By Tom Kleckner

FERC has accepted SPP’s proposal to address an underfunding problem in the RTO’s transmission congestion rights (TCR) market by reducing the number of auction revenue rights available in the annual allocation process (ER16-13).

The commission’s Feb. 19 order sets the amount of transmission system capability to be offered during the annual ARR allocation process at 60% for the fall, winter and spring seasons (October-May), as recommended by the RTO’s Market Monitoring Unit. SPP had proposed an 80% allocation during those months.

TCR market participants can convert firm transmission service reservations into a credit against daily congestion costs, either through a TCR or through payments received for the ARR.

‘Necessary Step’

FERC found adjusting the ARR allocation rules “are a necessary step” to correct the TCR underfunding.

“We view adjusting the system capability assumptions used to determine feasibility in the annual ARR allocation process as an important step toward reducing the potential for underfunding TCRs, thereby creating a more efficient TCR market,” the commission wrote.

The Monitor told FERC that the first full year of the Integrated Marketplace’s TCR operations produced a “high degree of disparity” between TCR payments and revenues, net of TCR uplift and TCR auction charges. It contended “this indicates that TCR auction prices did not accurately reflect the realized value of TCRs.”

The Monitor listed three contributing factors: “(1) the awarding of ARRs and TCRs beyond the physical limits of the transmission system, (2) the delayed reporting of planned transmission outages, and (3) the excessive valuing of self-converted TCR bids in auctions.”

TCR funding was 82% for its first full year, and the ARR funding level was 113%, the Monitor said. It shared data with FERC “demonstrating that, in every month, day-ahead congestion revenues fell short of TCR payments, while auction revenues exceeded ARR payments.”

FERC said using the 60% assumption during the October-May period will “better reduce the need to expand transmission constraint limits during the monthly processes, which contributes to the TCR underfunding problem.” Awarding fewer infeasible ARRs during the annual allocation process, the commission said, will mean SPP “will not have to expand transmission constraint limits as frequently.”

“As noted by the Market Monitor, expanding limits can lead to situations where TCR market flows exceed day-ahead market flows for certain transmission paths, resulting in TCR underfunding,” FERC wrote.

ARR Over-Allocation

SPP submitted its Tariff revisions to FERC in October, saying its market’s TCRs were underfunded because of an over-allocation of ARRs. The RTO told the commission “disparate system capability percentages used between the ARR and TCR processes” were largely responsible, resulting in awarding infeasible ARRs, and proposed more closely aligning the system capability percentages used between the annual ARR allocation and TCR auction processes.

The Integrated Marketplace, which became binding in March 2014, was originally designed to allocate ARRs in a single, annual process, with 100% transmission system capability assumed year-round when determining the feasibility of ARRs for the annual allocation.

SPP’s proposed Tariff revisions set ARR allocations at 100% for June, 90% for July-September and 80% for the remaining months.

The Monitor told FERC it did not support the proposed use of an 80% ARR allocation, saying it did not match the 60% system capability number used in the TCR auction process. It said the mismatch would result in potential TCR underfunding and noted the 80% allocation was “contrary to an earlier proposal, presented by SPP staff.”

The proposal was changed from 60% to 80% at the Markets and Operations Policy Committee level of the stakeholder process, the Monitor said, and it could not support the revised proposal because it “was not supported with analysis.”

SPP acknowledged that the proposed 80% figure “was the result of a compromise to achieve a more gradual approach to addressing the problem of TCR underfunding.”

FERC concluded that SPP had failed to “provide analysis or evidence to support the … assumption proposed for use during the October through May period.”