Informal Feedback (202211)

Topic: LE presentation  posted with MSC, 10/13/22 meeting materials.

Note: 11/22/22, this feedback was sent via email to JDannis, CHansen, and LEI.

WPPI’s comments on LEI’s presentation (MISO ARR/FTR Review: Summary of initial findings) posted with the MISO MSC, 10/13/22 meeting materials (agenda item 03a):

1. S. 2
• (a) “Stakeholders have expressed concern with the decline in the transmission customer metric (“TCM”) over the past few years
• WPPI: While it is true that the TCM metric has been especially low 2019/20, 2020/21, and 2020/21 (74%, 57%, and 48%, respectively), it has been at or above 90% only twice since 2014/15 (2014/15 and 2018/19).
• (b) This s. lists the three major tasks LEI is to address. Based on this presentation, it does not appear to WPPI that LEI has addressed whether MISO’s FTR market is operating efficiently (part of task 1) nor has LEI evaluated financial traders’ participation in the FTR market (task 2).

2. S. 4
• (a) “A portion of the drop in TCM in 2020 and 2021 can be attributed to individual decisions to keep ARRs rather than convert to FTRs and inherent unpredictability of DA congestion” – WPPI:
• It is entirely plausible that LSEs on the whole made bad decisions in the 2020/21 and 2021/22 Annual Auctions, failing to convert ARRs to FTRs as much as they should have given extreme weather, etc., but that is not the kind of systematic problem we are concerned with.  
• Did LEI consider only ARRs converted to FTRs or LSE purchases of FTRs separate from ARRs as well? Note: An LSE may have an ARR that no longer corresponds to an existing resource and therefore would not be inclined to convert to an FTR.
• (b) “Reliance on Stage 2 allocation is easy but sub-optimal from an efficiency perspective, transmission customers cannot choose to convert to FTR (get day-ahead congestion)” - WPPI:
• We support increasing the value of ARRs in Stage 1.
• In our opinion, allocated ARRs are primarily valuable because they confer to LSEs Annual Auction revenue. Whether an LSE converts an ARR to an FTR or separately enters a bid to buy the FTR at a very high price (in order to ensure the bid is successful), the dollar impact is the same to the LSE.
• (c) “MPMAs have been consistently profitable on an annual aggregate basis, but LSE participation is limited” – WPPI:

• To what extent are LSEs participating? What is the profitability of FTRs purchased by LSEs vs. others: in the Annual Auction? In the MPMAs?
• As discussed under (3), excessive profitability indicates the FTR market is inefficient.

• (d) “In many periods since 2015, implied network capacity auctioned in MPMAs exceed the network capacity sold in annual FTR auctions on a net basis, contributing to forward flow [i.e., positive clearing price] FTR profits” - WPPI:

• We have a lot of questions about what this means, including: which “many periods?” What is meant by “implied network capacity?” What is meant by “on a net basis?”
• Why does this contribute to forward-flow FTR profits?
• (e) “Capacity on oversold paths needs to be “bought back” in MPMAs…” - WPPI:

• When and why was the capacity “oversold?”
• How can MISO better avoid over-selling capacity?
• What are the options for “buying back?”

3. S. 5 “Finding #1: ARRs provide rights to annual FTR auction revenues, which may be different from realized DA congestion; inherent forecasting error results in lower TCM in years when DA congestion affected by unexpected weather”
• (a) WPPI: The #1 question is, what do we do about it?
• If FTR prices are generally efficient, the cost to purchase them (which would include any weather premium) would approximate the revenue they returned, leading to a sufficiently high TCM (say, in neighborhood of 90%).
• While weather is not under our control, the ARR/FTR construct is under our control.
• (b) “Over the longer term, FTR clearing prices have been close to FTR funding targets” - WPPI:
• How is LEI defining “close?”
• Given often low TCM (last 9 complete ARR/FTR Periods, 2013 Jun-2022 May, only at least 85% twice), far from close enough to FTR funding targets (aka FTR revenue)
• (c) “(with FTR clearing prices on all ARR paths only 16% higher than the FTR funding targets on these same paths from 2014-2021)” – WPPI:
• Is “all ARR paths” truly all ARR paths (i.e., whether nominated or not, or allocated or not)?
• What’s the relevance of FTR clearing prices on all ARR paths vs. FTR clearing prices of FTRs purchased (or ARRs self-scheduled) by Transmission Customers vs. FTRs purchased by non-Transmission Customers, as compared to the FTR funding targets in each case?
• (d) Figure – WPPI:
• The negative blue bars, annual FTR auction under-forecast the actual level of DA congestion, do not entirely explain often low TCM. E.g., 2016 Sum-2017 Spr includes a negative blue bar, but the ARR/FTR period on either side (2015 Sum-2016 Spr, 2017 Sum-2018 Spr) do not and all have a similar TCM, 83%, 78%, and 80%, respectively.
• It doesn’t seem “large wind output” should be characterized as unexpected/unanticipated/extreme/abnormal weather.
• (e) “TCM should be expected to be low…or if DA congestion occurs on paths other than those allocated in ARRs.”
• WPPI: If DA congestion occurs on paths other than those allocated in ARRs, as noted under 3.a, as long as FTR prices are generally efficient, the TCM should be sufficiently high.

4. S. 6
• (a) “Potential reasons % DA congestion paid to transmission customers is declining: Under the current ARR entitlement design, transmission customers only get gen-to-load paths, while DA congestion is collected across all nodes in the entire MISO footprint[.] Change in ARR paths have not kept pace with change in operating status of generation units across the MISO footprint (new entry and retirements)”.
• WPPI: It is not clear to us that even if the change in ARR paths kept pace with change in operating status of generation units, we would be assured a sufficiently high TCM. In any case, because ARRs are limited by transmission capacity, which does not increase quickly, it’s not clear to us that the ARR process can be changed in such a way that would materially increase the TCM.
• (b) “ARR Stage 2 allocation can help offset curtailed ARR nominations, but it precludes transmission customers from deciding how best to manage the ARRs/FTRs[.] Stage 2 provides for share of auction revenue; no ability for transmission customers to convert to FTRs”
• WPPI: How does Stage 2 allocation preclude Transmission Customers from deciding how best to manage ARR/FTRs? Does LEI have thoughts on how Stage 2 can be changed to allow for conversion to FTRs? In any case, while Stage 2 does not allow for conversion to FTRs, it is a source of funds to purchase FTRs should the Transmission Customer choose to do so.

5. S. 7
• (a) “FTRs sold in MPMAs are generally profitable”- WPPI:
• We think this is the main cause of low TCMs. While some level of profitability is acceptable to facilitate liquidity in the FTR market, the current level of profitability is unacceptable.
• This observation is a finding of inefficiency in the operation of the auctions, which should be LEI’s primary focus in this study. 
• Addressing this problem calls for steps to reduce capacity made available at low prices.
• (b) “MPMA auction revenues fund FTR holders first, then any surplus is allocated to transmission customers”
• WPPI: Under the original ARR/FTR construct design, FTR auction revenues (at the time, only the prompt month auctions), were not used to fund FTR holders but were returned to Transmission Customers (FTR Yearly Allocation Amount). Later, due to funding FTR funding shortfalls, this was changed to apply FTR auction revenues to any FTR funding shortfalls. WPPI recommends this change be reversed. As was recognized in the original design, Transmission Customers should be entitled to these revenues, and MISO should take steps required to ensure that awarded FTRs can be funded from DA congestion alone. There is no reason to treat annual and MPMA auction revenues differently.
• (c) “MPMA auction engine clears counterflow FTRs [negative clearing price} on overloaded paths, this creates price pressure and hence increases the profitability for the buyers of these counterflow FTRs” - WPPI:
• Please confirm (or correct): “overloaded paths” are the same as s. 4 “capacity on oversold paths”
• Please explain further, as not all counterflow FTRs are profitable.
• Is this “price pressure” intrinsic or a function of MISO’s management of auction clearing? If the latter, it would be subject to MISO’s control each month and thus we could evaluate changes to improve the TCM.
• (d) “Counterflow profits are also driven by model differences between MPMAs and the DA energy market (e.g., shift-factor cut-off) …”
• WPPI:  Are counterflow profits more affected by the shift-factor cut-off than forward flow profits? If so, please explain why.

WPPI Energy provides this feedback in response to Tony Rowan's Item 08 presentation to the October RSC meeting on MISO's reconfiguration process document, the latest draft of which is posted at https://cdn.misoenergy.org/20221020%20RSC%20Item%2008%20Congestion%20Cost%20Reconfiguration%20Process%20Redline626713.pdf.

As Tony and I discussed during the meeting, the clause added to the last sentence on the first page of the posted draft document may convey an impression at odds with MISO's intent:

• Requests due to future planned outages should be submitted as soon as possible, at a minimum 15 days prior to the start of the outage.

We would propose the following revision to more clearly articulate what we understand to be MISO's intent:

• Requests due to future planned outages should be submitted as soon as possible, with the understanding that processing the request may take 15 days or longer.

The following join WPPI in these comments:

• Alliant Energy
• Avangrid
• EDF Renewables
• Madison Gas and Electric
• NewGrid