Analysis: MISO July FTR values surge to lead ISOs in the face of expected heat wave

Houston — The value of financial transmission rights in the Midcontinent Independent System Operator surged to the top of the list in organized US markets in June auctions for July capacity, as heat waves approached in MISO's sprawling footprint, with power demand set to surge and the risk of diminished supplies increasing.

MISO's $28.2 million worth of FTRs for 44.7 TWh of capacity, which was the No. 2 contract capacity total, pipped PJM's $26.3 million for 93.4 TWh, which was by far the largest contract capacity total.

In the May auctions for June contract capacity, MISO's value of $25.6 million for 50.5 TWh was second-highest, trailing Southwest Power Pool's $34.4 million for 37.6 TWh. PJM's May auctions resulted in the third-ranked value of $23.8 million for 104.4 TWh.

The US National Weather Service in June forecast a high probability of above-normal temperatures throughout most of the continental US in July, and MISO this month has issued – and extended – several severe weather alerts related to extreme heat.

In all, the value of FTRs traded in June for July contract capacity fell by 13% to $101.3 million from $116.4 million in May's auctions for June contract capacity, but this July's contract value represented a 7.3% increase from the July 2019 contract capacity value of $94.5 million.

This July's contract capacity totaled 202.1 TWh, down 14.9% from the June contract capacity of 237.4 TWh, but up 2.7% from the July 2019 contract capacity of 196.8 TWh.

FTRs — also known as congestion revenue rights, transmission congestion contracts and transmission congestion rights in some markets — are financial instruments that allow market participants to offset potential losses or hedge against the congestion component of locational marginal prices in day-ahead electricity markets. An FTR obligation contract entitles the holder to be compensated if congestion occurs between two points on the grid in the same direction as stated in the contract. The contract holder is charged if congestion occurs in the opposite direction stated in the contract.

Leading paths

Among the seven ISOs, the most expensive positive path among the top 10 paths in each was in the Southwest Power Pool, at $18/MWh for 6,182 MWh from a node in Empire District Electric's southwestern Missouri footprint to another node labeled MPSTWA1UN1, for which the physical location could not be determined.

The most spent to hedge positive transmission on any one path was $1.4 million to hedge the movement of 411,680 MWh from the Electric Reliability Council of Texas' South Hub to its South Load Zone.

DC Energy retained its lead among FTR traders, with 12.4 TWh of July contract capacity at a value of $7.1 million, followed by SIG Energy with 8.9 TWh at a value of $3.2 million and Elmagin Power Fund with 8.4 TWh at a value of $911,247.

In terms of the total value of FTRs, NRG Energy's total was the second largest, at $5.3 million for 6.8 TWh, followed by SIG Energy's aforementioned $3.2 million.