XO Energy strongly agrees with many of the assertions and recommendations presented by London Economics regarding the MISO FTR Market. Financial participants play a critical role in the price discovery, transparency, and liquidity of the markets. 

XO Energy also supports the comments submitted on behalf of the Financial Marketers Coalition (FMC).

XO Energy strongly agrees with the need for providing more granularity in the time periods available to purchase FTR's. This is necessary for hedging purposes with the rapid increase in renewable generation. While LEI is suggesting products that reflect morning, afternoon, night, and nighttime products for both weekday and weekends, XO Energy would like MISO to take a step further and introduce a "Virtual Spread" product. Potomac Economics (the independent market monitor for MISO), has been recommending this since 2011. This is an hourly point-to-point spread bid that clears in the day-ahead and settles in real-time.

XO Energy has been proactive in every ISO for over a decade to promote this product, as we have analyzed the benefits and efficiency it brings to the markets.

If you would like to read some material that XO Energy has presented in the past, please go to http://www.xo-energy.com/presentations.

Ameren, holding company for Ameren Illinois Company (d/b/a Ameren Illinois), Union Electric Company (d/b/a Ameren Missouri) and Ameren Transmission Company of Illinois appreciates the opportunity to provide feedback on prioritizing and reasoning for London Economics International's (LEI) recommendations for ARR-FTR market design changes and timing.  Ameren Missouri supports resetting the 2004 reference year entitlements to reflect current network usage.  As generation portfolios transform, 2004 entitlements are less effective for hedging generation to load congestion.  Also, at the current rate of generation transformation, entitlements should reset more frequently (every 5 years for example).  Ameren Missouri supports improving the RSP process to allow entitlements for new resources (especially renewable and intermittent peaking resources).  Currently, although technically possible, it is very difficult to add entitlements for these new resources.  Ameren Missouri supports an effort to improve the accuracy of MISO's FTR Auction model.  Closing the gap between auction and actual congestion values would more accurately value FTRs and ARRs.

CGA Comments on London Economics Report/Recommendations to the MSC

May 4^th, 2023

Clean Grid Alliance appreciates MISO’s presentation to the MSC on the London Economics (LEI) Report/Recommendations and the request for feedback on this topic. 

While LEI did not directly identify our concern noted below, various impacts of it were noted in the report. Given the significant and growing impact on rates and pricing due to huge uptick in generation projects in the 2022 MISO queue recent policy changes that increase the transmission upgrades funded by generator interconnection projects, we consider this is the single most important issue for MISO to focus on in ARR/FTR reform. 

By right, generator interconnection-customer funded expansion of the transmission system is eligible for allocation of long-term transmission rights (LTTRs). Generator interconnection customers paying for transmission upgrades are eligible to commensurately receive FTRs in response to the funding associated transmission in the form of Network Upgrades. However, MISO’s current rules and procedures make it nearly impossible for interconnection customers to receive the allocations they are entitled to. Our understanding is that the FTR allocations that generators interconnection customers are deprived of in the MISO construct are sold at very low prices in the monthly auctions, where non-generator, non-load entities pick them up. Neither the seller nor the buyer are able to obtain the FTRs to manage the risk in energy transactions. While this construct financially impacts generators, it ultimately becomes very costly for load and load serving entities who either purchase the generator interconnection projects that pay for the Network Upgrades, or that contract for the power output. Project or power purchase agreements paid by load are driven up directly through funding Network Upgrades without the ability to access the tools created to manage congestion risk on those upgrades. Clean Grid Alliance strongly encourages MISO to explore as a top priority, solutions that can address this long-standing issue and undertake reforms to the ARR/FTR construct accordingly. We have contemplated a number of ideas/solutions that could potentially address this problem, and appreciate the opportunity for further discussion. 

 Sincerely,

Dr. Rhonda R. Peters

Clean Grid Alliance Consultant

At the April 20, 2023, Market Subcommittee (MSC) MISO solicited feedback on London Economics International (“LEI") Auction Revenue Rights/Financial Transmission Rights (ARR/FTR) report and recommendations. The Public Service Commission of Wisconsin (PSCW) Office of Regional Markets staff appreciates the opportunity to submit feedback and supports the direction that MISO is moving in with regards to the ARR/FTR market and allocation process. Overall, in the short term we believe there are initiatives that can lead to better market outcomes (return more congestion revenue or more transparent market signals) for Load Serving Entities (LSEs) to hedge against congestion costs. In the longer term, PSCW staff believes that a larger market redesign may be more appropriate as the transmission grid continues to transform.

We present the following response to “Which LEI recommendations would you prioritize and why?” with recommendations in descending priority and associated reasoning:

1. Developing an ARR-like mechanism for monthly auctions.
1. According to the LEI report, the largest gap between Non-LSEs and LSEs in terms of revenue and participation occurs during the MPMAs, and this is largely due to the absence of an ARR allocation process during these auctions. Developing a mechanism similar to the annual auction in which LSEs are allocated ARRs (or an amount of MPMA revenue) could result in greater opportunity for LSEs to hedge congestion costs.
2. Revise the basis for ARR from the historical reference year to actual usage of the transmission network. 
1. Making the reference year based on a more current usage of the transmission network will more appropriately align current usage and congestion. Available ARR paths do not always reflect current usage of the transmission system, leaving utilities more exposed to the cost of congestion. A greater number of paths that are nominated will give more flexibility to LSEs to hedge their congestion costs. With oncoming generation expected to accelerate, we expect there could be additional congestion impacts to the transmission network and LSEs may need more options to manage those risks to avoid passing those costs on to customers. 
3. Investigate ways to incentivize transmission and outage scheduling to harmonize ARR and FTR outcomes with the DA energy market. 
1. Since outages affect how electricity flows along the transmission network, accurately reflecting those outages can improve market information for the ARR allocation and FTR auctions as well as for participants to better hedge congestion costs.  On the other hand, we understand that outage scheduling is not always a straightforward process, so it may be reasonable to focus on what would be practical in the typical operations of transmission owners for managing outages.

After considering the LEI report, ICC staff agrees with LEI that the current FTR/ARR construct is not adequate. As LEI notes, in recent years the transmission customer metric (TCM) has declined, meaning that less revenue is being returned to load through the FTR market. ICC staff notes that the transmission system is paid for by load, and the ARR/FTR construct is intended to return congestion revenues back to load. LEI offers several recommendations, such as more FTR pathways and a greater vary of products, that are intended to help the FTR market operate more efficiently and return more congestion revenue to load. But none of the LEI proposals would return all revenue to load, despite load paying for the transmission system. ICC staff believes that all congestion revenues should be returned to load and risks to load should be minimized. In its current form, even with LEI’s recommendations, ICC staff is unsure the FTR market can meet that standard of returning all revenue to load at minimal risk. In addition, LEI cannot quantity the benefits that financial traders provide through liquidity or information signals. Hence, ICC staff is skeptical that financial traders are providing a value equal to the revenue they are removing from load through the FTR market. ICC staff would like a more fulsome discussion of larger changes to the FTR market, that would guarantee all congestion revenue is returned to load.

Boston Energy Trading and Marketing (BETM) appreciates the opportunity to share our perspective on LEI’s Recommendations. 

We agree with MISO, with regard to the need for more timely outage submissions. MISO needs to improve the reliability and accuracy of the planned transmission outage process/information. MISO should work on reducing the discrepancy between the modeled transmission outages in the FTR auction vs. the actual planned transmission outages and the actual transmission outages that are occurring in the DA/RT market. 

Even though MISO is not currently in agreement, BETM supports additional products/periods. We encourage MISO to implement longer-term FTR auctions. New generation being built needs offtakes or long-term hedging to support financing, and often these offtakes or hedges are at liquid hub locations meaning that generation is likely to face locational price risks between their project location and the hub. If hedges from FTRs are only short term, they may not be able to obtain cost-effective financing (the development cost of generation capacity is thus higher to compensate for the extra locational price risks). Therefore, not having a longer-term auction is a negative impact on new generation development, and in the long run has a negative impact to achieving renewables policy goals and reliability. Since MISO is currently concerned about capacity shortfalls, longer-term FTR auctions may encourage additional generation development.

Thank you for your consideration.

Diane Janicki 

Boston Energy Trading and Marketing

The current design and construct of the MISO ARR FTR market to compensate for the cost of congestion incurred between resources and load has served its purpose well for Otter Tail Power Company.  Otter Tail actively participates in these markets and has historically self-scheduled its feasibly allocated ARRs to the Annual FTR markets.

Otter Tail’s service territory has seen a dramatic increase in congestion bifurcating its resources from its aggregated customer load node.  This congestion has put a significant portion of its generation on the low side of the constraint and its aggregated load on the high side. This congestion could have a detrimental effect to its customers but for the value of its historical ARR FTR entitlements.

The premise of returning the cost of congestion between a Market Participant’s resource to serve load based on their historic investment in the bulk transmission system needs to be preserved; particularly for instances like those experienced by Otter Tail.  This experience should not be seen as unique to Otter Tail and should be noted as working appropriately within the original premise and design of the ARR FTR market. 

Otter Tail recommends MISO use extreme caution when considering any design to move away from historical rights toward “current” use of the transmission system.  This type of change would need to be carefully considered such that baseload designations and the long-term guarantee of rights are not affected by MISO dispatch under extreme congestion conditions where the ARR FTR market is working as intended.

The generalities of changes that have been suggested, with a lack of detail for how to preserve long term ARR FTR rights, leaves open to concern how those changes may cause irrevocable and detrimental changes to those fully participating in the original intent of the market, hedging their customers original investments to serve its load economically.

As Otter Tail is experiencing a disparate amount of congestion within its own system compared to its rather small percentage of MISO load, the allocation of historic entitlements for hedging purposes more appropriately distributes the cost of congestion rather than any current usage designation or Load Ratio Share could approximate.

Continued vetting should be considered for the discussion points proposed under agenda Item 09 MISO ARR FTR Construct_WPPI, presented at the April 20, 2023 MSC meeting.

Comments of the Financial Marketers Coalition

On the LEI Recommendations for the MISO ARR/FTR Market

May 4, 2023

Contact:           Ruta K. Skučas, Esq.

                        Ruta.skucas@klgates.com

            The Financial Marketers Coalition (“FMC” or “Coalition”) thanks MISO for the opportunity to comment on the recommendations that London Economics Inc. (“LEI”) made for the MISO ARR/FTR construct.  The LEI Report performed by LEI of MISO’s ARR and FTR markets offers a thorough and important review of these markets, along with recommendations that MISO should promptly implement to improve the efficiency of the ARR allocation process and FTR market.[1]

       I.            Overall Comments

            The FMC believes that the LEI Report brings important data to the discussion of the value of ARR entitlements and FTR markets, as well as the value of financial market participants.  The LEI Report clearly demonstrates that MISO’s Transmission Customer Metric alone does not reflect the value of FTRs and financial market participants.  It also shows the importance of financial market participants providing liquidity and competition -- sometimes in the form of a counterparty to an LSE wishing to convert its ARR into an FTR.  The LEI Report, at bottom, demonstrates that financial market participants bring benefits to transmission customers, by helping to make the FTR market more efficient.

    II.            Enhancements

            The FMC supports the following recommendations, and strongly encourages MISO and its stakeholders to promptly implement these changes.  MISO should not delay implementation.  A slow approach to considering and implementing these recommended changes will be inefficient for the market.

1. A.    Bifurcation of On-Peak and Off-Peak FTRs

In the LEI Report, LEI recommends:

Bifurcate current peak and off-peak FTR products into more granular products that better match the typical generation pattern of different resources and load profiles

• For example, split the current two products into eight total products (four periods (morning, afternoon, night, nighttime) that apply to weekdays and weekends)

            The FMC strongly supports the recommendation to create more granular FTR market products.  First, both PJM and ERCOT have recently created additional classes in their FTR auction products to account for on and off peak periods.  PJM created the Daily Off Peak and Weekend On Peak classes in 2022; these classes became available as of the October 2022 monthly FTR auction.  They allow for greater granularity and precision in hedging positions, and more closely match the generation profiles of the changing resource mix.  ERCOT similarly offers Peak Weekday, Peak Weekend, and Off Peak CRR products.

            Second, as the resource mix on the grid changes, greater granularity in FTR classes will permit market participants to hedge their congestion and positions in ways that more closely match their actual load profile.  As a recent article from Berkeley Lab demonstrated, this hedging ability is critical to resources whose volume varies by hour.[2]  The Independent Evaluation demonstrates the importance of this recommendation through its examples of wind and solar production, and emphasis on the increasing number of variable resources in the MISO market.[3] 

1. B.     Timely Outage Reporting

In the LEI Report, LEI recommends:

Design a mechanism for incorporation in the FTR network model that incentivizes the transmission owners to submit timely and accurate outage reporting

            Timely outage reporting is critical to a well-functioning market.  Unexpected outages can cause significant volatility in congestion pricing across the FTR, day-ahead and real-time markets.  In some cases, that volatility can lead to market defaults and FTR underfunding.  Further, lower certainty on outages can make valuation of potential FTR paths more difficult, such that market participants discount bids to align with market expectations and outage risks.  This results in lower prices for FTR paths at higher risk of outage.  LEI noted that MISO is already working on potential differences between its network models for FTR auctions and for the day-ahead energy market.[4]  This harmonization of network models is critical.  Similarly, MISO must also create incentives for transmission owners to timely submit outage notifications.

            The Southwest Power Pool (“SPP”) has been working on the issue of transmission outage reporting in its TCR Underfunding strike force.  SPP found that untimely transmission outage reporting can result in TCR underfunding.  Current proposals before SPP stakeholder groups may result in changes to outage submittal timelines, with the submittal timeline being significantly extended such that transmission owners must give notice much earlier.

1. C.    Reporting on Trends and Efficiency

In the LEI Report, LEI recommends:

Consider periodic reports on:

(i) the trend in the number of market participants across the FTR auctions

(ii) the relative efficiency of MISO’s FTR market in predicting DA energy congestion

These metrics reflect the level of competition in the market, which is a proxy measure of market efficiency

            The FMC strongly supports both recommendations.  Trends in market participants across the FTR markets can send strong signals about liquidity and competition in the markets.  Data on whether significant numbers of market participants are entering or leaving the FTR market, or not participating in certain auctions can help signal potential problems with the market.  This metric is one way to take the temperature of the FTR market.

            Similarly, data on how well the FTR market predicts day-ahead congestion is also valuable.  One of the primary goals of FTRs is to hedge against day-ahead congestion.  Data on its efficiency would help demonstrate the health of the FTR market.  If the market is not efficient, then this metric will provide a signal that further refinements are needed.

1. D.    New Products

In the Report, LEI notes that :

LEI proposes that MISO create new FTR products that better reflect the generation patterns of intermittent resources, such as wind, vis-à-vis load profiles

• New FTR products could be more granular peak/off-peak products that reflect the difference within daytime periods. For example: namely morning, afternoon, night, and nighttime

            In addition to the more granular FTR products discussed in section A above, the FMC recommends that MISO add two further products: FTR options and the Virtual Spread Bid product, as well as expansion of FTR points. 

                                            i. FTR Options

            MISO should consider adding FTR Options, in addition to the existing FTR Obligations.  An FTR Obligation is the current construct, whereby a market participant is required to receive (or pay) for the price difference resulting from congestion.  An FTR Option, on the other hand, gives the FTR holder the option to receive (or pay) the price difference, usually when the price difference is favorable to the FTR holder. 

            The FTR Option both reduces risk and increases flexibility.  It reduces risk for the ISO and the market participants as the FTR Option is fully collateralized, so the market participant is not at risk of default.  And it provides much greater flexibility, particularly to resources with variable generation profiles.  As the resource mix changes towards more variable generation sources, the FTR Option allows market participants to get the financial exposure they require without adding downside risk to their credit profile.

                                          ii. Virtual Spread Bid

            MISO has held the Virtual Spread Bid product in its new product parking lot for the past 10 or more years.  The Virtual Spread Bid is, essentially, a day-ahead FTR.  It would permit congestion hedging of real-time congestion in the day-ahead, similar to the way FTRs permit hedging of day-ahead congestion on a longer period.

            Implementation of the Virtual Spread Bid would help achieve the granularity LEI recommends, as the product is intended to be an hourly congestion hedge.  This product would be particularly valuable to resources whose generation profile shifts from hour to hour, such as wind and solar resources.  Further, the MISO market monitor continues to recommend the Virtual Spread Bid in State of the Market reports: 

This recommendation was originally proposed in our 2012 State of the Market Report. MISO originally agreed with this recommendation, but in 2018 MISO indicated that technical feasibility was a concern under the current systems. Hence, this recommendation is a Parking Lot item in the Roadmap pending performance enhancements from the [Market Systems Enhancements (“MSE”)].[fn]  The IMM continues to encourage MISO to reconsider this recommendation upon completion of the MSE.[5]

MISO should promptly resume consideration of the Virtual Spread Bid.

                                        iii. More FTR Points

            Finally, the FTR market would benefit from greater availability of points.  As demand continues to be more responsive and generation becomes more disaggregated, more granular and less aggregated load zones would promote further market efficiency.  The FMC notes that some of MISO’s current load zones are so large that they mingle dissimilar demand regions, preventing market participants from taking FTR paths that are targeted to their specific needs..  Smaller and more granular load zones would be beneficial for a wide variety of market participants, many of which also hedge their positions in the FTR markets.

4 May 2023

To:                  MISO FTR Staff

From:             Appian Way Energy Partners

Comments on LEI Recommendations

_________________________________________________________________

Thank you for the opportunity to share our thoughts on the FTR market design. As always, feel free to reach out to us with any questions or clarifications.

            Appian Way supports MISO’s position with respect to the LEI recommendations with respect to ARR/FTR market design changes:

• We support an incremental approach over the status quo and we do not support a full ARR/FTR market redesign. We agree with the LEI conclusions that the ARR/FTR markets in MISO are working as intended but that the ARR allocation process can be updates so that ARR entitlements better reflect current usage.
• We agree that the priority reform should be reforming the ARR entitlement process. However, we note that this is a difficult task that will require careful thought and deliberation. We have identified some important principles for MISO to consider with respect to the ARR entitlement process below:  

Important Considerations in Reforming the ARR Entitlement Process:

Appian Way believes LSEs will want a ARR entitlement process that is 1) simple, 2) fair, 3) reflects their current usage of the system, and 4) does not over-allocate the system.

• Simplicity is important because if the ARR allocation process is very open-ended with significant flexibility and choice in paths, many LSEs may struggle with their regulators’ prohibitions on “speculating” in the market. While some more sophisticated LSEs who are active FTR traders may advocate for greater choice and flexibility, we believe that most LSEs do not want the selection of ARRs be an area of commercial competition and advantage amongst LSEs (requiring attendant specialized skills). Indeed, the more flexible and complex the ARR allocation process, the more LSEs will need to hire expensive consultants or enter business arrangements with expert traders to help them with their ARR allocation strategies, resulting in value leakage from the LSE sector overall. MISO leadership should ensure that the ARR redesign should reflect all LSE preferences in this regard (not just the most vocal and sophisticated LSEs).
• Fairness is important because LSE rate-payers pay for the transmission network and should receive back ARR entitlements that roughly reflect the value of their pro rata investment in transmission. The ARR entitlement redesign should engage LSEs with respect to the trade-off between entitlements reflecting pro rata transmission investment and entitlements reflecting the system usage and congestion experienced by LSE buyers.  
• Usage is important because the purpose of congestion rights for LSEs is to hedge the source to sink delivery risk of meeting LSE demand obligations with their contracted resources. However, it is essential (and required by FERC) that access to these entitlements be non-discriminatory. For instance, transfer capacity out of a constrained generation pocket should be shared fairly between legacy LSEs and new (or future) LSEs (such as a data center or corporate manufacturing facility).
• Revenue adequacy is important because over-allocation of entitlements would result in underfunding that undermines the financial integrity of the FTR product as a hedging instrument and would result in lower ARR entitlement values because FTR buyer would need to discount the amount they bid for FTRs to account for underfunding risk.

Which LEI recommendations would you prioritize and why?

• Biddable classes: Appian Way believes MISO participants would benefit from expanding the off-peak product into a weekend peak (2x16) and overnight (7x8) product.
  • A weekend hr 7-22 product would allow congestion hedges to align better with the hedging needs of renewable generators. Wind would like 7x8 hedges for greater off-peak generation while solar generation would be better off with hedges during day-light hours (i.e. weekday peak plus weekend 2x16).
  • However, as noted below, we do not agree with increasing the number of FTR classes from 2 to 8 and concur with MISO that this would require further study.  
• Transparency: Appian Way Agrees with the LEI recommendations. In addition, when MISO posts auction results, MISO should release the data (line limits, constraints, outages, shift factors, loop flow assumptions, etc.) that was actually used in running the FTR auction. MISO currently releases all this information weeks before the auction is run based on its estimate at that time. However, when these factors change, market participants have no transparency into what MISO actually used in the auction which may be different (due to changing circumstances) from the information MISO provided in advance of the auction. In addition, MISO should report any manual overrides or actions taken to solve the FTR auction that were required in the auction administration process.

Which LEI recommendations would you not prioritize and why?

• Biddable classes -- We agree with MISO that increasing the number of FTR classes from 2 to 8 (i.e. having 4 periods during the day) would require further study and that the amount of work for MISO staff and complexity to the market may not be worth the benefit of more granular time periods. We would urge MISO to survey market participants to determine how much demand there is for this reform because we have not seen this reform in any other market. Indeed, in PJM where most LSEs have full requirements load auctions, we have not seen the futures markets evolve to have, say, a super-peak set of hours as a traded product. Competitive LSEs that serve full requirements load are able to hedge with the standard 2x16 peak product. We believe that this particular LEI recommendation may not have a groundswell of support amount MISO participants.

Are there any ARR-FTR market design changes that you would like to see that were not covered in the LEI evaluation?

Appian Way has two recommendations which we believe MISO should consider that we do not believe would be difficult to implement and would improve the ARR/FTR market: 1) release of additional capacity in mid-year to the extent that MISO FTRs appear to be over-funded, and 2) reforming the MPMA so that the entire balance of period is auctioned each month.

Congestion surplus / surplus capacity release: The IMM has noted the significant surplus which suggests that some paths in MISO were significantly undersold / withheld by MISO in both the annual and monthly FTR auctions. Restricting transmission capacity means that less hedging volume is available to market participants which undermines MISO’s obligation to facilitate a market for congestion hedges. We believe that MISO should examine its modelling practices and release additional capacity into the FTR auction monthly, as well as at mid-year as appropriate for the periods further out. We agree that MISO should be somewhat conservative regarding capacity release in order to avoid overselling the system. However, once it becomes clear that the risk of underfunding is low, MISO should offer additional capacity on under-sold paths in the MPMA.

Balance of Period Auctions (MPMA): It would be a small reform with significant benefit, for MISO to adjust the MPMA so that the entire balance of period is auction each month rather than every 3 months. This would support additional hedging and trading by market participants and improve MISO’s credit and risk management operation of the market by allowing for a re-marking of the entire FTR market each month rather than once every three months.

MidAmerican appreciates the opportunity to provide feedback on the London Economic International (“LEI”) ARR-FTR Recommendations (20230420). 

MidAmerican would like to suggest that MISO ignore all the LEI recommendations except for the obvious recommendation to follow the MISO business practice rules and require timely outage submissions for modeling purposes. MidAmerican would also like to suggest that MISO, in the spirit of guiding principle five of FERC order 681, look at monthly allocations prior to the monthly auctions. This could address any stage 1A or 1B allocations not taken in the seasonal auction or anything that was infeasible. MidAmerican would also like to see if including anyone without actual firm transmission rights or obligations (either LSE or generators) is accomplishing MISO’s number one goal of reliably delivering low-cost energy to customers within the MISO footprint. MidAmerican feels that financial players in the FTR market are likely a detriment to load serving entities given that LSEs are hedging and have a small number of legitimate sources and sinks where financial players are purely speculating and can take advantage of things like differences in modeling between the FTR model and the day ahead model.

MISO should not treat the FTR market like a derivatives market because FTRs were created to support long-term power supply arrangements and should not be used to facilitate speculation for financial gain with no tie to power supply arrangements.

Xcel Energy appreciates the opportunity to provide feedback regarding the LEI Recommendations for MISO's ARR/FTR Construct.  Our priorities are shown below.

We believe that improvements to the ARR/FTR construct should not be limited to the LEI recommendations.  We request MISO to provide their feedback to the CUOS ideas as presented by WPPI at the April MSC and provide agenda time for subsequent stakeholder discussion. 

American Municipal Power (AMP) appreciates the opportunity to provide the following feedback on LEI’s ARR-FTR recommendations.

 Which LEI recommendations would you prioritize and why?

1. Revise ARR entitlements based on current use. Seems the most rational first step in MISO's incremental approach to market change.
2. Monthly allocation process. Allow MPs to nominate unallocated ARRs form the annual process in a monthly ARR allocation process to use additional network capacity that was unavailable in the annual auctions.
3. Expanded set of nomination paths. Allow MPs to identify paths with excess capacity to offset un-allocated ARRs.
4. More timely outage submission. Will allow MPMA model to better predict DA congestion.
5. Additional FTR products/periods. Could be very beneficial for IRs and peaking plants.

 Which LEI recommendations would you not prioritize and why?

TCM changes. MPs can track these types of metrics in a way that is more meaningful to their own portfolios than the market-wide view presented in the MSC. Actual Changes to the ARR/FTR processes will be more beneficial to LSEs than tracking “what if” impacts.

 Are there any ARR-FTR market design changes that you would like to see that were not covered in the LEI evaluation?

 No  

This feedback request concerns London Economic International’s ARR-FTR recommendations. WPPI answers the specific question posed by MISO as well as provides more general feedback.

(1)    Which LEI recommendations would you prioritize and why? (Note: With one exception, WPPI used the LEI recommendations as specified on s. 5 of “20230420 MSC Item 08 ARR-FTR Market Design Change Prioritization and Timing.”)

(a.)  #1, high priority: Allocate MPMA auction revenues to LSEs (LEI report, p. 84, section 8.4, “third option;” which did not make it onto MISO’s list of LEI Recommendations on s. 5)

• Because this is the only LEI recommendation that would for certain return more dollars to Load Serving Entities, in the event FTRs are underfunded at the end of a calendar year.

(b.)  #2a, medium priority: Monthly allocation process

• WPPI expects returning to the monthly allocation process of the past will not be especially fruitful (few additional ARR MW allocated), as we think the transmission system is as loaded as it has ever been. HOWEVER, given how transmission outages are modeled (an outage in one month affects the entire season), it is worth exploring moving from the current seasonal to a monthly allocation in the spring. Still, any additional ARR MW allocated are likely to increase dollars returned to load only slightly, if at all. (In order to materially increase dollars returned to load, a material number of additional ARR MW would need to be allocated and converted to FTRs to materially decrease the transmission capacity available to non-LSEs to buy FTRs.)

(c.)   #2b, medium priority: ARR entitlements based on current use

• WPPI understands/appreciates frustration with current process to add ARR Entitlements sourcing from new resources, in particular new non-baseload resources (PRSS Option provides a work around in the case of new baseload resources). However, updated ARR Entitlements are likely to increase dollars returned to load only slightly, if at all. (In order to materially increase dollars returned to load, a material number of additional ARR MW would need to be allocated as a result of the update and converted to FTRs to materially decrease the transmission capacity available to non-LSEs to buy FTRs.)

(2)    Which LEI recommendations would you not prioritize and why?

(a.)  Expanded set of nomination paths

• WPPI support for ARR Entitlements is limited to an LSE’s load (sink) and resources (source). Beyond that, all LSEs should benefit on a similar basis (e.g., Stage 2 revenue, disbursement of excess congestion to Transmission Customers).

(b.)  Additional FTR products/periods

• Until the problems leading to LSE ARR/FTR dollars falling far short of over-collected congestion dollars are addressed, WPPI is very hesitant to expand the number of FTR products/periods. Doing so would provide additional opportunities for non-LSEs to purchase FTRs for far less than their value.

(c.)   More timely outage submissions

• It is WPPI’s understanding that timely transmission outage submissions are already required and we recognize, despite the best laid plans, there are times a transmission outage must be rescheduled and not every transmission outage can be foreseen. HOWEVER, given the discussion around timely transmission outage submissions, we think it would be helpful for MISO and stakeholders to discuss current submission requirements and how transmission outages are modeled for purposes of the ARR allocation and FTR auctions.

(d.)  Grant entitlements for expanded net capacity (which we understand to be LEI recommendation, allocate FTRs to LSEs based on unallocated ARRs)

• WPPI is not sure what this is and would need further explanation/discussion to consider prioritizing.

(e.)  Additional TCM (all SS v. no ARR SS), FTR market participation trends, FTR market’s DA predictive capability

• WPPI does not see any value in the additional metrics proposed by LEI. HOWEVER, to assess the value (“liquidity”) non-LSEs provide in the FTR auctions, WPPI supports exploring the extent to which non-LSE participation in the FTR auctions results in LSEs purchasing more FTRs than they would absent the participation of non-LSEs. Note: Given LSE ARR/FTR dollars fall far short of over-collected congestion dollars because non-LSEs buy FTRs at prices far less than their value, the contribution of non-LSEs to the efficiency of FTR auctions is woefully inadequate.

(3)    Are there any ARR-FTR market design changes that you would like to see that were not covered in the LEI evaluation?

• Yes, only one LEI recommendation would for certain return more dollars to LSEs (in the event FTRs are underfunded at the end of a calendar year). All the potential additional ARR-FTR market design changes listed in the presentation posted with the 4/20/2023 MSC meeting materials, “Item 09 MISO ARR FTR Construct_WPPI” merit discussion. Which of them merit implementation is to be determined. In particular, which potential ARR-FTR market design changes are most likely to return materially more dollars to LSEs?

(4)    BONUS feedback

• See attachment provided with this feedback that provides WPPI’s comments on the LEI report.

Mississippi Public Service Commission (MPSC) and Louisiana Public Service Commission (LPSC) Feedback Regarding

Prioritization of LEI Recommendations to Improve the FTR Allocation (MSC 20230420)

MISO Requested Feedback Statement:

• Which LEI recommendations would you prioritize and why?
• Which LEI recommendations would you not prioritize and why?
• Are there any ARR-FTR market design changes that you would like to see that were not covered in the LEI evaluation?

MPSC and LPSC Feedback:

Highest Priority: The MPSC and LPSC believe the highest priority should be the one recommendation missing from the LEI Report:  To restrict participation in the MISO Financial Transmission Rights (FTR) Auction to entities that serve load only; that is, customers taking Network Integration Transmission Service (NITS) or firm point-to-point transmission service.  Doing so would ensure that all congestion revenue not included in payments to suppliers of energy would be distributed to load.  Adopting this recommendation would eliminate the need for any of the LEI recommendations.

LEI Recommendations:

The MPSC and LPSC encourage MISO not to move forward with implementation of any LEI recommendations until such time that the stakeholder effort led by WPPI to enhance the FTR allocation benefits to load has reached its conclusion. 

Of the recommendations offered in the LEI Report:

A.  The recommendations worth prioritization are as follows:

      (i)      Give LSEs additional capacity associated with the ARR paths that are released in the MPMAs.

B.  The recommendations NOT worth prioritization are as follows:

      (i)      Any change to the TCM, including:

                   - Supplement the TCM the self-scheduling strategy and ARR holding strategy hypothetical TCMs.

                   - Remove the “out of pocket” purchases from the TCM formula.

                   - Adjust the TCM if adopting the allocation of ARRs to MPMAs or if allocating MPMA auction revenues to LSEs.

               Rationale: The TCM as it exists clearly demonstrates that a significant share of congestion revenue (approximately $3.1 billion in the last ten (10) years has not been applied to reduce or offset retail customer energy costs).  Further refinement will not change that result.

      (ii)    Change the basis of the reference year for the ARR entitlements and allow LSEs to nominate more variations of paths. 

               Rationale: Transmission Customers already can sell their FTRs in the auction and purchase FTRs with alternative Injection and withdrawal points.

      (iii)   Publish metrics that measure the amount of congestion revenue lost by transmission customers due to ARR allocation curtailments and compare this with the Stage 2 settlement payment.

               Rationale:  As the TCM demonstrates, the best way to maximize the return of excess congestion revenue to customers is to restrict auction participation as described above.  Further metrics are unnecessary.

      (iv)   Introduce new FTR products by subdividing the existing FTR products into more granular products that better match the generation patterns of intermittent resources.

               Rationale:  Further subdivision of FTR products adds unnecessary complexity.   First, many LSEs are unlikely to rely on intermittent resources as base-loaded generation because of their unpredictability.  Second, for those that do, during periods when intermittent resources are unavailable (e.g., poor weather conditions, wind draughts), FTRs aligned with intermittent resources will not likely reflect the congestion paid by LSEs to serve load.

       (v)   Review the effectiveness of MISO’s efforts in fixing the modeling differences between the FTR network model and the DA energy market model in minimizing unintended profitability of counterflow FTRs.

               Rationale:  Addressing modeling differences may improve to a small degree the hedging revenue, but it pales in comparison to the benefits that the customers (who paid for the transmission system) would derive by restricting auction participation to firm transmission customers.

       (vi)  Monitor whether the FTR market is contestable by developing new metrics that track the trends in participation in the FTR auctions and the efficiency of MISO’s FTR market in predicting DA energy congestion.

               Rationale:  FTRs are not a market; it’s a regulatory construct under which ARRs are allocated to firm transmission customers serving load (and then converted to FTRs) to offset congestion costs.  Contestability is not an issue.  LSEs and non-LSEs participate in the auction for different reasons. LSEs look to hedge congestion by aligning FTRs with resources used to serve load. Many are restricted from employing bidding strategies that would be perceived to accomplish anything other than hedging.  On the other hand, non-LSEs employ bidding strategies designed to maximize their profit by exploiting differences in congestion between any points on the MISO transmission system.

The following feedback is offered by The Entergy Operating Companies ("EOCs")[1] in response to the request made during the April 20th, 2023 Market Subcommittee meeting concerning the request for comments on the London Economic International (“LEI”) Recommendations. In general, the EOCs believe that ARR/FTR process improvements are merited. Below is a more detailed response to the individual questions posed by MISO.

Comments on LEI Recommendations:

• Which LEI recommendations would you prioritize and why?
  • The EOCs would prioritize the recommendation to update ARR entitlements to more reasonably reflect current use. 
  • One way to do this would be eliminate the feasibility test applied to requests to add sources to the non-BRSS (PRSS) in Round 3 of the RSP process.  The strict feasibility test that is currently applied in Round 3, which tests feasibility “on top” of all previously-granted ARRs, often results in rejection of requests to update the source set to incorporate new sources.
  • In contrast, the EOCs encourage MISO not to eliminate the feasibility test applied to requests to add sources to the BRSS in Round 2 of the RSP process.  The retention of the feasibility test in Round 2 is important to ensure that additional sources eligible for Stage 1A do not cause infeasibility of LTTRs because any such infeasibility is funded through uplift.
  • Also, as MISO considers options to update ARR entitlements to more reasonably reflect current use, the EOCs encourage MISO not to force LSEs to update their source sets to reflect future use.  Specifically, the EOCs encourage MISO not to force LSEs to give up ARR entitlements when a unit retires because that could distort retirement decisions.  

• Which LEI recommendations would you not prioritize and why??
  • The EOCs believe that creating additional FTR products / periods would be excessively burdensome to the already time-intensive process that is inherent in the Annual ARR Allocation analysis.  The creation of these additional products would not be utilized by the EOCs as the current construct sufficiently allows for the hedging of the congestion exposure.  This would be adding additional administrative burden for little to no value added at this time.
  • The EOC’s believe that adding an expanded set of nomination paths (non-Generation to Load paths) would not add additional value.  It would be difficult for many LSEs to take advantage of this opportunity because nomination of these paths could be seen as speculative in nature by the regulating bodies. 

• Are there any ARR-FTR market design changes that you would like to see that were not covered in the LEI evaluation?
  • While LEI’s report was extensive, it failed to give weight to the main reason this analysis was performed – the outcomes in MISO’s FTR Auctions as indicated by the Transmission Customer Metric (TCM). 
  • While there is disagreement regarding the usefulness of the TCM metric, the IMM has separately documented the fact that FTRs are underpriced relative to their ultimate value in the annual and monthly FTR auctions – and not by small amounts.  This is particularly true in the monthly FTR auctions, where FTRs are consistently and significantly underpriced. 
  • LEI glossed over this topic by saying there exists value from liquidity and price discovery created by Non-LSE participants.  However, they did this without quantifying such value as compared to the value extracted by purchasing under-valued FTRs in the auctions.
  • The EOCs encourage MISO to take this issue more seriously and to implement changes that ensure that more of the DA congestion revenue collected on transmission facilities that are paid for by LSEs are returned to LSEs.  While MISO may be unable to protect LSEs from selling FTRs that were allocated to them for less than they are worth, MISO can make changes to ensure that less unallocated capacity is sold for less than it is worth.  For example, MISO could make less capacity available for sale in the auctions, particularly the monthly auctions where capacity is consistently underpriced. 

The EOCs welcome the opportunity to work with MISO and other stakeholders to improve the ARR/FTR processes to create better value for MISO ratepayers.

WEC Energy Group supports further discussion of improvements to the ARR/FTR process.  In particular, the market design changes within the WPPI presentation at the April 20 MSC warrant further discussion.  Fundamentally, WEC supports evaluation of  those ARR/FTR enhancements that allow an LSE to obtain a full congestion hedge between its Network Resources and network load (for example, the allocation of MPMA revenue to LSEs, ARR entitlements based on current Network Resources).

Here is more specific feedback on the LEI recommendations from Constellation:

ARR Entitlements:

1. ARR entitlements based on current use: We support this recommendation.
1. We want more clarity on the definition of current use.
2.  Also, we would like to know, will the change be also applicable to constraints external to MISO such as SPP’s constraints and PJM’s constraints?
3. In the same line, will the external flow have an impact on ARR entitlement on the MISO’s internal constraints?
2. Expanded set of nomination path: We support this recommendation.
1. MISO should clearly explain if what will be the objective function for stage 1C? If two Load Serving Entities (LSEs) nominated the same non-gen to load paths stage 1C,  then who will receive the path?
2. Will there be some restrictions on what paths one can chose and how many MWs can be requested?
3. What will be the sequence of LEI recommendation’s implementation? Will ‘ARR entitlements based on current use’ recommendation impact this recommendation?
4. Will the stage 1C replace the stage 2 in the current ARR process ?
3. Monthly allocation process: We support this recommendation.
1. Does MISO have an analysis on why this is a low impact recommendation?
2. MPMA auction has better information, more time-granularity, and may have better predictive power for the DA in comparison to the annual auction. Given an option to allocate the unallocated ARRs in monthly MMPA would be a good idea for LSE.

FTR Auction

1. New FTR products to reflect the profile of newer generation assets : We support this recommendation.
1. Further evaluation by MISO is fine but MISO should present their evaluation with some timeline in mind.
2. Investigate ways to incentivize timely and accurately transmission and outage scheduling: We support this recommendation.
1. The idea is straight forward but it depends on the incentive MISO is planning to give to the Transmission Owners (TOs). The incentive should not have moral hazard in its structure.
2. Does it include to incentivize outage co-ordination between ISOs or TOs external to MISO?
3. Grant entitlements for expanded net capacity.  We support this recommendation.

Transmission Customer Metric

1. Monitor trends in the number of FTR auction participants: We support this recommendation.
1. We agree that MISO should monitor the trends such as market power and portion of price-sensitive and price-insensitive bids of the participants.
2. Complement the TCM by adding new metrics (all ARR SS vs no ARR SS): We do not support this recommendation.
1. We agree with MISO that this recommendation should not be implemented. TOs may create their own metric on all ARR SS vs no ARR SS
3. FTR auctions provide predictive power for day-ahead congestion: We do not support this recommendation.

Alphataraxia Mercury

May 4, 2023

Re: Comments on the LEI Recommendations for the MISO ARR/FTR Market

Alphataraxia finds the LEI report (the “Report”) to be comprehensive and convincingly supported.  The Report also clearly lays out the benefits of financial participants to the market, including providing liquidity and improving the efficiency of FTR auctions through the formation of price signals.  The extensive discussion of financial trader’s benefits to the markets in Section 7.3 and the observation that there are flaws in the current TCM measurement that may conceal the benefits of financial traders is particularly worthy of note.

• Which LEI recommendations would you prioritize and why?

Based on slide #5 presented to the April 20^th Miso MSC, Alphataraxia agrees with Miso’s prioritization of 4 of the LEI recommendations, with one exception: we believe that the “Additional FTR products / periods” recommendation should receive greater priority.

Currently, the “Additional FTR Products” is marked as “requires further evaluation”, but with implementation and ongoing administration resource requirements that are listed as “high”.  Alphataraxia believes that simply introducing more granular load points would significantly increase the ability of market participants to more precisely hedge their obligations in the FTR market and would allow for the increasing dynamism of demand that will be required for the future grid as variable demand becomes a more prominent feature.  This parallels the LEI recommendation to “expand the set of nomination paths in the ARR entitlements” by allowing market participants, particularly Load Serving Entities, a greater ability to dial in specific locations and to benefit from more precise hedging and more granular price discovery.  At the moment, some load points in the FTR market contain as much as 10GW of load, which makes targeted transactions nearly impossible.  This was discussed at some length on the April 20^th MSC call.  Alphataraxia does not believe increased granularity of biddable FTR load points would require “high” resource requirements, and believe it would increase the ability of the market to provide more efficient price signals.

Of course, further FTR Products, like the option product available in Ercot, would add significant market value, particularly as variable resources continue to expand their footprint, but they might actually require “high” resource requirements.  Miso should absolutely consider such products, but that needn’t be an immediate priority.

With that addition, Alphataraxia supports Miso’s endorsement of the four items with green check marks on Slide #5, including “ARR entitlements based on current use”, “Expanded set of ARR nomination paths”, “More timely outage submissions”, and “FTR market participation trends”.  In particular, focusing on timely outage submission would reap great market benefits through greater market certainty, though it will be extremely difficult to craft a set of rules and policies that appropriately balances the need for advance information with the realities of physical operation of transmission lines.

• Are there any ARR-FTR market design changes that you would like to see that were not covered in the LEI evaluation?

We would like to highlight 3 additional recommendations:

(1)  More granular load points in the FTR markets.

As mentioned above, Alphataraxia believes that more granular load points created from the existing larger load zones will allow financial participants to purchase more targeted FTR paths that will create more granular price discovery.  That greater granularity will not only be a boon to load serving entities that need to purchase hedges, but will also create price points on smaller quantities of load and enable future demand responsiveness.

(2) Increased transparency through improved data

Alphataraxia supports Miso’s existing commitment to transparency and would encourage the release of more market data. 

In particular, Miso should include the constraint loading and limit in their violated DA constraints report.  Miso already releases a violated constraints file that discloses the time periods where a particular constraint binds and  the shadow prices.  However, Miso doesn’t disclose the mw loading of the violated constraint or the enforced limit, while both Ercot and SPP release that information to allow Market Participants greater visibility into grid mechanics.

(3) Virtual spread bidding product

Lastly, Alphataraxia believes that Miso should prioritize the creation of a daily path product, which is called UTC (or Up To Congestion) in PJM and PTP (or Point to Point) in Ercot.  Essentially a daily FTR product, a path-based spread bidding product would allow for real time congestion hedging and allow Market Participants to take their FTR positions down from the DA market to the RT market directly.  Ercot has had significant success allowing ARR & FTR holders to use the virtual spread bidding products to essentially exchange their DA market certainty for RT market certainty.  This is a vital tool to allow appropriate and full risk hedging.

Alphataraxia supports Miso’s efforts to improve the markets and remains available for further discussion. 

Sincerely,

Brian Kozlowski

Alphataraxia Mercury

koz@alphataraxia.com

I would ask MISO to treat the following as high priority items:

• Allow transmission customers to nominate a greater number of path types during the ARR nomination process
• Develop an ARR-like mechanism for monthly auctions
• Excess FTR Auction revenues should not be utilized to fund FTRs shortfalls.  All auction funds should be distributed solely to LSEs.  FTR participants can include the risk of underfunding in their FTR strategies.

DC Energy Feedback

London Economics International (“LEI”) ARR-FTR Recommendations

May 2023

Which LEI recommendations would you prioritize and why?

1- Biddable Classes - DC Energy recommends that MISO split the current off-peak class into on-peak weekend and off-peak night classes to better reflect the different behaviors of the many generation assets, both renewable and traditional, during days and nights. This structural change will be more relevant with the upcoming infusion of solar generation into the MISO fleet. ERCOT and PJM use three classes in their FTR auctions.

2- Transparency - DC Energy agrees with the LEI recommendations. DC Energy also recommends MISO post the weighting of each composing EPNode in each aggregate node (similar to other RTOs – CAISO, ERCOT, NYISO, PJM & SPP).

Which LEI recommendations would you not prioritize and why?

DC Energy agrees with MISO’s evaluation and prioritization as described on slide 5 of the MISO deck from the April MSC meeting.

Are there any ARR-FTR market design changes that you would like to see that were not covered in the LEI evaluation?

Congestion Surplus/Capacity Release -The congestion surplus in 2022 was $350MM (and surplus has continued in 2023). Potomac Economics, in the IMM January MSC quarterly report, noted the significant surplus and said: “The surplus indicates that some paths were significantly undersold after both the annual and monthly FTR auctions.” MISO should strive to optimally release transmission capacity in both the ARR allocation and the FTR auction processes. Releasing too little capacity means less hedging volume is available and FTR auction revenues are lower because less volume is awarded. We recommend MISO examine its modeling practices and adjust capacity release in mid year as appropriate.