRRs from A→B would clear as a result of a combination of the capacity from the reserve resource sold by the ISO and 55 MW of counterflow CRRs from B→A clearing at the $3 price.

If the ISO wants to continue exploring reserve prices, DMM believes an approach based on constraint-specific reserve prices would provide an efficient and accurate foundation for introducing reserve prices that reflect the actual value of every possible source-to-sink path, and would not interfere with parties wanting to trade with each other.

[1]  Congestion Revenue Rights Enhancements: Phase 1 Draft Final Proposal on Auction Efficiency and Revenue Adequacy, California ISO, June 1, 2026: https://stakeholdercenter.caiso.com/InitiativeDocuments/Draft-Final-Proposal-Auction-Efficiency-Revenue-Adequacy-Congestion-Revenue-Rights-Enhancements-2026-06-23.pdf

[2] Ibid, p 4

[3] Ibid, p 12

[4] Ibid, p 4, 12

[5] This equates to an expected value of CRRs from A→B of about $2.68 ($4 x 0.67)

[6] 45 MW x .67 shift factor = 30 MW, therefore the A→B CRR is buying 30 MW from the ISO constraint.

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?

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

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

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

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

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

Energy Division staff (ED staff or staff) of the California Public Utilities Commission (CPUC) develops and administers energy policy and programs to serve the public interest, advises the CPUC, and ensures compliance with CPUC decisions and statutory mandates. ED staff provides objective and expert analyses that promote reliable, safe, and environmentally sound energy services at just and reasonable rates for the people of California.

ED staff appreciates the opportunity to submit comments on the draft final proposal published on June 23^rd.[1] However, ED staff is disappointed that CAISO decided to focus the revised scope of Phase 1 solely on revenue adequacy enhancements. The CRR market as currently designed has led to over $1 billion in ratepayer losses since its formation in 2012.  ED staff believes that development of an incremental minimum bid and price floor in the near term, with a commitment to finetune the bid and price floor in Phase 2, would lead to improved affordability outcomes for ratepayers.

ED staff highlights that this initiative was launched in the Fall of 2024 to examine and pursue improvements to the CRR market. In addition, at the launch of this initiative, the Department of Market Monitoring (DMM) presented an updated version of their Willing Buyer Willing Seller (WBWS) proposal. This initiative has now met a total of 11 times over almost two years without any reforms being adopted. The problem with the current CRR auction design has been clear throughout the stakeholder initiative; the problem is that the CRR auction allows participants with no hedging need to purchase CRRs at $0 or low prices.

In this initiative, market participants purchasing CRRs at or near $0 have argued that they provide liquidity for forward contract price discovery commensurate with the level of congestion revenue that their CRR positions capture. While these participants claim that liquidity benefits ratepayers with improved price discovery, they have not provided any concrete evidence to support this contention. Market participation from financial entities solely for the purposes of speculative auction participation negatively impacts affordability for CAISO ratepayers since the speculative financial positions capture congestion revenues that cannot be allocated to load pro-rata to reduce their transmission access charge (TAC) burden.

Given that congestion revenues could reduce ratepayers’ TAC burden if that revenue is not diverted to non-load entities, those financial entities who want ongoing access as market participants to congestion revenue should have to pay at least some portion of the TAC in order to gain access to said congestion revenue. ED staff  support  the idea that CAISO should not be selling CRRs at $0 to entities that do not pay for the cost of the transmission grid. Therefore, ED staff continues to support adopting minimum bid price and floors as an initial step to address and improve the auction efficiency metric. ED staff opposes delaying the proposed minimum bid and price floors to Phase 2.

However, if CAISO proceeds with this delay, ED staff encourages CAISO to directly address DMM’s WBWS proposal and/or BAMx’s auction participation limits. These proposals will likely address auction inefficiency more meaningfully. ED staff acknowledges that this examination will require more extensive analysis because this initiative has not focused extensively on these proposals.

[1] Draft-Final-Proposal-Auction-Efficiency-Revenue-Adequacy-Congestion-Revenue-Rights-Enhancements-2026-06-23 (1).pdf

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?

ED staff supports revenue adequacy improvements. ED staff is supportive of modeling improvements for allocated CRRs such as those that would better address loop flows, shift factors, and transmission outages. ED staff, while supportive of improving modeling, ultimately believes improving modeling will not solve the fundamental auction design issues. [1] CAISO’s DMM has reached a similar conclusion in their 2025 Annual Report on Market issues and Performance:[2]

When changes to the auction were implemented in 2019, the ISO and Market Surveillance Committee (MSC) committed to reviewing the effectiveness of these changes and making additional changes if significant losses continued. The ISO and MSC began some analysis and discussion of causes of losses from congestion revenue rights in November 2023. The ISO provided a 217-page presentation on results of this analysis in February 2025, which identified three factors contributing to auction losses.

1. Shift factors truncated by the minimum threshold;

[DAM model uses a shift factor threshold, that the CRR model does not use any]

        2. Non-settled loop flows consuming transmission capacity; and

        3. Differences between the CRR and day-ahead transmission models.

                     [Transmission outages, resource issues, etc.]

All of these three contributing factors have existed as long as the ISO has auctioned CRRs and have already been subject to extensive analysis. The ISO has not been able to identify any additional steps that could be taken based on this analysis to eliminate or significantly reduce transmission ratepayer auction losses. Thus, DMM believes that continuing to dedicate time and resources in an attempt to make small improvements in these three areas will not eliminate or significantly reduce transmission ratepayer losses from CRRs auctioned by the ISO.[3]   

ED staff agrees that addressing the shift factor threshold divergence between the CRR and DAM models would be the most impactful for addressing revenue inadequacy. However, as stated previously, ED staff does not support exploring or proposing modifications to the DAM model for the sole purpose of improving revenue adequacy for CRRs.[4] At a high level, the revenue inadequacy caused by the model divergence is relatively minor when considering the potential negative consequences of detrimentally modifying the DAM model. These downstream consequences could range from increasing the solving time of the model to more fundamental issues like impairing grid reliability.

ED staff reiterates here that the changes proposed in both the June 23^rd draft final proposal and the June 25^th stakeholder working group meeting will not significantly improve revenue adequacy levels. ED staff agrees with DMM’s findings in the 2025 Annual Report on Market issues and Performance that changes to the shift factor thresholds, unmodeled loop flows, or differences between DAM and CRR models due to outages, etc. will not significantly reduce transmission ratepayer losses.

Finally, ED staff is skeptical that auction efficiency will organically improve due to reduced risk premiums being inserted into CRR auction bids. When evaluating a financial bidder’s potential market behavior, it seems that voluntarily increasing a CRR bids is not a logical step if the intent is to maximize the spread between a CRR bid and payout, as the rate of return increases the larger said spread is. Fundamentally, bidders are incentivized to purchase the CRR for as low as possible in order to maximize its revenues. However, it is rational to improve the revenue adequacy level in order to maximize the amount of revenue collected and maintain the spread between bid and payout. As the CRR market is designed today, an entity’s spread between bid and payout is reduced due to the Track 1B pro-rata payout reduction allocation mechanism that reduces an entity’s CRR portfolio payouts based on how much revenue is actually collected (e.g. difference between notional and realized payouts).

[1] June 5^th, 2025, CPUC Energy Division Comments on Congestion Revenue Rights initiative: California ISO - All comments

[2] Pg. 20, 2025-annual-report-on-market-issues-and-performance.pdf.

[3] Ibid, 2025-annual-report-on-market-issues-and-performance.pdf.

[4] June 16^th ,2026, CPUC Energy Division Comments on Congestion Revenue Rights initiative: California ISO - All comments

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

 Please see questions #1 and #2.

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

 Please see questions #1 and #2.

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.

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.

SCE supports the CAISO’s decision to remove the CRR auction bid and price floor from the Phase 1 scope.  The concept requires further implementation details and vetting, which became clear during discussions at the workshop and MSC meeting. Given the condensed timeframe available for approval, SCE finds CAISO’s decision to remove this item from the Phase 1 scope prudent as doing so will allow stakeholders the time necessary to work through the outstanding issues and determine if this proposed solution will have the intended outcome and not result in unintended consequences.

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?

SCE agrees with updated Phase 1 scope. SCE also appreciates the further explanation about the tariff changes to implement the loop flow modeling in the annual process for 2027, but requests that at the next workshop the CAISO explain in more detail how the loop flow modeling will be performed and provide additional explanations and analysis of the modeling enhancements that have been adopted, or are being considered, under the existing tariff authority.

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

SCE believes that Phase 2, which should include close examination of the bidding/price floor and other potential short-term and longer-term solutions, should begin as soon as possible. The discussions are likely to be complex and involved but will need to be accomplished quickly to avoid the same timing issues next year to get approval of a final proposal and then receive FERC approval.

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.

WPTF appreciates the CAISO's responsiveness to stakeholder feedback and supports removing the CRR auction bid and price floor proposal from the Phase 1 scope. Before considering this concept in a future phase, the CAISO should conduct simulations to better quantify its potential impacts and provide stakeholders with sufficient information to evaluate both the anticipated benefits and any unintended market consequences.

While WPTF supports moving this issue to Phase 2, we do not believe it should be a priority relative to other enhancements. In particular, WPTF believes that further work on CRR product definitions, expanding storage eligibility as a CRR sink location, and revisiting the CRR shortfall allocation methodology to better align cost responsibility with cost causation should receive higher priority in Phase 2.

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?

WPTF supports focusing Phase 1 efforts on the modeling enhancements that directly address the root causes identified by the CAISO. This targeted approach is appropriate and should provide meaningful improvements within the existing market framework.

WPTF continues to encourage the CAISO to evaluate opportunities to reduce the shift factor threshold. Even though CAISO notes the reason for applying 0.2% to all nodes is due to computational challenges, that should not preclude evaluating intermediate thresholds that may offer meaningful improvements while remaining operationally feasible. For example, evaluating thresholds such as 1% or 0.5% could help identify a practical balance between modeling accuracy and implementation complexity.

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

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 Financial Marketers Coalition advocated for the CRR auction bid and price floor concept to be removed from the Phase 1 scope.  We are grateful to CAISO for listening to the strong feedback received from a majority of stakeholders.

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?

We strongly support CAISO’s efforts to incorporate loop flow modeling into the seasonal and annual auctions.  This is a positive step that will resolve an ongoing problem in the markets in a timely and effective manner.

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.