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2009 State of the Market Report

Transmission Congestion

transmission capability in the day-ahead model than assumed in the FTR market model. Unanticipated loop-flow is a problem because the Midwest ISO collects no congestion revenue from transactions that cause loop flow. If the ISO allocates FTRs for the full capability on these interfaces, the loop flow will create an FTR revenue shortfall.

The Midwest ISO has continued to work on the FTR and ARR allocation processes and associated modeling to reduce the shortfalls. The changes include improving loop flow assumptions; adding additional constraints related to market-to-market and non-market constraints; and broadly reducing transmission line limits in the FTR market model to account for expected differences in FTR-modeled conditions and actual hourly results. While the improvements introduced in 2008 contributed to lower shortfalls in 2009, we have recommended additional improvements. The Midwest ISO has recently proposed a new initiative to enhance screening for topology discrepancies between the planning and actual system topology.

In the Midwest ISO region, other types of transmission rights were created to protect entities with pre-existing agreements to use the transmission system (referred to as “grandfathered” agreements). These rights generally allow the holder not to have to pay congestion in the day- ahead or real-time market, which is accomplished by providing a rebate of the congestion costs associated with the rights. The rights include an alternative type of FTR with use-it-or-lose-it characteristics (known as “Option B” FTRs) and congestion “Carve-Outs”.

Figure 52 shows the monthly payments and obligations to conventional FTR holders, as well as the payments to Option B and Carve-Out FTRs. The figure shows that the vast majority of the payments (approximately 95 percent) were made to holders of conventional FTRs. Only five percent of payments were made to holders of FTR Option B and Carve-Out FTRs. The modest payments for these other types of rights are a good outcome because they do not provide the same efficient incentives as conventional FTRs. As a percentage of obligations, payments to the holders of the alternative rights increased slightly from 3.3 percent in 2008 to 4.2 percent in 2009. The FTR funding rate declined in 2009, even though the nominal shortfall fell by more than $21 million. We recommend improvements later in this section that should increase the FTR funding rate.

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