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Transmission Congestion Contracts (TCCs) are financial instruments used in the New York Independent System Operator (NYISO) market to hedge against the costs associated with transmission congestion. These contracts allow market participants to either collect or pay congestion rents based on price differences in the Day-Ahead Market (DAM). Essentially, TCCs provide a way to manage the financial risks that arise from congestion on the transmission system, ensuring more predictable costs for market participants.
In this blog post, we’ll explore how TCCs work in the NYISO market, provide examples of their usage, and explain the TCC auction process. By understanding these aspects, market participants can better navigate the complexities of transmission congestion and optimize their market strategies.
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How TCCs work in NYISO
In the NYISO market, TCCs are obtained through annual and monthly auctions or via secondary markets. These auctions are conducted by NYISO on behalf of market participants. The relationship between TCCs and the congestion components of the Locational Based Marginal Price (LBMP) in the DAM is crucial. A TCC represents the right to collect, or the obligation to pay, the DAM congestion rents associated with transmitting one megawatt (MW) of power between specified points on the grid. This means that if there is a price difference due to congestion between the point of injection and the point of withdrawal, the holder of the TCC will either receive or pay the difference, effectively hedging against congestion costs.
Examples of TCC usage
To illustrate how TCCs help market participants hedge against transmission congestion costs, consider the following examples:
Power generator example: A power generator located in upstate New York wants to sell electricity to a load-serving entity (LSE) in New York City. Due to transmission congestion, the price of electricity in New York City is higher than in upstate New York. By holding a TCC, the generator can hedge against the congestion costs. If the congestion rent (the price difference due to congestion) is $10/MWh, the TCC will allow the generator to collect this amount, offsetting the higher cost of delivering power to New York City.
Load-serving entity example: An LSE in New York City anticipates high congestion costs during the summer months when demand is high. By purchasing TCCs, the LSE can lock in a fixed congestion cost, ensuring that they are not exposed to potentially volatile congestion rents. If the actual congestion rent exceeds the fixed cost paid for the TCC, the LSE benefits financially, as they will receive the difference.
TCC auction process
The process of acquiring TCCs through NYISO’s auctions involves several steps:
Auction announcement: Approximately two weeks prior to the start of an auction, NYISO posts information about the auction on the Transmission Congestion Contracts page of their website. This includes the auction timeline, the type of auction (e.g., Single-Month Reconfiguration Auction, Balance-of-Period Auction, or Centralized TCC Auction), and the number of rounds to be conducted.
Bidding: During the auction, bidders specify the maximum amount they are willing to pay for the TCCs they wish to purchase, while sellers specify the minimum amounts they are willing to accept for the TCCs they are offering.
Optimal power flow analysis: NYISO uses an Optimal Power Flow (OPF) analysis to ensure that the awarded TCCs do not violate any security constraints represented in the DAM. This analysis takes into account the physical configuration of the transmission system, transmission facility and interface limits, parallel flow assumptions, contingency event definitions, and PAR operation assumptions.
Awarding TCCs: The TCCs are awarded based on the bids and the results of the OPF analysis. The awarded TCCs are then used by market participants to hedge against congestion costs in the DAM.
By participating in these auctions, market participants can secure TCCs that help them manage the financial risks associated with transmission congestion, ensuring more predictable and stable costs.
The Role of TCCs in ensuring financial stability in the NYISO market
Transmission Congestion Contracts (TCCs) are essential tools for managing congestion costs in the NYISO market. By allowing market participants to hedge against price differences in the Day-Ahead Market, TCCs provide financial stability and predictability. Through a well-structured auction process, NYISO ensures that TCCs are awarded in a manner that maintains the security and reliability of the transmission system. Whether obtained through annual or monthly auctions, or via secondary markets, TCCs play a crucial role in the efficient operation of the NYISO market.
For more detailed information, read our blog post “Understanding Transmission Congestion Rights (TCRs) and Their Role in Electricity Markets.”
