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CAISO moves to improve congestion revenue rights system

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CAISO moves to improve congestion revenue rights system

The California ISO board of governors signed off on rule changes meant to improve the grid operator's congestion revenue rights auction.

Congestion revenue rights, or CRRs, are used by market participants to hedge congestion costs in the day-ahead market. The rights are allocated to load-serving entities and auctioned off annually to the broader market. In recent years, CAISO has sold congestion revenue rights in its auction for substantially less than their payouts based on actual day-ahead market congestion revenue. Changes approved by CAISO on March 22 are intended to help address that issue.

Since 2014, these CRR auctions have averaged $99.5 million per year less than the payments the entitlements received from the day-ahead market, according to a memo from CAISO staff to the board. Total payments to auctioned congestion revenue rights in 2017 were $100 million more than auction revenues, the memo reported. In an efficiently functioning auction, auction revenues should more closely align with congestion revenue rights payouts.

CAISO CEO and President Steve Berberich told the board in a report that the economic theory behind congestion revenue rights is that they reduce the cost of energy by reducing the risk premium that might otherwise be included in energy price bids. "Unfortunately, the CRR market consistently experiences a shortfall in the amount brought in through the annual and monthly auctions and payments to CRR holders since being put in place in 2009," he said.

To address this issue, CAISO said it will reduce the number of congestion revenue rights purchase options in order to make the auction more efficient by making it more competitive. Another change is to more accurately estimate transmission capacity available for congestion revenue rights purchases by establishing a deadline to report transmission outages prior to the annual auctions, the grid operator said.

The changes approved are expected to be in place before the 2019 annual auction scheduled for July 2018.

CAISO management is considering other changes to the 2019 auction to further reduce the shortfall. Those changes, which could be brought to the board in early summer, include a partial funding approach to congestion revenue rights, wherein the grid operator would limit the payout of congestion revenue rights when there is a shortfall in congestion revenue collected from the day-ahead market and a reduction in the amount of congestion revenue rights released in the annual auction process.