Natural disasters may have caused big changes in FTR volumes, values

Natural disasters – hurricanes, fires, the coronavirus pandemic – may have influenced substantial changes in financial transmission rights contract volume and value traded this August for use this September in various power markets around the US, an S&P Global Platts analysis shows.

Summarizing all seven organized markets, the contract capacity volume and value for FTRs traded this August for use in September was up in comparison with both this July's trading and with August 2019's trading.

FTRs — also known as congestion revenue rights, transmission congestion contracts and transmission congestion rights in some markets — are financial instruments that allow market participants to offset potential losses or hedge against the congestion component of locational marginal prices in day-ahead electricity markets. An FTR obligation contract entitles the holder to be compensated if congestion occurs between two points on the grid in the same direction as stated in the contract. The contract holder is charged if congestion occurs in the opposite direction stated in the contract. This analysis is limited to the monthly FTR obligations market, and does not cover FTR options or long-term FTR markets, which can include quarterly and annual FTR contracts.

Hurricanes in ERCOT, MISO

Hurricane Hanna, which made landfall in South Texas on July 25, "severely damaged" a two-mile, 138-kV transmission line in Edinburg, Texas, near the Mexican border, which has made it more difficult to serve load in the area.

More was spent on FTRs during August auctions for September FTRs for the path from the Electric Reliability Council of Texas' South Hub to the ERCOT South Load Zone than any other path around the US, at a total cost of $1.1 million for 401,751 MWh of capacity.

On Aug. 6, the National Oceanic and Atmospheric Administration's Climate Prediction Center upgraded its estimate of how much Atlantic tropical activity would occur this season from a range of 13 to 19 named storms to a range of 19 to 25 named storms, and from a range of 6 to 10 hurricanes to a range of 7 to 11 hurricanes.

As of noon CT Sept. 14, 20 tropical storms have been named, and six have become hurricanes, including Hurricane Sally currently threatening the northern Gulf Coast.

The Midcontinent Independent System Operator serves most of the area affected by the Category 4 Hurricane Laura that slammed into Southwest Louisiana and East Texas early on Aug. 27. MISO also serves the area of the Louisiana-Mississippi state line, where Sally is forecast to make landfall.

MISO around noon CT Sept. 14 declared conservative operations effective through 9 pm CT Sept. 18 "due to the approaching Hurricane Sally, with high storm surge and rainfall forecast." Such a declaration suspends all transmission and generation maintenance, "unless such maintenance will result in improved Bulk Electric System monitoring, control and security."

MISO had the second-largest percentage increase in the value of FTRs traded in August for use in September, at 37.4%.

The largest percentage FTR value increase was in the California Independent System Operator, up 81.7% to $10.8 million. Cal-ISO and other grid operators in the west have been affected by widespread wildfires constraining transmission to load pockets throughout the West.

The biggest percentage decrease in the value and contract volume of FTRs among the seven organized markets was in the New York ISO, with the value down 56.3% to $7.8 million and the contract volume down 37.8% to 9.8 TWh.

"In New York, where large parts of the New York metropolitan area remain effectively closed because of the pandemic, the decrease in revenues and volume is especially pronounced," said Matthew Cordaro, a former MISO president and CEO who now resides in New York, in a Sept. 14 email.

Overall national trends

Across all seven organized markets, the contract volume traded in August for use in September increased 5.2% on the month and 58.8% on the year to 222.8 TWh, and the value increased 20.7% on the month and 83.5% on the year to $135.2 million.

On-peak volume increased 8.6% on the month and 91.8% on the year to 113.6 TWh, and on-peak value surged 23% on the month and jumped 120.8% on the year to $82.1 million.

Off-peak volume edged up 2.9% on the month and surged 80.8% on the year to 96.2 TWh, and off-peak value rose 32.4% on the month and leaped 168.6% on the year to $40.2 million.

In contrast, around-the-clock volume decreased 6.1% on the month and 53.1% on the year to 13.1 TWh, and this category's value decreased 13.7% on the month and $40.2% on the year to $12.9 million.