MSC: FTR Transmission Customer Metric (20210805)

WPPI offers the following feedback on the questions posed by MISO re ARR/FTR market enhancements:

1. Comments for short-term changes for the 22-23 Planning Year. Should MISO perform a review of FTRs with a $0 clearing price? Do you have specific implementation suggestions? Should MISO pursue the changes to restrict buy bids on “.ARR” and “.MVP” nodes? Do you have specific implementation suggestions?

• (a.) There is at least one relatively straightforward change that can be made prior to the 2022-23 Planning Year to provide Load Serving Entities more value from the ARR/FTR construct and that is to return Multi-period Monthly Auction revenue to LSEs rather than using it to support FTR funding.
• (b) Re FTR sources and sinks: On one end of the spectrum, FTRs could be limited to source = resource CPNode and sink=Load Zone. It would be interesting to explore the results of recent FTR Annual Auctions reflecting only bids to buy such FTRs. Generally speaking, WPPI is open to exploring limits on FTR sources and sinks, such as MISO proposes, in order to reduce FTR MW purchased for far less than their value (day-ahead congestion).

2. Recommendations for future changes in the ARR/FTR market. Do you believe substantial, structural changes to ARR/FTR market design are needed within next 3-5 years?

• At this point, what is clear to WPPI is that LSEs are receiving too little value from the current ARR/FTR construct. Over the period Jun 2015 thru May 2021 (6 years), the value of LSE ARRs and FTRS was $3.1B vs. $4.3B of excess DA congestion, a difference of more than $1B. Changes are needed that will substantially reduce this difference and soon (at least within the next 3-5 years). Below, we suggest a range of changes to the current ARR/FTR construct that stakeholders and MISO should consider in order to return more value to LSEs.
• (c) In addition to the current per FTR MW charge (Schedule 16, on FTR holdings), charge for each FTR bid  and offer submitted, $[100] per bid/offer. Such an additional charge would likely reduce the number of FTR bids (both because it is more expensive to buy and after buying, more expensive to sell) and therefore reduce FTR MW cleared, potentially leaving more DA congestion to be returned to LSEs after funding FTRs.
• (d) For each FTR path, set a minimum bid price. This will increase FTR prices, potentially increasing auction revenue (above, propose return to LSEs) and will reduce FTR MW cleared, potentially leaving more DA congestion to be returned to LSEs after funding FTRs.
• (e) In FTR auctions, make available only [10]% of the transmission capacity. This will increase FTR prices and reduce FTR MW cleared, potentially leaving more DA congestion to be returned to LSEs after funding FTRs.
• (f) Before conducting an FTR auction, allocate some share of the transmission capacity to LSEs (how TBD).
• (g) Eliminate ARR/FTRs and simply return excess DA congestion to Transmission Customers pro rata.

Xcel Energy appreciates the opportunity to provide feedback regarding potential improvements to the ARR/FTR markets.  We would recommend that MISO includes the following concepts in the scoping document for the consultant hired to review and assess improvements to the ARR/FTR markets: 

• Adding a monthly ARR allocation to allocate residual ARRs to Transmission Customers before opening up to everyone
• Annual ARR allocation would use a reduced allocation of ARRs
• Once the calendar month approaches, the modeling will be more accurate and the remainder of the ARRs are allocated to Transmission Customers
• Move the annual auction from a seasonal basis to a monthly basis
• Allows for transmission outages to be more closely aligned to the actual outage dates instead of across the entire season
• Study the impact of the allocation of ARR Entitlements based on current year firm service instead of Year 1 ARR Entitlements

 In addition, we are supportive of the near-term improvements that MISO has proposed, and believe the highest priority should be assigned to the alignment of the Generation Shift Factor between the FTR and DA markets.

Appian Way Energy Partners is pleased to respond to MISO’s request for stakeholder feedback regarding potential reforms to the FTR/ARR market and future analysis of the FTR/ARR market design.

Appian Way believes the MISO’s ARR and FTR markets are functioning effectively and as intended, but certain reforms could improve the market. FTRs play a critical role in the locational-pricing based electricity market, serving as the financial equivalent of firm transmission. FTRs must be made available to the market in order to ensure open access, price transparency and non-discrimination. MISO, and the MISO-sponsored FTR auctions, plays a critical role by facilitating a market for congestion hedges in an LMP system that would not otherwise be available and which ultimately benefits load serving entities, suppliers and entities that manage congestion risk on behalf of other market participants.

Appian Way is concerned with MISO’s use of the TCM metric for evaluating the FTR market. TCM and other metrics assessing the extent congestion rents are return to load are inappropriate indicators of ARR/FTR market design effectiveness. Use of this metric may be based on incorrect belief that because load is paying more to the ISO than the ISO is collecting from generators, that load is actually paying more absolute dollars for the congestion than the alternative. In fact, increasingly in the MISO system, congestion on the system is driven by renewables whose prices are depressed – often even to negative pricing – while LSE prices are unaffected or potentially decrease.

We agree that it is appropriate to assign ARRs to LSEs because customers pay for the transmission network and also need congestion hedges. But nevertheless, the purpose of FTRs are to act as the financial equivalent of firm transmission, not necessarily to return 100% of congestion rents back to LSEs in the form of ARRs and FTRs. Assigning ARRs to LSEs should be viewed as a windfall, with the primary purpose of the FTR market being to facilitate a competitive market for congestion hedges which are essential in an LMP system.

Specific Response to MISO questions:

Question 1: Should MISO perform a review of FTRs with a $0 clearing price?

Answer: It may make sense to invalidate FTR purchase when there is no constraint binding in either direction causing a price difference. It could occur that constraints in the positive direction exactly offset constraints in the negative direction in which case a $0 clearing price would be valid.

Question 2: Should MISO pursue the changes to restrict buy bids on “.ARR” and “.MVP” nodes?

Answer: No. In general, these locations represent competitive and often large locations on the grid and the availability of these nodes enhances the efficiency of the FTR market by allowing the FTR market to more accurately represent the market’s expectation of future congestion based on the bids of market participants.

Question 3: Do you believe substantial, structural changes to ARR/FTR market design are needed within next 3-5 years?

Answer:  Overall, the FTR market is serving its function of facilitating a market for congestion hedges and providing open access in the form of the financial equivalent of firm transmission under Order 888 and the LMP market design. However, the following are areas that could potentially improve the FTR markets usefulness to all market participants:

1)     MISO should consider establishing a three year forward auction for FTRs. PJM, ERCOT, NYISO and ISO-NE all have FTR auction with durations beyond the current planning year. Such a reform would help with the development of renewable generation and offer additional price transparency and liquidity.

2)     MISO should consider breaking out the off-peak product into separate products for nights and weekend hours 8-23. This would assist with the risk management needs of solar (who prefer weekend daylight hours) and wind plants (who tend to have higher output during the nights).

3)     MISO should consider instituting FTR options to allow hedge products that do not have the risk of congestion reversal. This would assist generators that would like to hedge their basis risk but face potential congestion risk into their location that may be correlated with the resource being offline. FTR options would also increase competition in the FTR market and likely result in higher auction revenues for ARR holders. Both PJM and ERCOT have FTR options.

4)     MISO should consider releasing additional transfer capacity in the balance of period auctions if it becomes evident that MISO is over-collecting congestion surpluses, as appears to be occurring this calendar year.

5)     MISO should consider reforming its balance of period auctions so that every month of the balance of period is actioned each month. This will assist with financial risk management and mark-to-market margining. This could be done by going to a monthly model where each subsequent month is auctioned separately. This is what PJM now does. Or alternatively, MISO could auction the subsequent prompt months and the subsequent quarters each month. This latter approach would be a minor change to the current balance of period auctions which do auction the balance of period in some, but not all, months.

We would be happy to discuss further with any stakeholders.

Abram Klein & Kurt Zala

Appian Way Energy Partners

aklein@appianwayenergy.com

kzala@appianwayenergy.com

Submitted on behalf of the East Texas Electric Cooperative (ETEC):

ETEC supports investigating $0 and low price FTRs further to inform potential changes and understand the magnitude of those changes. ETEC recommends MISO staff perform an in-depth analysis of FTRs with a $0 clearing price as well as FTRs with low clearing prices. It is important to understand the megawatt magnitude of FTRs sold for $0, the portion resulting from market participants offering to sell FTRs for $0 in the auction, and the portion resulting from the MISO offering to sell residual transmission for $0 in the auction.  The analysis should compare the $0 auction valuation to the eventual actual FTR value. The analysis should also report on the total congestion revenues that $0 priced FTRs receive broken out between negative and positive revenues. MISO staff should not limit its analysis to FTRs with a $0 clearing price. It should further investigate low clearing price FTRs and report the same information described above. Finally, the analysis should attempt to determine the cause of the $0 clearing price and whether such outcome is due to helpful market pricing forces or rent-seeking opportunities. The results of this analysis will provide stakeholders with the information needed to determine whether these FTRs are efficiently priced at or near $0 or whether MISO should take action to improve market efficiency.

At this stage, ETEC supports pursuing changes to restrict buy bids on “.ARR” and “.MVP” nodes.  We support all changes to the ARR/FTR market that improve market efficiency. Better alignment between the network model on which MISO sells transmission rights and the network model on which MISO settles transmission rights will improve market efficiency and reduce pure rent-seeking opportunities.

At this stage, ETEC supports investigating substantial structural changes to the ARR/FTR market design that will better allow the value of transmission rights to be reflected in market clearing prices. It is important that the ARR/FTR auction returns maximum value to the load serving entities that pay for the transmission system.

In response to MISO’s request for feedback on the FTR Transmission Customer Metric (TCM), WEC Energy Group recommends that the Market Subcommittee add the FTR/ARR market structure to their management plan as a policy issue. The continuous decline in the FTR TCM since 2018 is concerning and shows that a significant amount of DA congestion revenue is allocated to entities that are not allocated any of the transmission system cost. While we are not opposed to short-term changes, we believe that a holistic evaluation of the FTR/ARR market structure will drive policy and process improvements.

Although MISO plans to work with a consultant to complete a “larger review of the ARR/FTR market structure”, MISO and stakeholders should manage and directly participate in the review process through reformation of the FTR Working Group.

TO: MISO MARKET SUBCOMMITTEE
FROM: THE ENTERGY OPERATING COMPANIES
SUBJECT: FTR TRANSMISSION CUSTOMER METRIC
DATE: AUGUST 31, 2021

The following feedback is offered by The Entergy Operating Companies ("EOCs")[1] in response to the request made during the August 5th, 2021 Market Subcommittee meeting concerning near-term changes and recommendations for future ARR/FTR market enhancements. In general, the EOCs agree with MISO, that at least where practical, potential near-term changes need to be analyzed and where beneficial implemented. Below is a more detailed response to the individual questions posed by MISO.

1. Comments for short-term changes for the 22-23 Panning Year:

Should MISO perform a review of FTRs with a $0 clearing price?

The EOCs agree that a review of FTRs with a $0 clearing price should be explored.  However, low valued FTRs, as a result of MISO making excess capacity available for purchase in an auction, resulting in an allocation of far less dollars to LSEs than Day Ahead Congestion provides should also be reviewed.

LSEs are granted ARRs based on historical use of and investment in the transmission system.  Low and $0 clearing prices enable financial players to access the same potential benefits without having to have made similar use of and investment in the transmission system.  This leads to a large extraction of value by financial players and ultimately leads to an insufficiently low volume of dollars being returned to the LSEs and TOs.  This subsequently prevents LSEs from fully optimizing their capital investment in the transmission system.

Do you have specific implementation suggestions?

Ultimately, MISO can retain the FTRs, collect the congestion revenues itself and subsequently distribute that congestion revenue from the excess capacity to the LSEs.  However, in the short term, MISO can better model the FTR market so that excess capacity is more accurately reflected in the FTR auctions.  MISO can also place a reserve price on all excess capacity being made available in the FTR auctions in order to prevent financial players from purchasing valuable FTRs at severely discounted prices. 

Should MISO pursue the changes to restrict buy bids on “.ARR” and “.MVP” nodes?

The EOCs agree that a review of “.ARR” and “.MVP” Cpnodes should be undertaken.

Do you have specific implementation suggestions?

At this time, the EOCs do not have any specific suggestions for implementation but welcome the opportunity to be involved in the process and add feedback as it progresses.

2. Recommendations for future changes in the ARR/FTR market:

Do you believe substantial, structural changes to ARR/FTR market design are needed within the next 3-5 years?

The EOCs believe that MISO should review all FTR modeling parameters and refine them in order to better reflect the excess capacity being made available in the FTR auctions.  MISO should independently calculate the volume of dollars being extracted by financial players and determine the real value of these auctions to the ratepayers in the MISO footprint.  While open markets generally create efficiencies that tend to drive prices to equilibrium, the MISO FTR market is not such a market.  The owners of the excess capacity (LSEs and TOs) do not have the ability to set a price at which they are willing to sell that capacity.  MISO as agent is responsible and does not set a reserve price which allows for purchase of severely discounted FTRs at the expense of the ratepayers.  The Entergy EOCs welcome the opportunity to work with MISO to better improve the FTR auctions and create value for the MISO ratepayers.

DTE Energy is pleased to offer this feedback on the Transmission Customer Metric and efforts to ensure that LSEs and transmission customers are appropriately remunerated for the transmission system that they have built and paid for.  Based on the materials shared at the MSC, DTE offers the following high-level reactions:

• With regard to short-term changes, MISO should further flesh out the options it has proposed, including pros and cons and rough dollar impacts on metric performance.  This will allow stakeholders to provide a more informed assessment of whether these changes are worth pursuing. 
• With regard to substantial structural changes to the ARR/FTR market, given the slipping performance of this metric, DTE believes that evaluation of further changes is warranted.  DTE is uncertain at this time what “substantial, structural changes” may be necessary, but will look to the diagnostic analysis and future stakeholder discussions to advance this evaluation. 
• Additionally, the Independent Market Monitor has cited increasing levels of congestion as a key problem in the market and has offered a range of solutions including adjustments to the generation shift factor cutoff and the implementation of dynamic and ambient-adjusted line ratings. 
  • It would be helpful context to discuss how other efforts to reduce congestion in the market could contribute to the performance of this metric in order to develop a more holistic view of the problem. 
  • For example, are there specific lines within the footprint driving large amounts of congestion where efforts to reduce congestion could improve metric performance?