By Robert Mullin

CAISO paid congestion revenue rights holders $27 million more than it took in from CRR auctions during the first half of the year, according to the ISO’s Department of Market Monitoring.

That equates to 63 cents in auction revenues for every dollar paid out, leaving California electricity consumers to foot the difference — which mostly goes to speculators, the Monitor says.

The department wants the ISO to address the issue by eliminating or reforming the auction process.

“There’s a shortfall between payments and revenues in the auction, and this money is really ultimately paid by the ratepayers in the market,” Gabe Murtaugh, a department senior analyst, said during a Sept. 14 call to discuss the department’s second-quarter market performance report.

The Monitor reasons that ratepayers — who ultimately bear the costs for transmission access charges paid by load-serving entities — are entitled to receive the revenues from transmission.

“When auction revenues are less than the payments transferred to other entities purchasing congestion revenue rights at auction, the difference between auction revenues and congestion payments represents a loss, which is paid out from the day-ahead congestion rent,” the department’s quarterly report explained. “The losses therefore cause ratepayers, who ultimately pay for the transmission, to receive less than the full value of their day-ahead transmission rights.”

Financial traders are the biggest beneficiaries of the current CRR market design, the Monitor has found. During the first half of 2016, those companies made $22.7 million in profits, more than doubling their investments as they paid 49 cents into the ISO’s auctions for every dollar earned.

Over the same period, power marketers and generators took in about $3.9 million and $800,000, respectively, paying 82 and 85 cents for every dollar of congestion revenues earned.

This year’s mismatch extends a pattern that has persisted for nearly five years, Murtaugh said. Since 2012, CRR payments have exceeded auction revenues by more than $500 million.

It all adds up to a need for a change in how the ISO administers the CRR process, the Monitor contends.

One specific recommendation is that the ISO should end the practice of auctioning off excess transmission capacity to third parties after LSEs have received their CRR allocations.

“With this approach, the ISO could still run a market for congestion revenue rights,” the Monitor said. “However, this market would be run only with bids voluntarily submitted by various participants willing to essentially buy or sell congestion revenue rights.”

In other words, the only CRRs available to market would be those allocated to LSEs. CRRs would only be sold if there was a market participant willing to take on the obligation to pay congestion revenues at the market clearing price, thereby reducing ratepayer exposure to market shortfalls.

“In this market, any entity that values hedging against locational price differences, such as generators or marketers, could submit bids to purchase congestion revenue rights,” the Monitor said. “Financial entities, other participants willing to sell hedges or entities wishing to speculate on locational price differences could submit bids to sell congestion revenues rights.”

The Monitor said it is prepared to work with the ISO and stakeholders on additional options to change the CRR market and noted that the ISO’s management is considering adding the issue to its stakeholder initiative catalog this fall.