The California Independent System Operator’s Board of Governors on June 21 signed off on a proposal to implement changes to the ISO’s congestion revenue rights, or CRR, market.
CAISO notes that this market allows transmission owners, utilities and other market participants to hedge themselves against transmission line congestion costs.
However, as the market matured over time, some issues have cropped up regarding shortfalls between what the market auction of CRRs raised in revenues to what was ultimately paid out to owners of CRRs, the grid operator notes.
The CAISO board approved an ISO management proposal for a “Track 1B” set of reforms to CRRs.
The proposal, which will need to be filed at the Federal Energy Regulatory Commission, involves changing the manner in which underfunding of CRRs is compensated.
Payments are made based on the total CRR rights, leading to underfunding when constraints are enforced or tightened in the day-ahead market, such as due to transmission outages, resulting in a lower amount of power scheduled than in the CRRs. The difference between the amount of congestion revenue actually collected on that lower amount of power and the amount paid to the owner of the CRR is funded by load.
If the proposal is approved by FERC, CRR holders will receive day-ahead market congestion payments for only the transmission capacity that is actually available in the day-ahead market.
A possible drawback is that market participants may reduce the amount they are willing to pay for CRRs in the auction, which could potentially increase, rather than decrease, the auction revenue shortfall if auction prices decrease by a large amount, CAISO management pointed out.
Two proposals to mitigate this outcome are: 1) offset the charge to CRRs for revenue inadequacy with any day-ahead market revenue surpluses associated with the constraint over the month; and 2) decrease the percentage of system capacity released in the annual congestion revenue rights allocation and auction process to 65 percent from 75 percent.
Investor-owned utility Pacific Gas & Electric, the Northern California Power Agency and Powerex support the proposal. Powerex is the wholly-owned energy marketing subsidiary of BC Hydro, Canada's third largest utility.
The ISO’s Department of Market Monitoring, investor-owned Southern California Edison, the California Public Utilities Commission and a group of California cities that own and operate municipal electric utilities, collectively known as “Six Cities” supported the proposal, but also argued that the ISO should make more fundamental changes to the auction – a design in which only a willing counterparty would fund a CRR payment in exchange for a fixed payment instead of the current design in which the ISO market funds congestion revenue right payments.
The Six Cities (Anaheim, Azusa, Banning, Colton, Pasadena and Riverside) also sent a letter expressing concerns about the reduction in payments to CRR holders, but recognized that Track 1B may provide greater benefits to the CRR markets than taking no action to align CRR payouts with congestion revenues received.
The cities had urged the board to condition approval of the proposal on comprehensive monitoring, analysis and reporting of the impacts of the constraint-by constraint adjustment approach.
The cities said that if the constraint-by-constraint adjustment approach is implemented, the CAISO should include in monthly market performance reports data regarding, among other things, 1) the reductions in payouts for prevailing flow CRRs by constraint prior to consideration of any offsetting surpluses on each constraint, 2) the amounts of offsetting surpluses by constraint, 3) the net reductions in payments for prevailing flow CRRs (i.e., after consideration of off-setting surpluses), if any, by constraint, and 4) the amounts of residual surpluses, by constraint and in total, distributed to measured demand.
CAISO board approved first round of changes in March
Earlier this year, CAISO’s board approved a first round of changes to the grid operator’s CRR auction process.
CAISO’s board approved proposing to FERC two initial changes at its March 22 meeting that can be put in place in time for the 2019 congestion revenue rights auction and allocation process.
In one change, CAISO will limit allowable “source and sink” pairs in the auction to combinations that align with hedging physical deliveries of energy, a move that is intended to eliminate source-sink pairs that are not aligned with physical energy deliveries and have been a major part of the auction revenue shortfall, staff said in the memo.
Second, CAISO will create an additional annual transmission outage reporting deadline that lines up with the congestion revenue rights process.
FERC has not yet issued a decision on the initial proposals.