Comments on Discussion paper and working group scoping discussion

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Boston Energy appreciates the CAISO for initiating an evaluation of the performance of Congestion Revenue Rights (CRRs) following the changes implemented in 2019 and 2023.

CRRs are a core feature of FERC’s standard market design.  CRR or similar markets exists and all Organized markets across the United Staters.  CRRs allow market participants to hedge against the cost of transmission congestion, which is critical for all participants have equal opportunity to acquire congestion hedges.

Its critically important that CASO continue to look for ways to enhance the CRR market to provide more value to all participants.  Such enhancements should range from modeling improvements to reduce the among of underfunding in the current market and seek to enhance the product itself to better align with the preferred resource mix of renewables and energy storage.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

Boston Energy is supportive of the ISO’s working group schedule.  As such we encourage the ISO to benchmark itself against other ISOs as far as underfunding and product definition.  The level of underfunding in CAISO is rather large compared to other markets Boston Energy participates in.  Performing a deep dive to understand why, while reviewing procedures and modeling methods of other ISOs is encouraged. 

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

While mentioned in the stakeholder meeting and above.  Boston Energy encourages the ISO to benchmark its underfunding to other ISO.  Such a benchmark could uncover areas where the CAISO can improve and reduce underfunding. 

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

None at this time.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

CRRs are a core component of organized electricity markets with nodal pricing. CAISO should focus its efforts to enhance its current design by improving the level of underfunding and contemplating enhancing the product itself to better reflect the preferred resource mix of California regulators.

Underfunding has increased the risk and volatility of holding CRRs, reducing their effectiveness as a hedging tool and also lowering the price a participant is willing to pay given payment uncertainty.  Understanding why, while benchmarking against other ISOs, will help hopefully identify the root causes of the underfunding. Boston Energy's beliefis that the 65% auction efficiency mentioned in the problem statement is a direct reflection of the high level of underfunding. 

BETM is supportive of comments made by CDWR that the 16-hour block product no longer aligns with peak load hours or the operational needs of renewable resources and storage. Additionally, we support the comments made by Vistra to ensure storage resources can effectively utilize CRRs.  issues.

BETM does not support radical changes to the CRR market that would undermine the role of CRRs and eliminate the access to CRRs for all market participants. Replacing the CRR auction with a market between willing buyers and sellers would eliminate a core feature of the competitive wholesale energy market and will drive out competition given the limited participant base that would be able to contract with some of the large load serving entities.   Such a move to this design will negate open access and non-discrimination, which CRRs are designed to support in a market where firm transmission service is unavailable.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

Boston Energy encourages the ISO to focus on the drivers of underfunding and benchmark itself to other ISOs.

7. Please provide any additional comments.

None at this time. 

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

The California Community Choice Association (CalCCA) appreciates the opportunity to comment on the California Independent System Operator’s (CAISO) Congestion Revenue Rights (CRR) Discussion Paper. CalCCA supports the CAISO taking on an initiative to ensure the CRR market design achieves the foundation purposes set by Federal Energy Regulatory Commission and CAISO precedent.[1] The comments herein recommend, in summary, that the CAISO:

• Consider battery energy storage system (BESS) load as eligible loads and eligible sinks in the allocation process;
• Evaluate how to change its CRR product definitions, either by redefining the hours of peak and off-peak or adding additional products; and
• Explore CRR auction efficiency to determine if a change to the auction is needed to ensure CRRs can be effectively used as hedges by entities engaging in forward energy contracting and minimize systemic losses paid for by transmission ratepayers.  

[1]            Discussion Paper at 3 and 5.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

CalCCA supports the tentative working group schedule. The working group will progress through foundations, analysis, policy scope, problem statements, and an issue paper by the second quarter of 2025. This provides the right amount of time to discuss the issues before turning to the policy development phase.    

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

The CAISO should have one working group meeting on level-setting, including the current CAISO processes and the use of CRRs in hedging, and at least one working group meeting on analysis depending on the volume of requests for analysis put forth by stakeholders. The CAISO should also hold working group meetings that allow parties to present their own proposals, including more in-depth presentations on the proposals put forth in the stakeholder catalog and other proposals parties develop during the working group process.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

See response in section 3 above.  

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

New Problem Statement

The CAISO should add the following problem statement: BESS storage load is not considered an eligible load or eligible sink under tariff section 36.8.2.

While pumped storage load is considered an eligible load and eligible sink under the tariff, BESS load is not. Load-serving entities (LSE) with pumped storage in their portfolios are allocated a potentially significant amount of CRRs to hedge congestion to their storage loads. Meanwhile, LSEs with BESS loads do not receive the same treatment. This appears inequitable and disadvantages LSEs with BESS in their portfolios. Within this initiative, the CAISO should consider treating grid charged BESS loads the same as pumped storage loads for the purposes of the CRR allocation, as no distinguishing characteristics between pumped storage and BESS have been identified to justify different treatment.

Product Definition

The CAISO should explore its CRR product definitions within this initiative. As stated in the problem statement, the current on-peak and off-peak definitions may adversely impact the ability to hedge congestion risks. The CAISO defines peak and off-peak CRRs in its Business Practice Manual as follows:

• On normal weekdays, Monday through Saturday, off-peak hours are the hours ending 1 through 6 and hours ending 23 and 24; on-peak hours are the hours ending 7 through 22.
• Public holidays and Sundays are treated as off-peak. That is, all 24 hours on these days are off-peak.

As renewables on the system have increased, the CAISO’s load shape and generation patterns have changed, affecting energy flows and congestion patterns on the system. This initiative should evaluate how to change the definitions, either by redefining the hours of peak and off-peak or adding additional products (e.g., a new super-peak product or additional products).

CalCCA agrees with the California Department of Water Resources (CDWR) that the current definitions do not align well with how the grid has evolved. While CDWR recommends splitting the on-peak time-of-use into super peak (HE 17 HE21) and on-peak (HE07 HE16, and HE22), the CAISO must perform an analysis before defining new products and/or hours.  This initiative should map energy flows by hour to determine if there is a logical way to refine the product definitions and their time periods.

With more solar generation on the grid, there is a need to examine whether additional periods should be defined.  Since LSEs seek to hedge the risk of congestion on solar output which will only occur in daylight hours, the current definitions of on-peak and off-peak do not address the expected operational hours. The CDWR proposal does not address solar hours either.  The Intercontinental Exchange (ICE) transacts standard solar contracts, one that is Monday-Saturday excluding holidays and another that is seven days a week. Both define the hours of settlement as HE 09 – HE 16. If the CAISO is going to examine changing the hours of the CRR product, it should include in scope other changes to better accommodate needed hedging given the changing output profile of generation.

Auction Efficiency

The CAISO should also explore CRR auction efficiency within this initiative. As stated in the problem statement, the CRR auction only yields about 65 cents per dollar of congestion revenue.  The data provided by the CAISO and DMM is helpful and appreciated.  However, more about the issue must be understood prior to any changes.  For example, the CAISO currently has a “set aside” of CRRs from imports after each of the allocation processes (annual and monthly).  In some cases, LSEs are able to get CRRs in the auction that they were not able to obtain in the allocation.  It is not clear whether this is due to the “set aside” or due to some other cause.  Before LSEs can evaluate the efficacy of changes to the CRR auction and allocation process, it is important to understand why LSEs are unable to obtain some CRRs in the allocation that they later obtain in the auction.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

The CAISO should: (1) analyze energy flows by hour to identify a logical way to redefine or add products to account for changes in system peak and off-peak hours; (2) work with individual LSEs to identify the reason(s) they were not able to obtain CRRs in the allocation process but later did obtain them in the allocation, as described in section 5; and (3) provide further information on the amount and cause of CRR revenue insufficiency.

First, regarding the flows to inform time of use for CRRs, the CAISO should evaluate whether congestion on source-sink pairs routinely change direction at a consistent time.  For example, it is possible that flows change when solar resources begin generating at sunrise and stop generating at sunset.  If this is causing a significant change in flows on the grid, then changing CRR periods is increasingly important. In addition, the CAISO should examine congestion on battery storage as most of its output occurs during the net load peak. The CAISO could then evaluate whether a super-peak product, like the one recommended by CDWR, would cover such a need or if a different product is needed. 

Second, regarding LSEs unable to obtain CRRs in the allocation but later obtaining them the auction, it would be helpful to identify why that outcome occurs.  For example, is the CRR set-aside impacting the ability to get CRRs in the allocation? As an alternative to examining each case in which an LSE requested a CRR in the allocation but did not get it, the CAISO could model whether those CRRs would have been granted to the LSE in allocation had the DMM proposal for the changes to the auction and its resulting impacts on the allocation process been in place. 

Third, regarding revenue insufficiency, it would be helpful to know how much of the insufficiency is due strictly to the current auction process. The CAISO could evaluate those CRRs that would have been allocated to LSEs under the DMM proposal (as discussed in the prior paragraph) and determine if there is any revenue insufficiency and if so, how much. 

These data points would be helpful to LSEs in determining how the proposals advanced in this initiative so far improve load’s ability to hedge congestion risk under the proposed changes.

7. Please provide any additional comments.

CalCCA has no additional comments at this time.  43

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

The following CRR related issues were presented by the California Department of Water Resources (CDWR) at the previous CAISO Catalog Initiatives Stakeholder processes – the conference calls hosted by the CAISO on April 22, 2024, and November 14, 2024:

a) The split of the CRRs by on-peak Time of Use (TOU): CDWR believes that the on-peak congestion revenue rights (CRRs) are less valuable and more volatile because the congestion direction (between most of the congestion paths in the CAISO grid) reverses at least two times during the on-peak period. This reversal of the onpeak congestion direction is caused by significant surge of renewables (e.g. solar) into the CAISO grid and is reflected in the current CAISO net load curves (a.k.a. duck curve) with two peaks during the on-peak period. CDWR believes that finding an optimal split for on-peak CRR should be considered (e.g., on-peak period corresponding to HE07 to HE16, and a super-peak period corresponding to HE17 to HE22) and benefits of creating the such split CRRs should be explored to mitigate volatility of on-peak CRRs and improve the congestion hedging.

b) Review the necessity of maintaining the Global Derate Factor (GDF) in the CAISO CRR monthly CRR allocation processes: CDWR believes that the GDF does not provide the similar degree of CRR revenue adequacy protection that it had provided prior to the implementation of the CRR Track 1B implementation and that it lowers the allocation share to an LSE in the monthly CRR allocation process thereby reducing the ability of the LSEs to meet their hedging targets. The example provided by CDWR shows that for August 2020 CDWR would have met its hedging target either, i) without CRR Track 1B changes but with the GDF in place, or, ii) with the CRR Track 1B changes and without the GDF. Therefore, CDWR recommends that the stakeholder process should consider an assessment of whether the GDFs are required to be maintained anymore with the track 1B changes.

c) Revamping the Counter Flow (CF-CRR) design: Based on CDWR’s participation in CRR allocation from Trading Hubs (TH), the allocation of CF-CRR in 2024 compared to 8 years prior, has dropped significantly resulting in less adverse impact from the CF-CRR allocations. Therefore, CDWR does not consider this as an issue based on its impact now. However, if other market participants find keeping it as a concern in terms of revenue adequacy, the stakeholder process may consider assessment on whether it is beneficial in maintaining the CF-CRRs.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

No comment at this time.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

Please see the topics a) and b) described at #1 above.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

Please see the topics a) and b) described at #1 above.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

Please see the topics a) and b) described at #1 above.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

a) The split of the CRRs On-Peak Time of Use (TOU): As described in 1(a) above; an optimal split of on-peak CRR period to be determined through an analysis.

b) The need to maintain the Global Derate Factor (GDF) in the CAISO CRR monthly CRR allocation processes: As described in 1(b) above; an analysis of value of maintaining the GDF while Track 1B implementation is in place.

c) Revamp of the Counter Flow (CF-CRR) design. As described in 1 (c) above: an analysis on overall impact of maintaining CF-CRR based on stakeholders’ interest.

7. Please provide any additional comments.

No comments at this time.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Please see attached comments.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

7. Please provide any additional comments.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Calpine supports the continued investigation of the root causes of revenue insufficiency created through the CRRs auctioned by the CASIO, as discussed in the workshop.

Based on the results of a diligent study of the drivers to insufficiency, Calpine is open to behavioral rules or structural modifications that may address identified shortcomings.  We do not agree with the DMM that we must throw out the baby with the bathwater.  Nor do we agree that a liquid bi-lateral swap market (or the willing buyer/willing seller version) could or would efficiently replace the CRR auction.

Calpine uses CRRs from the auction to hedge the cost of congestion between its generation resources and the trading hubs.  Having a known price for congestion allows confident access to multiple buyers in multiple markets (financial, physical, day-ahead and term). Calpine also uses CRRs from the allocation and auction as a significant load serving entity through its subsidiary, Calpine Energy Solutions. 

Calpine believes that CRR auctions are a critical component of open access to the transmission grid.    Without the ability to hedge congestion, Calpine sees further declines in trading liquidity and access to counterparties and as mentioned in the workshop, an increase buy-side market power. In fact, if we were forced to sell output only at the resource locations and accept congestion risk to trade hubs, we would have to raise offer prices to reflect the higher risk of absorbing unknowable congestion.  A very small change in a $10 billion market could have a significant and unnecessary impact on ratepayers.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

No Comment

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

No comment

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

No comment

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

No comment

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

No comment

7. Please provide any additional comments.

No comment

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

The California Energy Storage Alliance (CESA) appreciates the opportunity to comment on the congestion revenue rights (CRR) enhancements discussion group and scoping discussion.  CESA thought the working group did a good job grounding stakeholders on CAISO’s CRR process and scope to be considered in this initiative.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

CESA supports the tentative working group schedule. 

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

No comment. 

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

No comment. 

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

CESA supports evaluating changes in the on/off peak definitions to better align CRR products with congestion patterns in the day-ahead market.  CESA also believes the eligible sink nodes should be expanded to include storage resource locations to allow hedging of storage charging costs.   

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

CESA believes more granular analysis of revenue insufficiency that assesses allocated CRRs and auction CRRs independently.  Likewise, on auction efficiency it would be interesting if there were differences between on-peak and off-peak CRRs and/or systematic versus constraint specific auction inefficiencies.

7. Please provide any additional comments.

No additional comments. 

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Energy Division (ED) staff supports CAISO launching a Congestion Revenue Rights (CRR) enhancement initiative to consider CRR market design reform. Since the inception of the CRR market in 2012 revenue underfunding has resulted in ratepayers bearing the costs associated with for over a $1 billion in revenue shortfall since 2012, based on analysis from CAISO’s Department of Market Monitoring white paper Willing seller market design for congestion revenue rights. As a result, ED staff believes it is of critical importance to reform the CRR market design to ensure that ratepayers do not continue to fund the CRR market losses.  DMM’s proposal would implement a model that would only clear CRR sales between two willing counterparties who would bear the full cost and risks of these price swaps. One of the benefits of this approach is that any revenue payout for CRRs (the difference between money collected via sale at the auction and the amount paid to the CRR holder) would not be financially backed by transmission ratepayers (as is the case now with how the current CRR design pays for revenue inadequacy). DMM’s proposal ensures this new design would create a market between two willing counterparties, who bear the full cost and risk of these price swaps. 

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

ED staff believes the working group schedule can and should be accelerated. We believe that the Department of Market Monitoring (DMM) “Willing Seller” proposal would improve the revenue inadequacy outcomes that are currently a result of the underfunded CRR auctions. As it stands today, the auctions only generate 65 cents to the $1, therefore ratepayers have been responsible for the other 35 cents. DMM’s analysis finds that the average annual loss to transmission ratepayers between 2019-2023 is $62 million a year. ED believes DMM has sufficiently explained the source of the revenue insufficiency so there is no need for further meetings regarding the foundations of CRR or further CRR analysis. This would allow CAISO to move up the Policy Scope and Problem Statements to January 2025, rather than March or April 2025 as proposed.  

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

ED staff would find it helpful to understand how financial transmission rights are handled in other jurisdictions and the magnitude of revenue insufficiency in other RTO/ISOs. This analysis should be provided concurrently with the evaluation of policy proposals, rather than preceding the issue paper.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

No further comments at this time.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

No further comments at this time.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

ED staff believes any additional analysis should be provided concurrently with the evaluation of policy proposals, in order to maintain or accelerate the current schedule.

7. Please provide any additional comments.

ED staff notes that there is broad stakeholder support for launching the Congestion Revenue Rights enhancement initiative. In the final policy catalog roadmap published by CAISO on July 18^th, 2024, 12 parties identified CRRs as their highest priority, and 22 parties identified it as high priority. DMM’s proposal will allow load serving entities (LSEs) allocations to remain in place, which facilitates LSE hedging, but it would also address auction inefficiencies that are driving revenue shortfalls every year. As a result, DMM’s Willing Seller proposal should reduce costs for CAISO customers by eliminating the revenue insufficiency that is driven by the current CRR auction design.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

DC Energy California, LLC and its affiliates (collectively, “DC Energy”) commend the CAISO for issuing the CRR Discussion Paper and establishing the CRR Enhancements Working Group.  DC Energy hopes that the Working Group addresses the root causes of CRR underfunding and makes adjustments to the CRR product, such as introducing new time of use periods, that ensure CRRs provide a reliable hedge to congestion in the day-ahead market for all types of market participants, thus reducing risk premiums and spurring auction participation and, ultimately, increasing auction revenues. 

The CRR Discussion Paper accurately identifies the three principal purposes of CRRs and their equivalents in other markets: (1) to provide non-discriminatory open access to transmission; (2) to allocate congestion rents fairly; and (3) to provide a hedge to congestion costs in the day-ahead market.[1] 

The Federal Energy Regulatory Commission (“Commission”) continues to affirm the above as the purposes of CRRs.[2]  The Commission recently stated that the CAISO’s CRRs, “play important roles in organized wholesale electric markets by returning some congestion revenue to load, enabling hedging for all market participants, and supporting forward market activity.”[3]  The Commission further stated that the CAISO’s CRRs, “were designed to serve as the financial equivalent of firm transmission service and play a key role in ensuring open access by providing the opportunity to all market participants to acquire congestion hedges.”[4]

Although, from time to time, the Commissioners may support different ways of implementing the “bedrock principles of open access and non-discrimination,”[5] as set forth in the Commission’s landmark decision in Order No. 888, the Commission continues to endorse the “fundamental principles of non-discriminatory open access transmission services.”[6]  For instance, when the Commission accepted the CAISO’s current approach to biddable CRR paths, it found that non-discriminatory open access is a “core function of the CRR auction.”[7] 

At present, CRRs in the CAISO are not functioning as the full financial equivalent of firm transmission service nor are they providing hedges for day-ahead market congestion as reliably as they could, due to congestion revenue shortfalls and the manner in which those shortfalls are allocated.  Currently, a CRR that would otherwise provide congestion revenue because day-ahead market prices were in fact higher at the sink and lower at the source during the settlement period may provide no congestion revenue whatsoever and may even obligate its holder to pay money because congestion revenue collected on a given constraint is negative due to uncollected payments arising from loop flows and/or load/generation exacerbating congestion but receiving no congestion price signal.  As the Department of Market Monitoring (“DMM”) acknowledges, “[e]ntities offering to purchase or sell CRRs in the auction must factor their expectation of these deficit offset charges into their bid prices in the auction,” and “these offset charges prevent CRRs from providing a full hedge against price differences between the source and sink of each CRR.”[8]

The goal of the CRR Enhancement Working Group should be to ensure that CRRs continue to be a reliable and useful product for those market participants that would otherwise not have non-discriminatory open access to electric transmission capacity.  To this end, the CRR Enhancements Working Group should identify and then work to eliminate the root causes of congestion revenue underfunding, as well as reform how underfunding is allocated to CRR holders.  Addressing these underfunding issues, as well as other reforms to further enhance the reliability and utility of CRRs, will lead to more robust CRR auction participation.[9]  This increased participation will in turn boost auction revenue, which benefits load.

It is imperative that the CAISO improve the reliability and utility of CRRs and provide for robust, open CRR auctions in its existing footprint now, so that the CAISO can provide a successful model for addressing issues with day-ahead market congestion as they arise in the Extended Day-Ahead Market and the developing Western Energy Market.

[1] See CRR Discussion Paper at 3-4, citing, PJM Interconnection, L.L.C., 156 FERC ¶ 61,180 (2016), reh’g denied, PJM Interconnection, L.L.C., 158 FERC ¶ 61,093 at P 27 (2017).

[2] PJM Interconnection, L.L.C., 178 FERC ¶ 61,170 at P 44 (2022) (“[W]e 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. [ . . .] 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.”)

[3] Cal. Indep. Sys. Operator Corp., 184 FERC ¶ 61,164 at P 4 (2023).

[4] Id.

[5] See Duke Energy Progress, LLC, 177 FERC ¶ 61,080, Dissenting Statement of Comm’r Clements at P 2 (2021), order vacated, Advanced Energy United, Inc. v. FERC, 82 F.4th 1095, 1112 (D.C. Cir. 2023) (vacating majority opinion for failure to adequately explain how approved proposal would satisfy principles of open access and non-discrimination).

[6] See Regional Transmission Organizations, Order No. 2000, FERC Stats. & Regs. ¶ 31,089 (1999).

[7] Cal. Indep. Sys. Operator Corp., 163 FERC ¶ 61,237 at P 64 (2019).

[8] Willing Seller Market Design for Congestion Revenue Rights, CAISO Department of Market Monitoring, at 10 (October 23, 2024) (“DMM Paper”) available at: https://www.caiso.com/documents/willing-counterparty-whitepaper-oct-23-2024.pdf

[9] PJM Interconnection, L.L.C., 156 FERC ¶ 61,180 at P 97 (2016).

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

DC Energy appreciates that the CAISO has prioritized efforts to enhance CRRs but believes the Working Group process will likely need more time to conduct requested analysis and develop the Issue Paper. 

To the extent practicable, the CAISO should endeavor to implement enhancements that can be most easily implemented first, rather than waiting to implement all enhancements at once. 

DC Energy requests additional opportunities to provide written comments as the Working Group process produces new analysis as well as when new problem statements are introduced.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

The CRR Enhancement Working Group should:

• Identify the root causes of CRR underfunding and solutions for eliminating or substantially mitigating underfunding, particularly:
  • Improve the accuracy of the CRR model by ensuring more accurate outage and line rating information is included in the model. 
    • The CAISO’s practice of not updating its daily scheduled outages posting when notified of a future scheduled outage within a certain number of days (typically 20 days) before a CRR auction (“freeze period”)[1] prevents market participants from bidding with the most accurate and otherwise available information regarding scheduled outages.
    • Transmission owners in the CAISO should be incentivized to accurately and timely report outages and system changes.  
    • Additionally, the CAISO should 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 and also should ensure there is sufficient transparency regarding day-ahead line ratings.
  • Incorporate more accurate and consistent flow data when settling the day-ahead market.
    • Specifically, the CAISO applies shift factor thresholds to determine which power injections are used to manage congestion and set day-ahead market prices.  The CAISO applies a 0.2% threshold for default load aggregation points (DLAPs), trading hubs (THs), and certain interties and a 2% threshold for all other settlement locations. The continued use of a 2% threshold at certain locations contributes to CRR underfunding.  
  • Ensure that all power scheduled in the day-ahead market is accounted for either in the day-ahead market or in the CRR model.
    • Specifically, certain power flows in the CAISO’s day-ahead market, such as loop flows arising from transactions undertaken outside of the CAISO Balancing Area, are not charged day-ahead market congestion and are not accounted for in the CRR model.
    • The CAISO should consider how it can better coordinate with its neighbors to mitigate unscheduled loop flows or charge them for their use of the CAISO transmission system. 

• Review and reform how CRR underfunding is allocated. 
  • The CAISO’s constraint-by-constraint approach to underfunding allocation assigns day-ahead congestion revenue shortfall or surplus on the basis of each specific network element pair in each hour.  As a result of this overly specific allocation, similarly situated element pairs may be deemed under- or over-funded based on the vagaries of minute changes to system operations.
  • The CAISO allocates underfunding to gross prevailing flow CRR capacity on individual constraints, rather than allocating to net prevailing flow CRR capacity.  This approach ignores the properties of prevailing flow and counterflow CRRs and treats equivalent CRR portfolios differently.
  • The CAISO fails to allocate surplus congestion revenue to underfunded CRRs, thus resulting in underfunding without providing an offset.
  • The CAISO allocates underfunding from all sources to CRR holders, which is inconsistent with cost causation principles.
  • As part of the effort to review and reform how CRR underfunding is allocated in the CAISO, the Working Group should explore how other RTOs allocate CRR underfunding.

• Consider changing or adding time-of-use periods to make CRRs a more useful hedging instrument for market participants in the day-ahead market.
  • Currently, CRRs in the CAISO are available in two time-of-use periods, On-Peak and Off-Peak, that may no longer correspond with the hours of the day that a market participant most needs to hedge its day-ahead congestion risk, primarily due to the increasing prevalence of solar and battery resources. 

• CRRs should both source and sink at locations with battery resources.
  • Battery resources act as both load and generation resources, so market participants should have the ability to acquire CRRs that either source or sink at the location at which a battery settles in the day-ahead market.  
     
• Consider adopting Balance of Planning Period (“BoPP”) style monthly CRR auctions.
  • BoPP style monthly auctions provide market participants the opportunity to hedge and readjust their portfolios in advance of critical summer and winter periods.
  • BoPP style auctions provide updated prices each month for every month remaining in a planning year. These prices allow for updated valuations of CRR portfolios that can be used as the basis for CRR credit requirements. This would provide greater credit protection against the risk of CRR portfolios that decline in value over time. 

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

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

Revenue Inadequacy consists of two issues: (1) CRR underfunding, and (2) the allocation of underfunding. 

Substantial CRR underfunding continues to persist in the CAISO.  The underlying root causes of CRR underfunding should be investigated and eliminated or mitigated to the extent practicable. 

The current allocation of CRR underfunding concentrates underfunding in an overly specific and unpredictable manner. 

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

Currently, the CAISO provides 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 should provide similar data for loop flows, which are unsettled.  This will help determine which constraints are most affected by loop flows and track the contribution of loop flows to underfunding.

The CAISO should provide data on the number of scheduled outages that have been reported during the 20-day “freeze period” prior to an upcoming CRR auction and thus not included in the daily scheduled outages posting.  These outages can have a significant effect on CRR underfunding, but are unknown to market participants until after the CRR market has closed, despite being scheduled ahead of market close.

In addition, DC Energy requests that the CAISO update the analysis conducted in 2017 related to Participating Transmission Owners (PTO) outage requests.[2] 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. This analysis is critical for understanding the root causes of discrepancies between the CRR model and the day-ahead market.  Once identified, the CAISO should rerun auctions with these outages to identify how much underfunding is being created by non-compliant outage reporting by Transmission Owners.

The CAISO should provide data for tracking manually adjusted or conformed line rating changes in the day-ahead market.  Under the current BPM, CAISO may adjust transmission constraint limits to respond to system conditions.[3]  These adjustments may have significant impacts on revenue adequacy.  CAISO should report instances of these limit adjustments to market participants, including expected start and end times and a description of why the adjustment was applied.

DC Energy respectfully requests that the CAISO rerun its day-ahead market and recalculate CRR underfunding with a shift factor threshold of 0.2% on all settlement locations since September 2023 (when the shift factor threshold change for DLAPs the TH nodes went into effect), and provide hourly notional and offset revenues by constraint.  This analysis will help determine the contribution of the current shift factor threshold discrepancy to CRR underfunding.    

DC Energy further requests that the CAISO also rerun its day-ahead market and recalculate CRR underfunding with no shift factor threshold on all settlement locations since September 2023 (when the shift factor threshold change for DLAPs the TH nodes went into effect), and provide hourly notional and offset revenues by constraint.  This analysis will help determine the contribution of shift factor thresholds to CRR underfunding.  

[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.

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

[3] See CAISO Market Operations Business Practice Manual, at sec. 7.1.5.

7. Please provide any additional comments.

DC Energy would like to take this opportunity to offer preliminary comments in response to the DMM’s proposal to allocate all congestion revenue to load and eliminate open CRR auctions and instead replace them with a market dependent on “willing” sellers (“price swap construct”). 

CRR auctions are foundational to open access in ISO/RTO markets because they provide open access to the financial equivalent of firm transmission service to all potential market participants.  The CAISO currently provides open access to transmission with a two-step CRR process that starts with allocations to load and ends in auctions open to all market participants.  In the allocation process, load-serving entities are allowed to nominate CRR paths that source from a supply location and sink into their load aggregation point (LAP), and they can be awarded a total volume up to approximately their peak load for each season and month and time-of-use period.  There is no price associated with the nominations in the allocation process.  At the end of the allocation process, no more CRRs can be awarded because none of the remaining unawarded nominations can identify sufficient free transmission capacity. 

At this point, the CAISO then auctions the remaining, unallocated or “residual” transmission capacity.  Some market participants are willing to accept counterflow constraint exposure in return for payment of a risk premium, allowing the auction to clear the residual transmission capacity that the allocation process was unable to award.  CRR auctions solve for the combination of paths that maximizes auction revenue while satisfying simultaneous feasibility, reconfiguring the network to its maximum use. In the process, the auction sets a price and provides value for the residual transmission capacity, which is otherwise an underutilized asset with no valuation. Thus, CRR auctions maximize the efficient, non-discriminatory use of, and open access to, the transmission system.

The DMM's proposal bifurcates market participants into two disparate classes: those that will receive entitlements to congestion revenue and those who will struggle to find hedges to day-ahead market congestion at efficient market prices. The first class comprises incumbent load-serving entities and exporters. These entities will continue to receive CRR allocations from supply locations to their LAP up to a total volume equal to their seasonal peak load. Congestion revenues associated with these allocated CRRs are paid out only to the incumbent load-serving entities and exporters. Any surplus congestion revenues not associated with these allocated CRRs will continue to be allocated back to load. In summary, all congestion revenues would be returned to load. While this achieves the DMM's ultimate objective to return all congestion revenue to load, the proposal is unacceptable under Commission precedent, which has “rejected the arguments that the sole purpose of [CRRs] is to return congestion revenue to load and the market should therefore be redesigned to accomplish that directive.”[1]  Holding instead that “[CRRs] 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.”[2]

The DMM’s proposal differs from the proposal the Commission already has rejected only because it would require the CAISO to provide a platform for facilitating a simple nodal auction open to all market participants, which would include a second class of participants, e.g., generation owners, power marketers and financial participants.  The addition of such a platform is inadequate to serve as the financial equivalent of firm transmission service and would not play a key role in ensuring open access to firm transmission service by providing a robust congestion hedging function.  Under the DMM’s proposal, market participants would place bids to buy CRRs just as they would in a typical CRR auction, specifying source location, sink location, time-of-use period, volume and price. Load serving entities could choose to sell their allocated CRRs by offering them for sale in this auction, as load-serving entities do in today's CRR auctions. Any other market participant could effectively do the same by bidding on CRR paths in the opposite direction of congestion, i.e., counterflow. The clearing of this auction would result in “price swaps.”  However, the price swap construct’s clearing mechanism includes no concept of network topology and its optimization seeks to maximize auction revenue while ensuring that all nodal net injection/withdrawals are equal to zero. The price swap clearing algorithm is much less efficient than the current CRR clearing process because it does not recognize the electrical equivalence or similarity of sets of locations, and, with no concept of network topology, it does not find the simultaneously feasible solution that maximizes the use of networked transmission capacity. 

Returning all congestion revenue to load would greatly diminish any incentive for load serving entities to respond to the marginal cost of energy at their settlement locations by seeking more efficient, least cost sources of power, pursuing demand response, siting large load facilities efficiently, or investing in storage technology.  Congestion itself would become a discriminatory charge, applying only to those without an entitlement (i.e., CRR allocation), such as new market entrants, generators subject to interconnection and deliverability charges, and those seeking to schedule higher volumes of exports from the CAISO than their entitlement allows. 

The long-run harm of this discriminatory dynamic cannot be overstated. Most generation owners and developers are reliant on power purchase agreements (PPAs) with load serving entities in the CAISO. Under the DMM's proposal, each time a PPA is negotiated with a generator that is located in a constrained generation pocket, the load serving entity would have an advantage, knowing that it would have a congestion hedge, and could demand to purchase power at the generator's depressed bus bar price. The generator could not instead deliver power to the higher-priced load zone because it would face the full cost of congestion without a price swap to hedge its exposure. Obtaining a hedge, however, would be more difficult and more expensive under the price swap construct than in today's CRR auctions. A full hedge would only be available in the unlikely scenario that another entity provides sufficient counterflow at the generator's specific location to cover the total volume of power sales. Even a bilateral transaction outside of the CAISO market would be challenging because the price signal from the price swap construct would be unreliable.  A new generation resource interconnecting at a new resource node would find it particularly difficult to acquire adequate hedge volume at an efficient market price.

The dynamics under a price swap construct will diminish the incentive for generators, including renewable resources, as well as battery resources, to operate and develop new capacity in the CAISO market. Furthermore, expanding the price swap construct to EDAM and the emerging Western Energy Market would likely stifle investment and innovation, while also negatively impacting the development of new generation resources, including renewable resources and battery resources, throughout the Western Interconnection.  This is exactly the opposite of what is needed in the CAISO in light of expected high demand growth. 

The DMM has provided a counterfactual optimization that uses the bids and offers submitted in CRR annual and monthly auctions in 2017-2018, before the CAISO restricted biddable CRR paths.  It is not reasonable to assume that comparable volumes of bids and offers would occur under the DMM’s proposal as occurred in the open, single clearing auctions of residual transmission capacity that the CAISO held before it limited biddable paths. Currently, there are secondary markets that provide a market for path-based derivatives very similar to the price swap construct proposed by the DMM. Liquidity on these secondary markets at CAISO locations has been limited, particularly on paths at locations more granular than hubs. When transactions do occur, they generally happen very soon after a CRR auction has cleared, because only an open, liquid CRR auction based on the simultaneous feasibility of the transmission network can provide reliable market-based prices on which to base transactions. The decline in available capacity would be particularly stark in monthly auctions, because much of the CRR capacity sold in monthly auctions is first acquired in an open annual auction for residual transmission capacity, and an open annual auction would no longer occur under the price swap construct. 

Even accepting the assumptions used in the counterfactual and using the 2017-2018 CRR bids and offers, a closer look at the counterfactual reveals that it would leave generators unable to hedge and would result in less accurate and more volatile prices at generation nodes.  DC Energy has taken the stated assumptions, used the same public CRR bid data from 2017-2018, and successfully replicated the counterfactual optimization.  (See Appendix A slide 2). 

DC Energy examined the outcome for paths sourcing at particular settlement locations and types of settlement locations under the counterfactual optimization and found that, in certain instances, substantially less volume would clear on CRR paths sourcing from certain generation resources under the price swap construct than cleared in 2017-2018 monthly and annual auctions.  For example, paths sourcing from several resource nodes corresponding to generation units owned by Calpine and sinking at NP15 would clear significantly less volume under the counterfactual. (See Appendix A slide 3-4).  Comparing the decreased cleared volume under the counterfactual on these example paths with the volumes that actually cleared in CRR auctions in 2017-2018 demonstrates that insufficient volumes would clear under the price swap construct to allow Calpine to hedge its units, even under the unrealistically positive assumption that the same volume of bids and offers would occur under the price swap construct as occurred in CRR auctions in 2017-2018, i.e., before the CAISO limited biddable CRR paths.

In addition, price swap clearing prices on paths sourcing from the example resource nodes and sinking at NP15 are more volatile and less converged under the counterfactual than under the actual CRR auction results from 2017-2018. (See Appendix A slide 5-6).  The mean absolute error between price swap clearing prices and actual day-ahead market settlement prices on the example paths increased by 112%-482% under the counterfactual compared to clearing prices in the actual CRR auctions in 2017-2018.  DC Energy expects that actual prices under the price swap construct would likely be more volatile and less converged to actual day-ahead market settlement prices than in the counterfactual, because the actual market will likely be less liquid.  Prices will be less efficient without the benefit of a single-clearing, simultaneously feasible market outcome designed to provide competitive, market-based prices for all transmission capacity on the CAISO’s system. 

In addition, significantly less volume cleared in the counterfactual on the four types of CRR paths that non-financial market participants cleared the most by volume in 2017-2018. (See Appendix A slide 8).  The top four types of paths cleared by non-financial market participants by volume in 2017-2018 were: (1) interfaces/ties to trading hubs; (2) load aggregation points to resource nodes; (3) resource nodes to trading hubs; and (4) load aggregation points to interfaces/ties. (See Appendix A slide 7).  Each of these types of paths cleared significantly less volume under the counterfactual optimization than in the actual CRR auctions with the same set of bids and offers. (See Appendix A slide 8).  The top path type cleared by non-financial participants (i.e., interfaces/ties to trading hubs) experienced an 83% reduction in cleared volumes.  The general type of path in the Calpine examples above (i.e., resource nodes to trading hubs) experienced an overall reduction in cleared volume of 82%, demonstrating that the above examples illustrate a wider phenomenon.  Meanwhile, delivery paths from resource nodes to load aggregation points experienced a 68% reduction in cleared volumes. 

These substantial reductions demonstrate that the price swap construct would fail to clear adequate volumes of hedges to day-ahead market congestion, and thus would fail to provide non-discriminatory open access to the financial equivalent of firm transmission, and also would fail to maximize the use of the transmission network.  The reduction in cleared volumes in needed hedges for non-financial market participants in general and generators in particular under the price swap construct indicates that hedges will be less available and ultimately more expensive.  More expensive hedges, or worse still unhedged congestion risk, may ultimately result in barriers to entry and higher system costs. 

In contrast, “[t]he ISO and its Market Surveillance Committee (MSC) have argued that even if auction revenues from CRRs are consistently much lower than CRR payments, auctioned CRRs provide hedges to suppliers that might result in lower energy procurement costs that might outweigh losses from sales of these CRRs for load serving entities.”[3]  The DMM counters that “no analysis has been done by the ISO or MSC to assess any such potential indirect benefits to ratepayers.”[4]  Independent economists, however, have compared the amount of congestion revenue paid to non-load serving financial transmission right (i.e., CRR) holders in PJM and in MISO and concluded that the overall cost savings and benefits of a liquid, efficient financial transmission rights market that provides for transparent price discovery dwarfs the amount paid to non-load serving entities.[5]

The price swap construct will not provide the same price discovery benefits as today’s open, single-clearing CRR auctions in the CAISO, which solve for the maximum simultaneously feasible use of available transmission capacity.  The price discovery feature of CRR auctions provides efficient, market-based prices on all biddable transmission paths that are relied upon by the wider market to price transactions and inform investment decisions.[6]  Transmission, generation, as well as battery and large load developers would lose vital price transparency with the elimination of CRR auctions.  The lack of price transparency would raise risk premiums, increase project costs, jeopardize, or at least harm, the ability of companies to finance new infrastructure developments, and ultimately raise barriers to entry. 

The elimination of CRR auctions in the CAISO would be particularly harmful for companies developing new generation resources.  New generation resources establish a new resource node as part of the generation interconnection process.  Today, a greenfield utility-scale solar project developer in the CAISO can rely on CRR auctions to produce reliable market-based prices for expected future congestion on paths sourcing from a newly added but as yet unenergized resource node.  Under the price swap construct, there would be no simultaneously feasible single-clearing market solution to provide an efficient price on paths sourcing from this new resource node. 

The CRR Enhancement Working Group should work to enhance the CAISO’s CRR auctions rather than eliminate them.  If the CAISO enhances the reliability and utility of the CRR product, auction prices and participation will increase.  In order to do this, the CAISO should address the underlying causes of underfunding, reform underfunding allocation, and make adjustments to the CRR product to increase its utility as a hedge for market participants, such as adapting the available times of use to reflect how solar and storage resources have changed daily peak-load profiles.  These reforms are consistent with Commission precedent, as well as with sound market design and the practice in other US RTOs.

[1] See PJM Interconnection, L.L.C., 156 FERC ¶ 61,180 (2016), reh’g denied, PJM Interconnection, L.L.C., 158 FERC ¶ 61,093 at P 27 (2017). 

[2] Id.

[3] DMM Paper at 11.

[4] Id.

[5] See Review of PJM’s Auction Revenue Rights and Financial Transmission Rights, London Economics International LLC, at 16-17 (Dec. 16, 2020) (“PJM LEI Study”), available at: https://www.pjm.com/-/media/committees-groups/task-forces/afmtf/postings/lei-review-of-pjm-arrs-and-ftrs-report.ashx; see also, Independent Evaluation of MISO’s Auction Revenue Rights and Financial Transmission Rights, London Economics International LLC (Jan. 12, 2023) (“MISO LEI Study”), available at: https://cdn.misoenergy.org/20230112_LEI%20ARR-FTR%20Market%20Evaluation%20Report627572.pdf.

[6] PJM LEI Study at 29 (finding that financial transmission rights “improve the long run signal for investment” among its “key takeaways”).

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Please see attached comments.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

7. Please provide any additional comments.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

The Financial Marketers Coalition (Coalition) presents these comments to CAISO and its stakeholders for consideration, raising four fundamental issues about the CRR market and the Discussion Paper.  Most significantly, as CAISO approaches the EDAM go-live date, it needs a robust and fully funded CRR market that permits market participants to appropriately hedge their market exposure and support forward market activity.

• First: the primary purpose of CRRs is not to return congestion rent to load. 

The purpose of CRRs is to provide a tool by which market participants may hedge their market activity, support forward market activity and return some congestion revenue to load.  The Discussion Paper errs by ignoring these other purposes of CRRs, as well as FERC’s findings that CRRs are designed to return some, but not all, congestion revenue to load.  FERC recently reminded CAISO of this purpose in the order on CRR credit requirements, which stated: 

FTRs play important roles in organized wholesale electric markets by returning some congestion revenue to load, enabling hedging for all market participants, and supporting forward market activity. FTRs were designed to serve as the financial equivalent of firm transmission service and play a key role in ensuring open access by providing the opportunity to all market participants to acquire congestion hedges.

See CAISO, 184 FERC ¶ 61,164 at P 4 (2023).  The CRR product was not designed to return all congestion revenue to load; therefore, any metric measuring congestion revenues to load must account for this intent.  FERC has rejected prior assertions that the goal of CRRs (or FTRs) is to return congestion revenues to load.  In rejecting a similar argument by the PJM market monitor, the Commission held:

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. 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. The purpose of FTRs to serve as a congestion hedge has been well established. In the Energy Policy Act of 2005, Congress added section 217(b)(4) to the FPA, directing the Commission to exercise its authority to “enable load serving entities to secure firm transmission rights (or equivalent tradable or financial rights) on a long-term basis for long-term power supply arrangements made, or planned, to meet such needs.”  In Order No. 681, the Commission clearly emphasized the significance of FTRs in hedging congestion price risk.

PJM Interconnection, L.L.C., 158 FERC ¶ 61,093 at P 27 (2017) (footnotes omitted).  Further, the goal of returning all congestion rent to load contradicts the purpose of a nodal market, which includes providing signals for investing at the correct locations. Returning all congestion revenue to load would make load indifferent about where to invest generation, thereby eliminating a significant market signal.

As FERC recognizes, CRRs serve several purposes first, before returning remaining congestion revenue to load.  First, the purpose of CRRs is to provide entities with a tool to hedge against transmission costs.  The CRR is funded through congestion rents exactly because it is a hedge against increased congestion costs.  Second, CRRs support forward market activity, giving entities a tool with which to project future transmission costs.

• Second, CRRs are a component of open access. 

As FERC clearly holds in the CAISO and PJM orders cited above, CRRs “play a key role in ensuring open access by providing the opportunity to all market participants to acquire congestion hedges.”  Open access is a fundamental bedrock FERC principle; it is not subject to change.  

Open access allows all participants to access transmission capacity. Load acquires transmission rights through allocations, and the rest acquire transmission rights through auctions.  The allocation of transmission rights to loads compensates load for paying for transmission.  Loads do not have any rights beyond their allocations. Having been fully compensated through their allocation, loads do not hold any further rights on the remaining capacity beyond their allocations and cannot disallow others from acquiring such capacity.

• Third, CAISO must fix its CRR underfunding problem. 

As other market participants have noted and CAISO acknowledges, CAISO faces a recurring CRR underfunding problem.  That problem should be addressed by this stakeholder initiative as a far more significant concern than potentially making unjust and unreasonable changes to the CRR market that might violate FERC Order No. 861.

• Fourth, financial trading companies play an important role in CRR markets by shouldering risk and providing liquidity. 

Energy markets are inherently volatile and risky because it can be hard for market participants to predict future pricing. Some regulated market participants are limited by their regulators in taking on risk and volatility. Financial marketers shoulder this risk on their behalf, allowing market participants to hedge the prices that they will pay against the positions taken by a financial market participant. Financial marketers also infuse capital and introduce competition where otherwise none (or little) may exist.  The Discussion Paper does not acknowledge the shouldering of risk or provision of liquidity by non-LSE CRR market participants.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

We are concerned that the proposed schedule does not allow for sufficient stakeholder engagement.  Overall, the process would benefit from additional meetings, greater stakeholder engagement and thoughtfulness.  For example, consideration of analysis will need more than one meeting, and there will need to be substantive analysis of the CRR market by more than just one party.  We propose:

January – discussion of CRR foundations, including stakeholder presentations

February – Analysis Phase 1, including discussion of any analysis published before the meeting and scoping of a potential independent consultant.

March – Analysis, Phase 2.  Decision on independent consultant.

[3-5 month break to allow for independent report to be written]

August – Policy Scope and Problem Statements

September – Further discussion of problem statements

October/November – Issue paper, final thoughts from stakeholders

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

First, we believe that more time should be devoted to the foundations of the CRR market, including level setting the value and purpose of CRRs.  Significant research papers have been written on this.  Stakeholders should also be given an opportunity to present.  Second, as discussed in response to subsequent questions, we believe significantly more analysis needs to be done before sweeping changes are made to the CRR market construct.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

We believe that significantly more time needs to be devoted to the role of CRRs in hedging.  In this context, presentations by stakeholders that use CRRs for hedging would be helpful.  This should encompass not just LSEs, but also generators and other entities supplying power.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

We support the WPTF problem statement to look into the causes of revenue inadequacy and determine whether CRRs are efficient as a congestion hedging tool.  Since the primary goal of CRRs is to be a tool to hedge congestion, determining whether they are serving their most basic purpose is critical.

We support the three CDWR problem statements, as addressing valuable issues with CRRs.

We oppose the DMM’s problem statement to render the CRR market into one of willing buyers and sellers.  At bottom, this will destroy the value of the CRR as a congestion hedging instrument.  For example, will a generator only be able to buy a CRR from its generation to its point of delivery, or the counterflow/reverse of that, if an LSE is willing to sell it?  That would put the LSE into the position of carrying all the risk for the generator, an untenable position for a regulated entity.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

We believe that CAISO needs to consider hiring an independent third-party consultant, similar to what MISO and PJM did with London Economics Inc. (LEI), to conduct a review of the CRR market.  Critically, this analysis must be done by an independent third party to ensure its neutrality.

7. Please provide any additional comments.

Overall, CAISO must address the underfunding issue plaguing CRRs.  As noted by WPTF in their problem statement, that is the most significant issue.  As noted in our introductory comments, as CAISO moves towards EDAM, it needs a functional and fully funded CRR market to provide full value and hedging to the expanded market.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Nodal Exchange is a derivatives exchange providing price, credit and liquidity risk management to participants in the North American commodity markets. Robust CRR markets translate to greater opportunities for lower-cost granular hedging in the exchange markets. As such, Nodal Exchange hopes CAISO will consider the attached comments regarding maintaining a physical network model for CRR auctions and focusing efforts to enhance the CRR market on supporting more efficient auction bidding, rather than reducing payouts to awarded CRRs.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

7. Please provide any additional comments.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Direct Energy L.L.C. (DE) appreciates CAISO's ongoing stakeholder process and supports the Congestion Revenue Rights (CRR) enhancements initiative. DE finds CRRs effective for hedging congestion costs and maintaining market integrity. To address the two daily peaks caused by increased intermittent generation, DE supports DWR's proposal to split on-peak TOU into super-peak (HE 17-21) and on-peak (HE 07-16, 22), with off-peak covering the remainder. This change would improve CRR revenue predictability and transparency. DE emphasizes the crucial role of the CRR auction in promoting liquidity, competition, and openness, benefiting both suppliers and ratepayers. Consequently, DE opposes significant changes to the CRR market, particularly the auction process, as substantial alterations like DMM's proposed willing buyer/seller market could disrupt efficiencies, increase costs, and hinder investment and resource development.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

7. Please provide any additional comments.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

PG&E supports CAISO's focus on investigating the root causes of CRR shortfalls and engaging with stakeholders to develop robust solutions. Only after identifying these root causes should CAISO proceed with detailed presentations and discussions of proposed solutions.

PG&E is interested in understanding the value of auctions in hedging congestion risks and evaluating the effectiveness of the current CRR design in allowing market participants to hedge congestion.

Finally, PG&E requests that CAISO improve the transparency of CRR markets by providing information on shortfalls allocated to CRR holders, as the current settlement charge codes lack this information.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

PG&E finds the proposed schedule of monthly meetings to be reasonable. PG&E encourages CAISO to involve MSC in identifying the root causes of CRR shortfalls and developing solutions, and to reflect this engagement in the schedule whenever possible. 

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

PG&E finds the following topics helpful:

• Benchmark comparisons of CAISO’s CRR market designs with other ISO/RTOs, including pros and cons, and performance metrics such as payouts, shortfalls, and auction efficiency.
• Performance of market participants in CRR markets by category, particularly in the auction market, including Load Serving Entities (LSEs), Independent Power Producers, and financial entities.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

PG&E is interested in understanding the value of auctions in hedging congestion risks. This information can be provided by CAISO, DMM, or market participants, detailing how much CRR procured in auctions was used for hedging versus other purposes.

Additionally, PG&E seeks to evaluate the effectiveness of the current CRR design in allowing market participants, especially LSEs as the original holders of CRRs, to hedge congestion. PG&E is concerned that discrepancies between the system models used in the Simultaneous Feasibility Test (SFT) and the actual day-ahead system configuration may undermine the predictability of the congestion risk hedge.

PG&E recommends that CAISO conduct studies to evaluate the effectiveness of congestion risk hedging with perfect information under the current model. Specifically, using historical system configuration data for a month, determine how much congestion hedge CRR holders could achieve system-wide and identify any differences among CRR holders.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

PG&E has no comments on the proposed problem statements at this time. We support DMM’s proposal being carefully examined with LSEs' hedging interests in mind.

Additionally, PG&E finds that the current CRR settlement process lacks transparency in showing shortfalls and CRR payments to holders. To address this issue, we recommend that CAISO develop separate charge codes for CRR payments and shortfalls. The current charge code 6700 only provides netted payments to CRR holders.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

See comments in Question 4.

7. Please provide any additional comments.

PG&E notes that the discussion paper focuses on addressing CRR shortfalls mainly through auction improvements and does not propose changes to the existing CRR allocation process. Can CAISO confirm if this understanding is correct?

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

SDG&E appreciates and generally supports CAISO’s effort to undergo a stakeholder process to receive comments and feedback on enhancements to the congestion revenue rights (CRR) market. During the November 14^th stakeholder meeting, CAISO described the working group schedule, reviewed the existing analysis, and provided initial problem statements for the initiative. While the materials presented thus far helped define the scope of the working group, SDG&E has included in our comments areas where it would be helpful to have further discussion or have additional data provided.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

SDG&E agrees with the proposed working group schedule, particularly the time dedicated to foundational education and analysis of existing trends and outcomes.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

SDG&E appreciates that the CAISO has separated the effort into different grouped categories of topics. SDG&E is looking forward to the comparison benchmarking of other ISO/RTO programs, as well as further and more in-depth discussions of the stakeholder proposals by the organizations that put them forward. SDG&E asks that the CAISO focus much of this initial effort into developing and presenting robust analysis that can better inform the direction that the enhancements will take, so as to better address the root causes of the market design issues

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

No comment.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

No comment.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

The analysis provided by CAISO and the DMM will be critical to developing problem statements and identifying potential solutions.  It would be helpful if CAISO provided the results and impacts to the total shortfall broken out by the CRR types (i.e., allocation or auction) so that stakeholders could better identify the root cause of the revenue inadequacy. Furthermore, it would be helpful if CAISO could provide any additional analysis that could better inform the impacts of CDWR’s proposal for on-peak and super-peak time-of-use.

7. Please provide any additional comments.

No comment.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

SVP supports further consideration and investigation of the ISO Department of Market Monitoring (DMM) 10/24/24 Report on their Willing Seller Market Design for CRRs – which is listed in the ISO chart of CRR Reform Items/Key Takeaways on p.16 of the ISO CRR Enhancements Working Group Discussion Paper dated 11/12/24.  SVP would also like to see the ISO perform additional analysis of CDWR’s super-peak CRR (HE17-HE21) time period proposal/takeaway, which is listed on p.16-17 of the 11/12/24 Discussion Paper. In addition, SVP suggests exploring whether the currently utilized Global Derate Factor (GDF), which is a rather blunt instrument, could be replaced with a more specific, pinpointed approach, as further described in Item 3 below. SVP also requests that the FNM transmission outage information be released/posted three days before the opening of the one-day Tier 1 nomination window in the monthly CRR allocation process so that CRR Entities can have sufficient time to review the information before submitting their monthly Tier 1 CRR nominations.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

At this juncture, SVP believes that the ISO’s proposed tentative working group schedule (culminating in a final working group Issue Paper document released in May/June 2025) seems workable. 

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

In addition to the other items mentioned in our response to Item #1 above, SVP suggests exploring whether the currently utilized GDF, which is a rather blunt instrument, could be replaced with a more specific, pinpointed approach. Because the GDF is applied across the entire system, it results in a reduction in available CRRs across the system. SVP requests that CAISO perform an analysis to determine whether it would be feasible to apply more targeted derate factors for specific portions of the system that have a higher propensity for unplanned outages. One approach would be to utilize the historical data available since the implementation of Phase 1B that effectuated deficit offset or clawback. This data could allow the CAISO to focus on derating only those constraints/paths, by season and by ToU period, that have appeared historically. This change potentially would allow more CRRs to be allocated. In addition, if the DMM’s proposed Willing Sellers Auction were adopted, CAISO would be committing less of the system, since the auction CRRs would no longer be backed by the transmission system. This reduced commitment should allow CAISO to reduce the GDF and/or to eliminate the capacity set-aside for the CRR auction, while still being revenue adequate. CAISO’s analysis of the GDF should investigate potential reductions in the GDF and/or elimination of the capacity set-aside for the CRR auction, which could be accommodated if the Willing Seller Auction were implemented.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

• The CAISO should fully explore the Department of Market Monitoring’s (DMM) proposal of altering the CRR auction design so that trades only occur between willing sellers and buyers bidding into the market for financial contracts.[1] The following information and analysis would be helpful for evaluating changes to the CRR auction design:
  • Information about 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. Publicly available data from FERC Electricity Quarterly Reports[2] (EQRs) can be used to identify energy transacted to/from/within the CAISO by CRR Auction participants that are required to file EQRs.
  • Analysis of potential improvements in CRR revenue adequacy that would result if auction CRRs no longer needed to be funded by CAISO day-ahead market congestion revenues or other uplifts to transmission ratepayers to fund CRR payouts.
  • Exploration of whether willing seller auction CRRs should be settled at their full notional value or be adjusted for revenue shortfalls to align with how allocated CRRs (that might be used to hedge willing seller auction CRRs) would be settled.
• The CAISO should explore CDWR’s proposal to split on-peak TOU into super-peak (HE17-HE21) and on-peak (HE07-HE16, and HE22)[3], including:
  • Perform an analysis of potential alternative disaggregation periods of the current peak CRR hours based on similar DAM congestion levels across CRR source – sink pairs, including identifying seasonal variations. Given the impact of solar and storage operations on CAISO energy flows, it seems possible that the time period definitions might need to vary seasonally.

[1] CAISO Department of Market Monitoring, “Willing seller market design for congestion revenue rights,” October 23, 2024.

[2] See eqrreportviewer.ferc.gov

[3] CAISO Congestion Revenue Rights Enhancements Working Group Discussion Paper, November 12, 2024, pp.16-17.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

On p.18-19 of the 11/12/24 Discussion Paper, there is a listing of four proposed problem statements.  SVP’s initial reactions are as follows:

1. Auction Efficiency:  This is a worthy item to examine.  Perhaps a general question can be asked – “How well is the auction process serving the main purpose of hedging congestion?”
2. Revenue Inadequacy:  This item seems to focus on the counterflow CRRs created when Trading Hub CRRs are provided.  If such counterflow CRRs are done away with, what would the ramifications be, and what could be used in their place?
3. Limited Allocation:  The stand-alone elimination of the GDF might increase revenue inadequacy.  Yet, as stated above, SVP supports examining if the current blunt GDF instrument can be replaced by a more specific, pinpointed approach.
4. Product Definition:  As stated above, SVP supports further examination of CDWR’s super-peak CRR time period suggestion.[1]  Another item worth considering is what would happen if, in the CRR allocation process, the current capacity set aside and reserved for the auction was eliminated.

[1] Ibid.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

Please see SVP’s responses to Items #1 and #4 above.

7. Please provide any additional comments.

The CAISO releases the complete set of Full Network Model (FNM) transmission outages, including the transmission outage information and incremental updates, as part of the ISO’s monthly CRR allocation process.  In accordance with the ISO’s current monthly CRR market calendar, this information is typically released one day before the opening of monthly Tier 1 CRR allocation markets.  SVP requests that the complete set of FNM information be released/posted three days before the opening of the Tier 1 nomination window so that CRR Entities have sufficient time to review the information and perform market analysis before submitting their Tier 1 CRR nominations.  The current process does not provide sufficient time for parties to evaluate the potential impact of the transmission outages on their ability to obtain requested CRRs.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

The Six Cities encourage the CAISO to more clearly delineate the problem statement proposed by the Department of Market Monitoring as discussed in response to question no. 5 below.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

The Six Cities do not have comments on the proposed working group schedule. 

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

The Six Cities have not identified any additional topics at this time.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

The Six Cities have not identified any additional topics at this time.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

At this time, the Six Cities do not oppose the proposed problem statements, but would ask the CAISO to develop a problem statement that is more closely aligned with the scope item(s) that the CAISO Department of Market Monitoring has proposed related to reductions in CRR losses that are allocable to transmission ratepayers.  While reserving any position on the substantive changes to the CRR design that may arise in response to such a problem statement, the Six Cities believe that the scope item(s) for assessment of whether and to what extent the CAISO should stop offering $0 CRR positions that may create ratepayer exposure to undue costs and whether the CRR program should evolve to a willing buyer/willing seller structure should be more explicitly included in the initiative scope. 

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

At this time, the Six Cities have not identified any needs for analysis or data beyond the topics identified in the Discussion Paper or working group discussion.

7. Please provide any additional comments.

The Six Cities have no additional comments at this time.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

SCE appreciates the effort that CAISO has put into developing a discussion paper that provides an in-depth background on Congestion Revenue Rights (CRRs).    

SCE’s comments can be viewed under the subsequent sections.   

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

SCE supports CAISO’s proposed timeline of approximately 6 months to develop an issue paper for the CRR enhancements initiative, though, if necessary, CAISO should be amenable to allotting additional time in the effort to better analyze and develop solutions. 

SCE believes it is important that CAISO dedicate enough time to perform detailed analysis on the two main issues identified in the discussion paper: auction inefficiency and revenue inadequacy.   SCE anticipates that stakeholders will request CAISO to perform additional analysis of these two main issues, likely after the Foundations meetings in January.  Consequently, additional time to perform analysis and discussion in subsequent stakeholder meetings will likely be required.  It is more important that CAISO responds to the stakeholder requests thereby enabling more robust and effective discussions developing problem statements and policy scope than sticking to a strict timeline. 

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

SCE believes that further discussion about the following topics could further help stakeholders better understand the CRR processes:  

Outage reporting  

• What are the types of outage reporting and their respective purposes? 

• What are the repercussions for not accurately reporting the outages in the annual and monthly process?  

• What types of outages do not require reporting? 

CRR Benchmarking 

• Comparison of revenue adequacy and auction efficiency to other markets. 

• Best practices and lessons learned used by other markets to address auction efficiency and revenue adequacy issues. 

Forecasting Distribution and Load 

• Describe the distribution of load and generation forecasts at combined points (hubs and LAPs) when simultaneous feasibility tests are conducted. 

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

SCE does not have any comments for this section.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

SCE’s comments on the draft problem statements are as follows: 

DMM: Willing Seller Auction Design 

SCE supports further pursuit of DMM’s proposal.  However, SCE requests analysis into potential liquidity issues expressed by the Market Surveillance Committee (MSC) during previous discussions, i.e., will there be sufficient participation in the CRR market for it to function.  SCE also requests further discussion on the interactions and differences between the existing CAISO allocation/auction process and DMM’s proposal for a CRR market that is purely financial.  For example, if an LSE is awarded a CRR in the allocation process and then sells the same CRR in the financial CRR auction, is the LSE at risk for underfunding in the allocation process CRR relative to the financial CRR? What are the potential implications of this for the liquidity of the financial CRR markets?   

CDWR: Removal of Global Derate Factor (GDF) 

SCE does not support CDWR’s proposal to eliminate the GDF cap because of the potential negative impacts of over-allocation, which could minimize the effectiveness of CRRs used as a hedge. Additionally, there are fairness concerns that could affect the competitiveness of obtaining CRRs to manage congestion costs in both the monthly allocation and auction processes.

CDWR: Split TOU to On-peak and Super-peak  

SCE supports exploring CDWR’s proposal for adjusting CRR market design to account for more renewable generation which considers two on-peak periods.  SCE looks forward to additional discussions on this topic.   

SCE: Observed CRR Market Data Discrepancies 

CRR market inefficiencies in the allocation/auction process could be the result of data discrepancies between the CRR market and Day-Ahead Market (DAM).  SCE has observed the following: 

• CRR Full Network Model (FNM) transmission line outages not reflected in DAM 

• Enforced contingency inconsistencies between the CRR market and DAM 

• Enforced constraint line/nomogram inconsistencies between the CRR market and DAM 

• Enforced constraint limit (lines/nomograms) inconsistencies between the CRR market and DAM 

• Trade Hub/DLAP allocation factor inconsistencies between the CRR market and DAM 

• Base case binding inconsistencies between the CRR market and DAM 

• Data inaccuracies in CMRI that show incorrect enforcement of contingencies and nomogram constraints 

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

SCE requests CAISO further analyze Revenue Inadequacy, specifically, SCE requests the following: 

• Analysis that compares transmission outages in real-time versus those assumed in CRR allocation. 

• Analysis of the quantity of Revenue Inadequacy that might arise from actual load or generation differing from DLAPs and generation hub forecasts. 

7. Please provide any additional comments.

SCE does not have any additional comments.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Vistra appreciates CAISO launching this initiative and bringing initial analysis forward to start this important discussion. While Vistra did not individually submit CRR enhancements into its 2024 policy roadmap discussion, we coordinated with our Regional Issues Forum sector to include Congestion Revenue Rights scope into the Independent Power Producer and Marketers 2024 policy roadmap submission as well as support the discussion during the policy roadmap calls earlier this year to flag the IPP and marketers submission.[1] We respectfully request the IPP and marketers requested scope be considered in further refining scope as this initiative progresses and will introduce the three scope items requested by that sector below in response to #5.

Vistra has been raising concerns with the ineffectiveness of the existing Congestion Revenue Rights (CRR) design for stand-alone storage assets over the past years. The existing CRR design does not allow eligible paths for storage charging hours nor does it allow granularity to enter the necessary position in opposite direction in two different periods of time. These design flaws lead to CRR not being workable for hedging basis risk for storage. This concern grows as the storage fleet expands where physical hedgers cannot enter a clear hedge for the congestion risks of storage. If this growing segment of our fleet cannot avail itself of CRR auction it unnecessarily increases the costs of building and operating storage, pointedly it frustrates and introduces risk adders into forward procurements that could make stand-alone storage appear less viable solution even when flexibility role is needed for the clean energy future to reliably operate. Given the prominent role of storage in California’s clean energy plan, including its key role in addressing oversupply conditions supporting integrating renewable energy, Vistra respectfully requests this initiative address these CRR design gaps for storage.

Generally, Vistra supports the problem statements described by California Department of Water Resources including the “Split on-peak TOU into super-peak (HE 17-HE21) and on-peak (HE07-HE16, and HE22)” as a possible solution to address the CRR design gaps for new technologies – scope raised in #28 of the IPP and Marketers submission. However, this is not the ideal proposal for stand-alone storage assets. Storage needs will be slightly different than solar needs and through discussion we hope we will arrive at a solution. Vistra’s potential solution that we have been discussing with stakeholders similarly addresses granularity of the peak product but would do so by separating it into four-hour strips and allow hedging from a trading hub to a storage node during the bottom four hours and separately from storage node to the trading hub during top four hours.[2] This would be the ideal hedge for stand-alone storage with a single cycle and four-hour duration. While we recognize that the four-hour product would add four products within the current on-peak product, adding complexity to the auction, it is the cleanest design for entities to choose pairing their 4-hour strips to match their operational needs within the peak product. We look forward to exploring a solution that balances the needs of these new technologies that have differing operational patterns and congestion hedging needs.

Finally, Vistra strongly supports CAISO diving into the drivers of revenue adequacy, which we would have assumed is impacting certain constraints disproportionately to others. Through digging into the key drivers of the constraint deficits we hope to find clear elements of the design that warrant improvements. Vistra recommends CAISO focus on expanding its analysis to review constraint-level results to help identify key drivers to inform what improvements to the CRR rules should be made to help ensure the day-ahead market is collecting as close to accurate congestion rents as possible to improve funding to the congestion revenue rights holders.

Please see below requests for additional discussion and analysis to further this effort. 

[1] IPP and marketers submission, submission #27-#29, March 1, 2024, https://stakeholdercenter.caiso.com/Comments/AllComments/7229828e-d159-4450-b317-4026172a6b55#org-61b69664-90d0-4f9f-a58a-ec2b9d0bfe19.

[2] Vistra is also considering another potential solution that may balance the “ideal” set up with complexity through aligning the granularity with morning net peak, solar hours, and evening net peak products where the specific hours would be discussed in this stakeholder process.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

Vistra requests the CAISO include in the January 2025 workshop an invitation to the IPP and Marketers sector to discuss their three proposed CRR scope items incorporated in response to #5. Vistra is happy to coordinate with our sector and coordinate joint presentation on the sector proposals at the January 2025 workshop.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

In addition to the topics submitted in the catalog, including the IPP and Marketers submission, and the planned analysis, Vistra requests the following three discussions:

• Exploring why constraint surpluses should not offset constraint deficits and whether allowing for some constraint surpluses to offset constraint deficits would be appropriate.
• Exploring whether areas of improvement could be made to the simultaneous feasibility test as well as mechanisms to incentivize external Balancing Authority Area’s to report planned transmission outages prior to annual and monthly auctions to mitigate risks of overselling of CRR rights due to inaccurate transmission limits used in the auction.
• Exploring whether changing the reservation price when the auction acts as the counterparty could be pursued to mitigate risks of the CRR auction overselling rights at prices below CAISO’s expectation for congestion. Specifically, a discussion on whether CRRs should clear at de minimis auction prices due to CAISO acting as a price taker with the $0 reservation price, even when CAISO would forecast expectations of congestion on those paths.  

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

See above to #3. 

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

As noted above, the IPP and marketer catalog submission for CRR enhancements was not explicitly noted in the discussion paper or the stakeholder call. Vistra coordinated with various sector individuals to develop those scope descriptions as a coordinated effort and respectfully requests the draft problem statements consider the sectors’ description of the problem and desired scope. The below are the three CRR catalog submissions from the IPP and marketer sector related to addressing revenue adequacy (#29), ensuring the product definition is granular enough and includes eligible paths that recognize new technology operational characteristics (#29), and consider exploring expanding auction framework to allow more auction intervals to address auction efficiency (#27). The below are the coordinate, vetted descriptions submitted into the 2024 policy roadmap available at, https://stakeholdercenter.caiso.com/Comments/AllComments/7229828e-d159-4450-b317-4026172a6b55#org-61b69664-90d0-4f9f-a58a-ec2b9d0bfe19.

Submission #27 Congestion Revenue Right Auction Expansion

This initiative would explore the potential of expanding CRR Auctions to include more hedging opportunities. CRR balancing auctions are conducted in the PJM, ISO-NE, MISO, and NYISO markets, and could be utilized to promote CRR auction efficiency. Today, 75% of the available network capacity is offered in the annual CRR auction, which is followed by one additional offering at the prompt month for the remaining amount. Under a balancing auction framework, auction capacity is released on a graduated scale at more frequent intervals. The benefits of expanding CRR auctions include:

• Enhanced risk management: Provides more opportunities for competitive load-serving entities to shape, by period (balance of planning year, quarterly, and/or monthly) and by block (peak and off-peak), the congestion risk in their retail portfolio.
• Enhanced price discovery: rationalize CRR clearing prices since all participants benefit from more up-to-date pricing information.
• The more frequent forward price discovery is an opportunity to reduce credit risk by incorporating marl-to-auction of CRR positions. Under this construct, credit requirements utilize up to date CRR auction prices to determine credit requirements as open CRRs positions approach settlement. This enhanced measurement of forward congestion risk would help rationalize credit requirements.
• The benefits of having a liquid forward market, facilitated by price discovery from FTR auctions were highlighted in two independent studies performed by London Economics, Inc (LEI).  First, an LEI study for the PJM RTO estimated the benefits of FTR Auctions are between $523 million to $1,207 million per year.   Second, an LEI study for MISO found that “FTRs are not only a necessary feature of a nodal energy market design, but also support liquidity and commercial arrangements in the broader forward energy market.”

Submission #28 Congestion Revenue Products for Variable Energy Resources or Storage, Co-Located, and Hybrid Resources

This initiative would explore whether more granular CRR products are needed to allow hedging of Variable Energy Resources and storage resources instead of the existing peak and off-peak products. For example, this initiative could explore whether a solar hour, top four hour, or bottom four-hour products would be beneficial to add to the CRR auction process. Additionally, it would explore whether CRR should be allowed to be traded between two points from a generator node used for charging (source) to the trading hubs (sink).

Submission #29 Congestion Revenue Rights Revenue Sufficiency

This initiative would evaluate various improvements to revenue sufficiency which would include some or all the following items:

• We support the CAISO moving forward with a targeted analysis of the drivers of CRR shortfall settlement.  This should include an assessment of how to protect CRR holders from shortfall risks that were not contemplated at the time of the Track 1B changes, including shortfalls unrelated to transmission derates such as unsettled flow. We have observed unsettled flow in the IFM can lead to flow reversals in CRR settlements (i.e., when offset is greater than notional value).  CRRs serve to protect supply and demand from unknown congestion costs, but this shortfall can turn an expected hedge into an unexpected liability.  This is counter to the purpose of CRRs as a risk mitigation tool.  We ask that the CAISO move urgently to review this market inefficiency.   The CAISO analysis can serve to inform policy changes that would align the design of the shortfall allocation with the Track 1B policy changes implemented in 2019. 
• Improved Requirements for Transmission Outage Submission. According to the Outage Management Business Practice Manual, “requests for planned outages of Significant Facilities must be submitted to ISO Outage Coordination at least 30 days prior to the start of the calendar month for which the outage is planned to begin”. The “30-day rule” is intended to improve the fidelity of the Monthly CRR network models, however the current construct does not include an incentive mechanism for adhering to the rule. That is, the rule is advisory only and there is no implication for schedules submitted inconsistent with the rule’s timeline. Adhering to the rule has numerous important benefits since outages on Significant Facilities significantly impact the amount of CRR network capacity offered and the resultant CRR revenue adequacy. In addition, it promotes the transparency of high impact outages, which can help foster CRR price convergence.
• CAISO post information related to CRR modeling on its market participant portal and address advanced notification changes to congestion management, requiring entities to submit transmission outages so they can be included when submitting nomination in the CRR market model.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

Vistra requests constraint-level analysis which should better enable us to understand:

• Whether, for example, if certain constraints are being systematically undervalued in the auction for fundamental reasons or whether the undervaluation leading to perceptions of auction inefficiency is occurring across all constraints.
• Whether the revenue inadequacy concerns are affecting a subset of constraints primarily or being shared across all constraints in an unpredictable manner.  

7. Please provide any additional comments.

None at this time.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

Vitol Inc. (Vitol) agrees with the proposed problem statement in the Discussion Paper regarding the negative impact of pro-rating CRR payments. The CAISO’s current methodology for assigning revenue inadequacy or “shortfall” significantly impairs the ability of CRRs to manage risk. CRR funding for the period of January 2019 to Q3 2023 was 81%[1].  This implies the average CRR payment was reduced 19% over this period.  While this number alone is significant, the actual risk is much higher when considering the distribution of shortfall. Today, revenue inadequacy at the transmission constraint level can be so severe that it exceeds the notional value of a CRR.[2] The Discussion Paper refers to this as “settlement reversal”.  In these occurrences a CRR is not risk reducing and instead settles as a net charge. This situation is especially harmful when considering the price paid to acquire a CRR asset.  These high impact/low probability tail events influence CRR bid prices and market participation.  For example, a market participant may decide to no longer purchase CRRs to avoid settlement reversal, which harms competition and works against ongoing efforts to improve the CRR auction efficiency metric.   

The predominate issue with CAISO’s shortfall assignment is that it leaves CRR holders short paid when there is surplus congestion funding available to improve funding.  This design is unique to CAISO. Vitol highlighted these issues in 2018 and outlined numerous potential remedies[3].  Looking back over five years of performance, we continue see high levels of shortfall and a design that does not recognize the value of CRRs as a market-risk management tool.  Under current circumstances, acquiring CRRs can increase a market participant’s risk due to settlement reversal. Our proposed solution is to lower shortfall charges to CRR holders while continuing to protect load serving entities’ revenue inadequacy.  We believe our proposal strikes a fair balance and aligns with the practices of other organized markets, namely PJM, MISO, and SPP.  

Overview of Vitol’s proposal for assigning CRR revenue inadequacy

Today, CAISO’s constraint level allocation directly assigns all CRR shortfall to CRR holders. Therefore, at the end of any given period there can only be surplus congestion funding. Our proposal is to apply the surplus funding to CRR holders that were short paid. The change would apply surplus funding across transmission constraints and the annual planning period.  Specifically, our proposal corrects the ‘by constraint’ methodology by relaxing two design elements that are key contributors to high levels of revenue inadequacy:

1. Relax the ‘by constraint’ methodology in the monthly and yearly settlement of the CRR balancing account: This would be carried out by permitting the surplus of one constraint to be shared with the deficiency of another constraint; and

2. Relax temporal limitations: This would be carried out by permitting one month’s surplus to fund another month’s deficiency due to an oversold condition. The final closeout of the balancing account would allocate any surplus to load serving entities.

Our proposal preserves the CAISO’s ‘by constraint’ methodology for hourly and daily settlement, however it is relaxed at the monthly and annual settlement. This feature comports with the long-standing practices of the PJM, MISO, and SPP markets where the surplus of one constraint can be used to shore up revenue deficiency on another constraint.  Please Note:  our proposed solution continues to protect load serving entities from bearing the cost of CRR revenue inadequacy. That is, CRR holders would continue to bear the full risk, although at a more manageable level.  Moreover, smoothing out the distribution and lowering the magnitude of uplifts would have positive effects on the value of CRRs.  For example, if CRRs were closer to being fully funded, then risk premiums needed to cover the risk of shortfall charges would decrease, which in turn would help improve the CAISO’s CRR Auction efficiency metric.

We request the CAISO adopt these straightforward changes already successfully used in other organized markets. Also, we request an opportunity to present the details of our proposal to the CRR working group.

[1] CAISO presentation to the Market Surveillance Committee on 11/29/2023 at slide 11: https://www.caiso.com/documents/congestionrevenuerights-presentation-nov29-2023.pdf

[2] Vitol’s presentation to the Western Energy Market Regional Issues Forum on 9/27/2004 at slide 8: https://www.westerneim.com/Documents/Presentation-WEMRegionalIssuesForumCRRs-Vitol.pdf

[3] Comment and Limited Protest of DC Energy, LLC & Vitol Inc. CAL-ISO tariff filing under ER19-26 on 10/2/2018 https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20181012-5222&optimized=false

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

Vitol supports the working group schedule. It should provide sufficient time for the CAISO to gather feedback and develop an Issues Paper. 

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

1. Vitol would like to explore the CRR Auction structures that are currently in place in other organized market regions, namely PJM, MISO, NYISO, and ERCOT. The auctions structures provide multiple opportunities to manage risk whereas the CAISO’s auction structure only affords one additional opportunity after its annual process.  Expanding the auction structure presents the following opportunities to improve the market:

• Balancing auctions provide more opportunities for competitive load-serving entities to shape, by period (balance of planning year, quarterly, and/or monthly) and by block (peak and off-peak), the congestion risk in their retail portfolio;
• Balancing auctions would likely improve the demand for CRRs;
• Enhanced price discovery: rationalize CRR clearing prices since all participants benefit from more up-to-date pricing information;
• CRR revenue inadequacy: helps strike the right balance between capacity availability and information certainty; and
• Enhanced credit requirements through an enhanced forward curve for basis price.

2. In addition, we seek a review of the root cause of CRR revenue inadequacy. It occurs when the modeling of the CRR auction and Integrated Forward Market are not aligned. Specifically, this mismatch can result in CRR positions that are not physically feasible (e.g. CRR implies more flows over the network than the limits in the day-ahead market). The differences are often related to transmission outage submissions, loop flow assumptions, shift factor threshold differences, and the enforced contingencies and constraints.  We request the CAISO conduct a review of these contributing factors and look for ways to improve modeling.  As with all market inefficiencies, addressing the root cause is the best source of remedy.

3. The CAISO should review its current practice of systemically blocking outages from its reporting. The current practice was put in place due to concerns that non-modeled outages would be made available and possibly lead to CRR Revenue inadequacy.  That said, under the ‘by constraint’ methodology these concerns may no longer be valid.

As stated above, Vitol would welcome the opportunity to present these proposals to the working group.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

7. Please provide any additional comments.

1. Please provide a summary of your organization’s general comments on the Discussion Paper and November 14 meeting.

WPTF appreciates the CAISO for initiating an evaluation of the performance of Congestion Revenue Rights (CRRs) following the changes implemented in 2019 and 2023. This effort is a significant step in assessing how well the CRR market has functioned post-reform and understanding any areas that may need further enhancement. Given that CRRs play such a central role in the operation of organized nodal energy markets, it's vital to continuously evaluate their performance to ensure they are meeting the needs of market participants effectively. The ability to hedge against congestion costs is a critical feature of CRRs, and ensuring that they remain efficient and effective in this role will help maintain the market’s overall integrity and help maximize benefits to both load and supply.

CRRs are a fundamental aspect of competitive energy markets, not only allowing market participants to hedge against the cost of congestion but also promoting open access in a transparent and competitive manner. These attributes are essential for maintaining a fair playing field, where all participants—whether utilities, independent generators, or other market participants —have an equal opportunity to compete for and acquire essential congestion cost hedging instruments. As such, it is imperative that the CAISO and other stakeholders focus on ways to strengthen the CRR market, ensuring that it fulfills its intended purpose in the most efficient and reliable way possible. This focus on continuous improvement will support the broader goals of market stability and cost transparency.

WPTF looks forward to CAISO’s in-depth analysis of the CRR market’s performance post-2019 changes. The upcoming data and analysis will provide critical insights into the effectiveness of the current framework and highlight areas where improvements can be made. Once this data is made available, it will provide a foundation for stakeholders and the CAISO to collaborate on finalizing problem statements and addressing any issues identified. This collaborative approach is essential for achieving the optimal functioning of the CRR market, ensuring that it can continue to provide value and stability to the energy sector moving forward.

2. Please provide your organization’s comments on the tentative working group schedule found on slides 8 and 36 of the presentation from the November 14 meeting.

As this effort progresses through the working group effort, we encourage CAISO to consider implementing lower hanging fruit, to the extent they are identified, in time for the 2026 CRR Annual Allocation and Auction processes. Given the timeline included on slides 8 and 36 that means that the CAISO would have to implement such changes by October 2025.

3. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any specific level setting topics on the history or current CAISO processes and procedures related to CRRs?

During the stakeholder call there were several questions trying to better understand the OBALSEE element of the overall CRR framework. Thus, WPTF believes it would be useful for the CAISO to provide more information as to how that element of the framework functions, such as the allocation and qualification process.

4. Are there any topics that your organization would find it especially helpful to devote time to at future working group meetings? These could be topics covered in the discussion paper, topics that came up in the November 14 meeting, or topics not covered at all so far. Any level setting topics on the use of CRRs in hedging that you would like to present (or would like to see presented by others)?

WPTF appreciates the high-level review of the role CRRs play in an organized energy market with nodal pricing. We suggest expanding this discussion to include more recent FERC and ISO activities related to CRRs. We understand that other ISOs have engaged in similar CRR efforts, where topics of debate are those being raised here. Learning from these recent efforts, particularly where FERC has provided input, could inform this process in a more efficient and beneficial way.

WPTF has been involved in CRR discussions for decades, and one key aspect often overlooked is the benefit the CRR auction provides to both suppliers and load/ratepayers. By enabling suppliers to hedge congestion cost risks, ratepayers also benefit. Suppliers can only acquire CRRs through the auction, making it an essential part of the process that also supports ratepayers. A robust auction with numerous participants increases liquidity and competition, helping manage congestion risk. Greater competition and liquidity reduce the risk premium suppliers face when making contracting decisions with load-serving entities (LSEs). Lower risk premiums result in lower costs passed on to LSEs through forward contracts. Additionally, suppliers’ reduced congestion cost risk lowers the cost of financing and developing resources, further reducing costs for ratepayers. Lastly, a competitive and liquid CRR auction supports price discovery and transparency in the bilateral and futures markets, which ultimately benefits load. In short, higher liquidity and competition in the CRR auction lead to greater benefits for load.

5. Please provide your organization’s comments on the draft problem statements listed in the Discussion Paper and discussed at the November 14 meeting. Does your organization have any proposed changes or additional proposed problem statements?

WPTF believes CRRs are a fundamental component of organized electricity markets with nodal pricing. We agree with CAISO that CRRs not only provide open access but also enable market participants to hedge against congestion risk. However, their primary purpose is not to return congestion rent to ratepayers via load. Therefore, WPTF strongly urges CAISO and stakeholders to focus on strengthening the CRR market in its current form—particularly the allocation and auction processes. Drastic changes that contradict the purpose of CRRs, as consistently affirmed by FERC, would disrupt the CAISO market and negatively impact load, supply, and the bilateral energy market, including investment, resource development, and forward contracting.

WPTF’s top priority is understanding the remaining drivers of CRR underfunding. Continued underfunding has increased the risk and volatility of holding CRRs, reducing their effectiveness as a hedging tool. Gaining insight into this issue will help us: (1) determine if CAISO is collecting congestion fees from all transmission system users, (2) explore ways to use surpluses to offset deficits and mitigate risk, (3) assess if the current underfunding allocation aligns with cost causation, and (4) identify gaps between CRR and IFM transmission topology and whether these can be closed. Once the CAISO’s analysis is complete, we can then look to further refine the problem statements as its imperative the problem statements are rooted in the underlying causes.

WPTF also supports ensuring CRR product definitions effectively address congestion cost risk, given the current resource mix. We agree with CDWR that the 16-hour block product no longer aligns with peak load hours or the operational needs of renewable resources and storage. Additionally, we support Vistra’s view on ensuring storage resources can effectively utilize CRRs. This may require redefining CRR hour strips or allowing source-sink pairs that align with storage’s charging and discharging profiles. We encourage CAISO and stakeholders to collaborate on a solution that addresses all concerns, rather than making piecemeal changes to tackle individual issues.

We oppose drastic changes to the CRR market that would undermine the role of CRRs, introduce market inefficiencies, and raise costs for ratepayers. Replacing the CRR auction with a market between willing buyers and sellers would eliminate a core feature of the competitive wholesale energy market and negatively impact the bilateral market, development decisions, and forward contracting—all of which would ultimately lead to higher costs for ratepayers. Additionally, such a move would undermine the principle of open access and non-discrimination, which CRRs are designed to support in a market where firm transmission service is unavailable.

6. Please provide your organization’s comments on any additional analysis or data you believe would help develop the problem statements and why.

WPTF respectfully requests that CAISO include the following metrics in its CRR analysis:

Drivers of Continued Underfunding
Several factors contribute to the ongoing underfunding of certain transmission constraints, and these need further exploration to identify potential solutions. Data suggests that the issue isn't solely due to differences between the CRR market model and the IFM market model, indicating other contributing factors. One possible explanation is that some entities may be using transmission without fairly sharing congestion costs, potentially exacerbated by loop flows. Additionally, market features, such as the shift factor threshold cutoff, may prevent CAISO from collecting congestion payments from liable entities. It is also important to determine if outages are being reported in time for the annual and monthly CRR processes, as delays could further impact funding levels. A thorough understanding of these drivers will help CAISO and stakeholders (1) assess whether further market or rule changes are necessary and (2) ensure that any remaining underfunding is allocated fairly. If the underfunding is not related to transmission outages, changes to the allocation process may be needed to better align it with cost causation. Specifically, if material underfunding is caused by entities (internal or external to CAISO) that are not being charged for the congestion they cause, it may be inappropriate to precisely allocate costs to CRRs and better to broadly allocate these costs, consistent with FERC cost allocation principles. Likewise, if CAISO is artificially tightening transmission limits for reasons unrelated to the physical network topology, it may better to broadly allocate these costs as well.

Use of Congestion Surplus
It is also critical to understand how CAISO uses congestion surplus funds to offset deficits. While CAISO applies surplus funds narrowly to address deficits on specific constraints, it is important to examine how much surplus is left unused and returned to ratepayers. Analyzing the proportion of unused surplus could uncover opportunities to allocate funds more effectively, reducing risk and volatility. This assessment will help determine whether the current surplus application is efficient or if broader strategies could be implemented to mitigate risk more effectively. For instance, during the January 2024 price spike in the Pacific Northwest, CAISO collected surplus congestion rents on the COI interface of approximately $96 MM while simultaneously underfunding CRRs crossing the SP15 interface by approximately $11.1 MM. Both the congestion at COI and SP15 were likely driven by the same fundamental factor – flows from the Southwest to the Pacific Northwest that were critical to ensure reliability during a potential loss of load event. CRRs intended to hedge crucial South to North transactions were underfunded even though CAISO collected more than sufficient congestion rents to fund all CRRs during this event.

Impact of Auction Participation and Pricing Trends
Changes in CRR auction participation since the 2019 reforms also require further investigation to understand their impact on market dynamics and underfunding. During the 2017-2018 policy discussions, WPTF raised concerns that increased risk and volatility could lead to decreased auction participation and lower offer prices. We now seek to understand if the quantity of auction bids and the number of participants have declined. Additionally, downward trends in offer prices could indicate that participants are factoring in higher risks, affecting their willingness to engage. A deeper analysis of these trends will help assess how the auction changes have influenced market behavior.

7. Please provide any additional comments.

WPTF would like to take this opportunity to note that using a metric which compares CRR auction prices to the DA value of the product may not be an appropriate indication of market (in)efficiency. The CRR auction processes take place months (and for some CRRs a year) in advance of the actual trade dates on which the DA value will be based. It is entirely expected that there will be differences between what the auction process values the product at and what the day-ahead market outcomes value the product at simply by virtue of the time difference. Additionally, there is the predictability element that needs to be considered. More often than not, when there is significant congestion on the system that impacts the value of CRRs, that congestion occurs due to unforeseen market conditions and outages. Thus, it’s nearly impossible for auction prices to reflect unpredictable congestion rent. Generally, CRR auctions are quite efficient at matching the market’s expectations at the time of the auction. When volatile and uncertain wholesale electricity spot prices do not match the ex-ante market view, this cannot reasonably be termed an auction inefficiency. The ex-ante market expectations will rarely match precisely to ex post spot prices.