Analysis and Valuation of Candidate Financial Transmission Rights (FTRs) Prior to MISO Market Start-up

Client Problem:

Our client is a large joint action agency located in the MISO market with a service area that includes three load zones with more than 30 busses, and double-digit generation nodes along with multiple interface nodes. Our Client was allotted more than 100 candidate FTR allocations prior to the start of the new MISO Energy Market.. Our client needed to determine whether to accept all, some, or none of the candidate FTRs without any history to rely upon as the market was yet to begin. Specifically, our client needed to know the value of each FTR and to establish which FTRs would be most valuable to the agency. To estimate the value of the FTRs, the organization's decision-makers needed a way to model the potential congestion of the new market and a way to model the way their system would likely operate under the market's centralized bid-based dispatch regime.

Because FTRs involve both positive and negative cash flows, this was an especially important decision for the agency. However, the organization would be operating in an RTO market for the first time and the new MISO market had yet to begin. As a result, the agency's leadership felt they lacked the appropriate data needed to make an informed decision.

Recognizing TEA® had the expertise and the tools to properly value the proposed FTRs, the agency engaged TEA's services.

TEA® Solution:

The Energy Authority® has extensive experience in RTO market operations and in complex modeling methodologies and tools. TEA had been preparing for the new MISO Energy Market for years and had already developed new approaches and tools designed to address the specific needs of clients who would begin operating in the MISO market.

We conducted a sophisticated analysis utilizing TEA's large scale model of the entire Eastern Interconnect to forecast the potential economic impact of Locational Marginal Pricing and Financial Transmission Rights on our client's system. The study included a base case and alternative scenario analysis to determine likely market effects on our client's system and the value of the FTRs under various market conditions.

At the conclusion of the analysis, TEA was able to present a variety of deliverables to the agency, including:

• Likely Congestion Costs between their relevant nodes
• FTR revenues estimates – both positive, negative and by period of time
• Zonal Price Duration Curves
• Hedge Curves

As a result, TEA provided essential inputs that helped our client formulate an effective strategy for choosing candidate FTRs that were valuable to the agency, and avoiding choosing those FTRs that would most likely cost the agency in the long run.