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2009 State of the Market Report

Transmission Congestion

Balancing congestion costs totaled nearly $18 million in 2009, up from $9 million in 2008 but substantially below the $80 million incurred in 2007. The lower costs in recent years are due to improvements made in the day-ahead modeling of loop flows and an overall decrease in congestion. No month incurred more than $5 million in costs in 2009. Occasional negative balancing congestion costs reflect a surplus of revenue when loop flows were lower or real-time limits were higher than assumed in the day-ahead market.


Day-Ahead Congestion and FTR Obligations

The economic value of transmission capacity is reflected in FTRs. Holders of FTRs are entitled to the congestion costs collected between the source and sink locations that define a specific FTR. Hence, FTRs allow participants to manage the price risk associated with congestion. FTRs are distributed through an annual allocation process as well as through seasonal and monthly auctions. The Midwest ISO introduced Auction Revenue Rights (“ARRs”) to the FTR market in June 2008. This approach provides the value of the FTRs to customers by allocating the revenue payments from an FTR to the customer rather than the FTR itself. However, if the customer would rather have the FTR, it can still purchase the FTR and be in the same position as it would have been had it been allocated the FTR directly.

The Midwest ISO is obligated to pay FTR holders the value of the day-ahead congestion over the path that defines each FTR. In particular, the payment obligation associated with an FTR is the FTR quantity times the per-unit congestion cost between the source and sink of the FTR.18 Obligations for FTRs are paid with congestion revenues collected in the Midwest ISO’s day- ahead market. Surpluses and shortfalls are expected to be limited when the portfolio of FTRs held by participants matches the power flows over the transmission system. However, when the FTR rights exceed the physical capability of the transmission system (or loop flows from activity outside of the Midwest ISO region use some of the transmission capability), the Midwest ISO may collect less day-ahead congestion revenue than it owes to the FTR holders. 19 Congestion revenue surpluses in one month can be used to fund FTR shortfalls in other months during the


An FTR obligation can be in the “wrong” direction (counter flow) and can require a payment from the FTR holder.


The day-ahead model includes assumptions on loop-flows that are anticipated to occur in real-time.

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