Comments on Issue paper and straw proposal

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

The California Community Choice Association (CalCCA) appreciates the opportunity to comment on the California Independent System Operator’s (CAISO) storage bid cost recovery (BCR) and default energy bids (DEB) enhancements workshop. CalCCA agrees with the CAISO that the BCR framework should not disincentivize consideration of real-time conditions and should not present opportunities for pursuing unwarranted revenue. The pace the CAISO intends to conduct this initiative, however, does not allow the time necessary to develop a robust solution to the complex problem of accurately determining when BCR is warranted or unwarranted.  

The CAISO proposes to reclassify energy associated with state of charge (SOC) constraints during the binding interval as non-optimal due to physical limitations A blunt mechanism to addressing some portion of BCR payments being unwarranted, like the CAISO’s proposal, does not account for the fact that legitimate cost-based bids into the real-time market may result in the dispatch of storage in a manner that results in buy-backs or sell-backs and accruing BCR.

As discussed in CalCCA’s July 18, 2024, comments,[1] excluding storage from BCR in most instances is too blunt of a mechanism to be the permanent solution but the pace of this initiative may be too quick to develop something more robust. The CAISO’s Track 1 proposal should be a temporary solution only. The CAISO must commit to beginning an initiative immediately following Track 1 to develop a more comprehensive solution to unwarranted BCR payments that considers (1) the drivers of BCR payments (e.g., resource operator action to trigger BCR payments or CAISO market dispatch), and (2) necessary enhancements to the storage market model more broadly.

[1] https://stakeholdercenter.caiso.com/Comments/AllComments/f7f6fb35-66cd-4279-821d-8711799e4468#org-37ce3de3-fe23-4352-b48c-28724ba3e358.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

See response in Section 1. Again, the timing for Track 1 is likely untenable to come to an effective resolution that addresses unwarranted storage BCR. It does not allow sufficient time for the CAISO to analyze the driver of BCR payments, whether those payments are warranted or unwarranted, and the magnitude of such payments. The CAISO should view any measures adopted in Track 1 as temporary until the CAISO and stakeholders can develop a more robust solution promptly following the conclusion of Track 1.  

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

See response in Section 1.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

CalCCA has no comments at this time.

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

CalCCA has no comments at this time.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

See response in Section 1.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

CalCCA has no comments at this time.

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

CalCCA has no additional comments at this time.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

Please see the attached Comments from the Department of Market Monitoring.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

Please see the attached Comments from the Department of Market Monitoring.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

Please see the attached Comments from the Department of Market Monitoring.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

Please see the attached Comments from the Department of Market Monitoring.

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

Please see the attached Comments from the Department of Market Monitoring.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

Please see the attached Comments from the Department of Market Monitoring.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

Please see the attached Comments from the Department of Market Monitoring.

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

Please see the attached Comments from the Department of Market Monitoring.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

Energy Division (ED) staff appreciates the opportunity to comment on the IPSP and associated schedule. ED staff supports CAISO’s proposal to eliminate unwarranted BCR payments to storage resources and agrees that CAISO’s ambitious timeline is appropriate and necessary. This is an urgent issue that introduces inefficiencies into the market, could increase costs, and merits prompt action. Moreover, this issue became even more urgent because, on July 31, CAISO’s proposal to allow storage and hydro resources to bid above the $1,000/MWh soft energy bid cap, under certain conditions, was approved by FERC.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

ED staff supports both CAISO’s proposal and timeline given that unwarranted BCR payments to storage resources could adversely affect reliability and increase costs, particularly as the recent lifting of the bid cap could lead to even higher BCR payments which further underscores the need to move expediently.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

The current BCR framework both disincentivizes the consideration of real-time market conditions for real-time bidding by unduly eliminating exposure to real-time prices and could incentivize storage resources to bid inefficiently to maximize the combined BCR and market payment. This leads to bidding strategies that could result in additional, unwarranted revenue. CAISO has noted that it has seen a significant rise in BCR payments related to the buy- and sell-back of day-ahead schedules when the market has state of charge constraints. Alone in 2023, BCR payments to storage resources amounted to $28 million. The cost of BCR payments could be exacerbated by the recent lifting of the soft offer bid cap in CAISO’s Price Formation Enhancements initiative, as identified by CAISO’s Department of Market Monitoring.^[1] The initiative to raise the bid cap was already intended to address the challenge with premature discharge of storage resources, but maintaining the BCR for storage disincentivizes storage resources from implementing pricing strategies that maintain their state of charge which could then affect reliability.

CAISO has already appropriately addressed several problems with unjustified and excessively high BCR payments to storage resources. In 2021, FERC “recognized that limitations on bid cost recovery for electric storage resources will avoid over-recovery and gaming, and that a resource should bear the cost of an uneconomic dispatch if it arises from CAISO respecting that resource’s preferred end-of hour state of charge target.”^[2] In 2022, FERC approved a CAISO change to BCR rules that had been enabling large unwarranted BCR payments to storage resources providing ancillary services. Instead of submitting bids based on actual costs, storage resources were likely submitting bids based on opportunity costs or the desire to avoid being dispatched to provide energy. In comments on CAISO’s proposed change, DMM estimated that storage resources had received approximately $13.8 million in real-time BCR payments with $8 million (or 58%) resulting from the dispatches associated with ancillary services. DMM also highlighted the incompatibility of the BCR design with storage resources and encouraged CAISO to conduct a complete review in the near future, which CAISO has now commenced through this stakeholder process. Importantly, FERC agreed with CAISO and DMM that storage resources do not generally experience the operating constraints or operating costs that would warrant bid cost recovery.^[3]

^[1] DMM Comments on Price Formation Enhancements Working Group Session 15, March 22, 2024; DMM, Comments on Price Formations Initiatives, Rules for Bidding above the Soft Offer Cap Draft Final Proposal, May 8, 2024.

^[2] Cal. Indep. Sys. Operator Corp., 177 FERC ¶ 61,051, at P 28 (2021).

^[3] Cal. Indep. Sys. Operator Corp., 181 FERC ¶ 61,146 (2022).

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

As a solution for these storage resources, CAISO proposes redefining dispatch unavailable due to state of charge constraints as “non-optimal energy,” which would be ineligible for BCR payments. ED staff supports this solution as it would ensure that the unavailable energy from a storage asset is treated equally to unavailable energy from a conventional thermal asset.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

Cal Advocates supports the CAISO’s proposed solution in the IPSP to eliminate unwarranted bid cost recovery (BCR) payments to energy storage resources.  The IPSP comprehensively describes and provides detailed examples of circumstances under which bid cost recovery (BCR) is inappropriately awarded to storage resources.[1]  The IPSP illustrates circumstances under which storage cannot meet day-ahead (DA) schedules due to physical State of Charge (SOC) limitations and should not be eligible for BCR payments.  The IPSP proposes to reclassify energy associated with SOC constraints during the real-time binding interval as non-optimal, and thus ineligible for BCR.[2]  This is a measured and sufficiently well-targeted approach to ensure that storage resources are not incentivized to deviate from day ahead schedules to achieve excess BCR payments.

[1] CAISO, Storage Bid Cost Recovery and Default Energy Bid Enhancements, Issue Paper & Straw Proposal for Track 1 (IPSP) at 8-24; CAISO, Storage Bid Cost Recovery (BCR) and Default Energy Bid (DEB) Enhancements, Stakeholder Meeting on Issue Paper & Straw Proposal (CAISO Presentation), August 5, 2024 at slides 16-18.

[2] IPSP at 25.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

The expedited schedule and focused scope of Track 1 are appropriate given the August 1, 2024 implementation of the elimination of the soft offer bid cap for energy storage resources.[1]  As of August 1, 2024, storage resources can bid above the soft-offer cap during stressed grid conditions, and be eligible to recover costs based on bids of up to $2,000/MW.  The IPSP proposes to implement the policy changes in Track 1 before October 2024.[2]   Until implementation of the proposed policy changes, ratepayers will be exposed to unwarranted and potentially high BCR payments. [3]  That means that from August through September 2024, ratepayers may be forced to pay as much as $2,150 per MW/h for capacity that is unavailable when needed.[4]  This unreasonable exposure to high and unwarranted costs underscores the urgency to resolve the issues identified in Track 1.

[1] See FERC Order Accepting Proposed Tariff Revisions re California Independent System Operator Corporation under ER24-2168, July 31, 2024, available at: https://elibrary.ferc.gov/eLibrary/filelist?accession_num=20240731-3037.

[2] IPSP at 7.

[3] Department of Market Monitoring, California Independent System Operator, Comments on Price Formation Enhancements: Rule for Bidding Above the Soft Offer Cap Draft Final Proposal, May 8, 2024.

[4] The calculation for the potential overpayment under stressed grid conditions is summarized in response to Question 3.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

The CAISO provided an additional example of unwarranted BCR during the August 5, 2024 BCR workshop.[1]  The CAISO illustrated the calculation of real-time (RT) BCR using the following formula, as a function of the RT dispatch in megawatts (MW), the day-ahead (DA) schedule in MW, the RT bid in $/MW-hour ($/MWh), and the RT Locational Marginal Price (LMP) in $/MWh:

RT BCR = (RT dispatch – DA schedule) * (RT bid – RT LMP).

In the example, the CAISO assumed a 10 MW DA schedule for the active interval, a 0 MW dispatch in real-time due to insufficient SOC, a RT bid of $25/MWh, and a RT LMP of $100/MWh.

If the storage resource is eligible for BCR (i.e., if the SOC exclusion is not applied), the RT BCR credit to the resource would be:

(0-10)*($25 – $100) = $750

The CAISO explained that if the resource is eligible for BCR in this case, it has an incentive to lower its RT bid to capture excess BCR, as in the next example calculation.  If the resource drops its RT bid to the bid floor of -$150/MWh, the BCR credit for the interval is:

(0-10)*(-$150-$100) = $2500

During the workshop, a storage industry representative suggested that a simple fix to mitigate excess BCR payments would be to limit any RT bid modification in the BCR calculation to the DA LMP.  The representative argued that if the DA LMP were also $100/MW, the BCR credit would be $0.

However, the CAISO and the industry representative did not consider the case in which the RT LMP is very high during stressed grid conditions due to the now-active elimination of the soft-offer cap for storage resources.   Using the same assumptions in the previous example, with a RT bid of -$150/MWh and a $2,000/MWh RT LMP, the BCR credit for the interval becomes:

(0-10)*(-$150-$2000) = $21,500

Even if the DA LMP were used as a proxy for the RT bid, the BCR payment could be significant if the DA LMP is below the RT LMP, which is likely the case during stressed grid conditions in real-time.  This example illustrates Cal Advocates’ concern that the elimination of the soft-offer cap for storage resources places significant additional risks upon ratepayers due to the potential for very high unwarranted BCR payments.  Cal Advocates recommends that the CAISO move forward with the implementation of the proposed policy changes to limit BCR payments as expediently as possible.

[1] CAISO Presentation at slide 18.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

The IPSP states that the CAISO seeks to address the interaction between BCR and various market constraints that are placed on co-located resources.[1]  Co-located resources (for example, storage and solar) share the same point of interconnection but each resource has separate CAISO resource IDs, bids, and market dispatch instructions,[2] subject to aggregate capability constraints (ACC) and a biddable grid-charging parameter.[3]  As with stand-alone storage resources, which are similarly independently bid and dispatched, co-located SOC-driven BCRs should be classified as non-optimal energy in the binding real-time interval.  If SOC constraints arise due to the submission of the grid-charging bid parameter, the co-located storage resource should be ineligible for BCR payments because the binding SOC is a result of how the operator bids the resource into the CAISO market.   

However, eligibility for BCR due to SOC constraints that arise due to a binding ACC is less clear, since the dispatch could be an optimal CAISO dispatch that does not allow the resource to fully recover its bid cost.  The CAISO should develop examples of binding ACCs that trigger BCR payments and should examine the extent to which the BCR results from optimal versus non-optimal energy.

[1] IPSP at 24.

[2] FERC Order Accepting Tariff Revisions, November 30, 2021, available at: https://www.caiso.com/Documents/Nov30-2021-OrderAcceptingHybrid-Resources-and-Co-located-Resources-ER21-2853.pdf.

[3] IPSP at 24.

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

 Cal Advocates does not have comments on storage DEBs at this time. 

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

 See Cal Advocates' response to Question 1.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

 Cal Advocates does not have comments at this time.

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

Cal Advocates does not have any additional comments at this time. 

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

The California Energy Storage Alliance (CESA) appreciates the opportunity to provide comments on the Storage Bid Cost Recovery and Default Energy Bids Enhancements issue paper and straw proposal (IPSP).  CESA believes the examples provided in the IPSP provided greater clarity on the issues observed by CAISO and DMM.  However, it would have been beneficial to also include examples of how the real-time bid cost recovery (BCR) is calculated.  This would have assisted stakeholders in appreciating the distinction between instructed imbalance energy and optimal energy as well as demonstrating how a low real-time energy bid price can inflate BCR payments when day-ahead discharge schedules cannot be supported by the real-time state-of-charge (SOC).  This additional information also would help inform stakeholders of potential approaches to address unwarranted BCR in the near term which are different than the CAISO’s proposal.

The CAISO has shown that if a resource’s scheduling coordinator’s real-time energy bids do not reflect real-time conditions this can result in BCR from triggering a buy-back or sell-back.  CAISO has concluded that to address this issue that in all instances where the SOC is binding prior to the start of a given 5-minute settlement interval, that settlement interval will be ineligible for BCR.  However, a resource’s scheduling coordinator’s inability to reflect real-time conditions in real-time energy bids can be caused by: (1) the scheduling coordinator’s estimate of real-time prices was wrong or (2) the CASIO market design/rules prevented the scheduling coordinator from reflecting real-time conditions in the real-time energy bids.  In the first case, the scheduling coordinator should not be eligible for BCR.  In the second case, the scheduling coordinator should be eligible for BCR.  

As stated in CESA’s prior comments, CAISO continuing to address narrow storage issues creates more new issues than addressing holistically the significant modeling enhancements and market design changes needed to use energy storage as the primary balancing resources to integrate variable energy resources to meet state policy goals. The CAISO must prioritize the improvements to the real-time storage default energy bid (DEB) and the Energy Storage Enhancements initiative on the approved roadmap which has not yet been scheduled to commence.

CAISO should focus any near-term changes to BCR on minimizing the impact of potentially unwarranted BCR while necessary market design changes are implemented to allow storage resource scheduling coordinators to submit real-time energy bids that reflect real-time conditions.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

As stated earlier, the IPSP improved stakeholder understanding of the concerns raised by CAISO and DMM.  In the future, CESA recommends that CAISO begin initiatives that CAISO is seeking accelerated consideration to start with an IPSP versus a nebulous working group.  The CAISO took a similar approach with allowing storage and hydro resources to bid above $1,000 during high priced conditions which delayed implementation to August 1 versus the beginning of Summer 2024.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

CESA agrees that under the current BCR rules the incentives for storage scheduling coordinators to manage SOC in real-time is weak and if the scheduling coordinator’s actions mismanage the real-time SOC relative to day-ahead schedules, the current BCR rules will make the resource whole if real-time deviation settlement is unprofitable across the day.

CESA reiterates that there are CAISO market design issues which limit the ability for the storage scheduling coordinators to reflect real-time conditions in their real-time energy bids.  The key market design issues include:

• Storage resources are unable to reflect intraday opportunity costs in their energy offers which leads to dispatch inconsistent with day-ahead schedules.  The bidding rules recently approved by FERC address energy bidding (except for hybrid storage configurations), but the issue still exists since real-time DEBs have not been improved.
• Storage resources are limited to updating energy bids at 75 minutes prior to the operating hour.  This results in a 135-minute window where the SOC can change significantly, but the storage resource’s real-time energy bids remain stagnant.  A similar issue existed for variable energy resources prior to using the 5-minute forecast to automatically adjust the upper economic limit of the wind or solar resource’s energy bid.  The Energy Storage Enhancements initiative is planned to discuss how to address the need for more bidding flexibility or improved resource modeling.  For example, using the SOC to adjust the upper and lower economic limit of storage resources’ energy bids within the operating hour.
• Ancillary services are not reoptimized in the real-time market.  If ancillary services were reoptimized, the market could determine if it is more cost effective to buy back an ancillary service award versus forcing a charge or discharge schedule through command-and-control constraints allowing better management of the SOC.

Until CAISO can implement, at a minimum the first two items listed above, CAISO must acknowledge that it is preventing storage scheduling coordinators from reflecting real-time conditions in real-time energy bids which warrants the need to maintain some level of BCR.

At the Market Surveillance Committee meeting on July 30, 2024, Dr. Scott Harvey’s presentation[1] highlighted that real-time DEBs (slide 9-10) and bid change timelines (slide 6) are issues that prevent storage scheduling coordinators from reflecting real-time conditions in real-time energy bids.  Dr. Harvey suggested that the exceptional dispatch settlement rules may be an approach to addressing the real-time DEB issues.  Dr. Harvey concluded his presentation stating that “consideration should be given to eliminating all BCR except for that calculated for exceptional dispatch, compensation for losses due to mitigation caused premature dispatch, and if found to occur, depletion due to mistaken short-term price forecasts in RTD.” 

Developing an enhanced proposal that creates exceptions to the CAISO’s current proposal to eliminate all BCR when the SOC is binding prior to the start of the 5-minute interval will take far longer than the CAISO’s current initiative schedule seeking Board approval in September.  CAISO should consider implementing changes to the real-time BCR calculation as proposed by CESA in section 6.  The CESA proposal would address inflated BCR payments that are unwarranted whether caused by storage scheduling coordinator actions or because of CAISO market design limitations which result in higher revenue across the day-ahead and real-time market. This would allow the CAISO to prioritize and address the market design limitations.

[1] https://www.caiso.com/documents/presentation-storage-resource-bid-cost-recovery-msc-jul-30-2024.pdf

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

The inability for hybrid resources to submit an energy bid above $1,000 during high price conditions is an example of CAISO market design rules for storage resources which prevents storage scheduling coordinators from reflecting real-time conditions in their real-time energy bids. 

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

The current DEB calculation does not accurately capture real-time opportunity costs since the real-time DEB uses prices from the day-ahead market which may be inconsistent with real-time conditions.  Similar to the need for storage resources energy bids to exceed $1,000 during high price conditions, an inaccurate real-time DEB can position storage resource too low in the bid stack early in the day relative to other resources.  This is another example of CAISO market design rules impacting the ability for a resource’s real-time energy bids to reflect real-time conditions causing the SOC to be mismanaged resulting in BCR.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

CESA does not support a blanket rule to reclassify all energy associated with SOC constraints as non-optimal due to physical limitations until the CAISO has addressed market design issues which prevent storage resource scheduling coordinators from reflecting real-time conditions in their real-time energy bids and DEBs.  The CAISO should focus its efforts on Track 2 of this initiative and commencing the Energy Storage Enhancements initiative which CAISO committed to start starting the beginning of this year in the 2023 roadmap. 

CESA does support considering the following changes to be implemented in near term to minimize the impact of unwarranted BCR while necessary market design changes are implemented:

1. Review biddable SOC parameters and determine if scheduling coordinators use of these SOC parameters result in the market optimization treating the dispatch similar to a self-schedule.  Similar to the end-of-hour SOC constraint and the ancillary services state-of-charge constraint, when these constraints are binding those settlement intervals will be excluded from real-time BCR calculations.
2. Modify the real-time BCR settlement calculation to replace the resource’s real-time bid price with the day-ahead energy price.  This change would allow storage resources to continue existing bidding practices to comply with flexible resource adequacy rules without inadvertently increasing BCR payments and address the potential for strategic real-time bids to increase revenues though BCR payments.

The settlement examples below illustrate the current CAISO BCR implementation, the CAISO’s proposed change, and CESA’s proposed change.  The examples show the settlement of the buy-back of a day-ahead discharge schedule when the SOC is binding in the interval. 

The simplified examples assume that both the day-ahead market and the real-time market have the same hourly settlement interval.  The following prices are used: the IFM clearing price is $100/MWh, the real-time energy bid is ($150)/MWh, and the real-time LMP is $250/MWh.  The storage resource has a 10MW day-ahead schedule to discharge, but in the real-time market the SOC only supports a 9MW discharge.

Under the current CAISO BCR design, the resource receives higher revenues across both the day-ahead and real-time market even though the resource has delivered less energy than it was scheduled in the day-ahead market. 

Under the proposed CAISO BCR design, the storage resource is ineligible for BCR in this interval because the SOC was binding at the beginning of the interval which limits the real-time dispatch of the resource to 9MW.  The CAISO’s proposed BCR design exposes the storage resource fully to the real-time price for its deviation from its day-ahead schedule.  However, the CAISO proposed design makes no differentiation as to why the SOC was not able to support the day-ahead discharge schedule: (1) caused by scheduling coordinator actions or (2) by CAISO market design limitations.  The storage resource receives lower revenues across both the day-ahead market because the real-time energy imbalance energy cost is greater than the day-ahead price.

Under the CESA proposal, the storage resource is eligible for BCR but rather using the real-time bid price in the BCR calculation, the resource’s day-ahead energy price is used.  The proposal ensures that a storage resource cannot have higher revenues across the day-ahead and real-time markets because of the BCR payments.  The storage resource is only paid for the actual 9MW energy delivered at the day-ahead price, no greater.  The storage resource is not exposed to the real-time price for its SOC being unable to support the day-ahead discharge schedule.  However, unwarranted BCR payments are greatly reduced.  This provides time for the CAISO to implement market design changes that will enable storage resource scheduling coordinators to reflect real-time conditions in real-time energy bids.

A similar BCR settlement logic can be applied to the sell-back of a day-ahead charge schedule scenario. 

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

Support 

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

CESA reiterates its request to recreate the DMM chart on slide 6 of DMM’s presentation to show BCR per MW of installed storage capacity.  The storage fleet has expanded rapidly, and it would be expected that gross BCR data would increase because the number of eligible storage resources has increased.

In addition, the CAISO should provide data showing instances where market power mitigation is triggered during the operating day and storage resources are discharged above their day-ahead schedule and also receive BCR payments.  The intent is to better understand the correlation between triggering market power mitigation and triggering BCR payments.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

Customized Energy Solutions (CES) appreciates the opportunity to provide comments on the Storage Bid Cost Recovery and Default Energy Bids Enhancements, and thanks the CAISO for transparently discussing storage bid cost recovery (BCR) issues and potential enhancements with stakeholders. 

CAISO has stated that the initiative motivation is to minimize the risk of unwarranted BCR payments for storage resources. The focus for Track 1 is to address BCR payments associated with storage resource SOC constraints.  While CES supports minimizing unwarranted BCR we are concerned that the current proposal is applying a broad change to cost recovery rules based on an incomplete examination of the circumstances that may lead to such recovery.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

Track 1 should focus on identifying and addressing market participant behavior that creates unwarranted storage BCR.  We believe that it is premature to eliminate BCR for storage resources for all situations where the SOC constraint is binding, and that further discussion is necessary to better identify those situations where BCR is indeed unwarranted, so that these changes can be introduced in a more targeted and just manner.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

As has been already pointed out by other stakeholders, the proposed approach does not assess if a specific BCR payment is unwarranted or not.  It instead assumes any time the SOC constraint is binding that any resulting BCR is inappropriate, because the Market Participant could have bid or operated their resource in such a manner that would have either resulted in, or enhanced BCR payments due to SoC constraint triggered market "buybacks".  

As CES expressed during the recent policy discussion, we believe that there may be valid market reasons why a resource would trigger the SoC constraint such that this happens. Based on current market rules and limitations we believe that such situations should be examined to determine whether BCR payments, or other financial risk mitigation processes could be warranted:

• The real-time multi-interval optimization dispatches the resource out-of-merit based on advisory prices that don’t materialize because of changes in CAISO’s forecast.  
• Under the current Market Power Mitigation (MPM) mechanism a unit that is identified as having possible market power will have its bids adjusted downwards to the higher of its DEB or the next competitive bid price.  Unfortunately for storage resources this process also results in downward price adjustments of charging bids as well as discharge bids.  CES believes that this application of MPM is inappropriate because it reduces the price at which the is willing to buy energy and may then result in the unit not being able to build the necessary SoC to meet their later discharge obligations. 

• As an example: A storage unit submits bids to charge in the Real-Time market at a price of $150 or lower.  The MPM process however determines that this unit is subject to mitigation and reduces this bid price to $65 instead.  If the interval LMP then clears at $81.17, the unit will not be dispatched to charge as its adjusted bid price is now below the LMP.  Had the original bid price not been adjusted however, the unit would have instead been considered economic and would have been issued the charging award as desired.
• All resources are limited to updating energy bids at 75 minutes prior to the operating hour.  This results in a 135-minute window where a storage unit's SOC can change significantly in response to unforeseen market conditions, especially during contingency events where immediate unit dispatch may be critical in ensuring reliability needs are met.  The result of this however is that the storage resource’s energy bids remain stagnant throughout this window and cannot be updated to reflect the change in unit or market conditions.  

An example of this possible situation was raised during the policy discussion where a significant intertie line might be derated or taken offline due to a fire.  We suggested that the sudden increase in LMPs would make it likely for storage units to receive market instructions to discharge in the intervals following such a change, where they might not otherwise have been dispatched.  CES believes that following such instructions accurately (and as specified in the CAISO Tariff) is essential for system reliability, even if this would put the resource at risk of not being able to meet any already established obligations to discharge later in (or very close to) the 135-minute stagnant window.  If the LMPs in intervals where the unit would have otherwise been able to discharge increased because storage units could no longer discharge because of the earlier, unexpected dispatches, thereby increasing the actual costs to the unit (I.e. the lack of storage SoC for discharge resulted in triggering congestion or power balance constraints that would not otherwise have bound), then we think it would be prudent to ensure that a cost recovery method exist to protect resources from the costs of addressing the immediate system needs effectively and accurately.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

As stated in its previous comments, PG&E shares the concerns raised by the CAISO and DMM over unwarranted BCR payments made to storage resources. PG&E appreciates the CAISO for providing theoretical examples of such situations, however more data on the contributing factors of actual unwarranted BCR would help better inform the scope of the initiative. While the CAISO highlighted various contributing factors, the relative impact of these factors on the actual problem is still unclear. Without additional data, PG&E cannot determine whether the CAISO’s approach is appropriate or if an alternative approach is preferred.

If the CAISO proceeds with the approach described in the IPSP, PG&E recommends that intervals in which BCR is warranted are preserved throughout both the policy and implementation phases of the initiative. The CAISO should pay particular attention to the state-of-charge (SOC) used in its proposal for an after-market process to determine expected energy. PG&E also recommends the CAISO include the topic of ancillary service (AS) bidding rules in the next straw proposal.  

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

PG&E believes the schedule is too tight to fully vet/discuss:

(a) complex BCR settlements

(b) the contribution of each underlying factor to unwarranted BCR

(c) potential unintended market outcomes of implementing the current proposal  

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

PG&E understands the issue raised by the CAISO in which a storage resource modifies its evening real-time bids to the bid floor after being discharged earlier in the day to elevate a BCR payout in the buyback hours. PG&E also acknowledges the impact of a storage resource submitting an unreasonably low (or high) initial SOC causing infeasible real-time market schedules and thus triggering BCR payments. Both of these bidding behaviors are characteristic of self-scheduling and warrant a change of BCR treatment.

During both the Market Surveillance Committee (MSC) and stakeholder meetings, the issue of the limited real-time market horizon was raised as a contributing factor to the early discharge of storage resources and subsequent inflated BCR payments. The CAISO acknowledged this as an issue but emphasized that the modification of the storage resource’s real-time bids was also a contributing factor. PG&E highlights the importance of understanding the relative contribution of each factor to guide policy development on this issue. If the limited real-time market horizon is the primary driver, then the CAISO should demonstrate how their approach is the most appropriate solution absent the option to expand the real-time market horizon or model day-ahead evening awards as a constraint within the real-time market horizon. If real-time bid modification is driving the issue, then the CAISO should consider alternative approaches such as modifying the BCR formula (as proposed by CESA).

In addition, the equation for RT BCR was presented by the CAISO as following: (RT dispatch – DA schedule) * (RT bid - RT LMP), however this equation is not found in the BPM Configuration Guide for RUC and RTM Bid Cost Recovery Settlement (CC6620). PG&E requests that the CAISO explicitly state the source and/or derivation of the presented equation.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

 No comments.

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

 No comments.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

The CAISO’s proposal to reclassify energy associated with SOC constraints as non-optimal is an overly broad approach to what may be an acute problem. PG&E recommends that more time be taken to understand and explain the primary source of the issue rather than disallowing BCR in a wholesale manner. In its August 5^th presentation, the CAISO committed to develop data analysis to “better understand the frequency and magnitude of the impact of mitigation with regards to the buy- and sell-back of DA schedules.” PG&E requests this analysis to be completed before the publishing of the Draft Final Proposal.

PG&E also has concerns regarding the proposal to use telemetered SOC values in CAISO’s post-market determination of expected energy. Due to the complex nature of real-time market processes, the SOC values for binding intervals used in the market may or may not align with telemetered values; forecasted SOC values also play a role given the timing of market intervals. PG&E encourages the CAISO to adequately research and understand these nuances before proposing a path forward. The CAISO should provide an analysis which shows how the telemetered SOC values compare with the SOC values used in the binding market intervals and identify any discrepancies between the two data sets. The SOC value used could play a major factor in determining intervals of BCR eligibility or ineligibility and thus should be properly vetted by stakeholders.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

No Comments.

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

PG&E encourages the CAISO to consider the effect the proposal will have on storage resources that provide both energy and ancillary services (e.g. regulation up and regulation down). Regulation energy take remains a challenge for SOC management, as demonstrated throughout various CAISO storage initiatives and by the implementation of the day-ahead and real-time attenuation factors. For example, excessive regulation up energy takes during midday hours can drive a storage resource’s SOC to low levels prompting the buy-back of DA energy awards. On some trade days, storage assets experience regulation up energy take close to 100%. Such spikes in regulation energy take values are not captured by the CAISO’s model since the attenuation factors are monthly/quarterly averages. The CAISO should provide data which illustrates the frequency and magnitude of excessive regulation up/down energy take events and based on that data, determine the impact (if any) it's proposal will have on the regulation market.

Under the CAISO’s proposal to severely limit BCR, a storage resource providing both energy and AS will be more exposed to the SOC management risk and market participants will likely add a risk premium to their regulation bids which reduce supply and raise costs. To mitigate this risk, PG&E suggests that the CAISO investigate changes to AS bidding rules which would allow market participants to better manage SOC and risk in their AS bids (e.g. with price/quantity pairs) instead of the current “all or nothing” framework.      

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

PacifiCorp appreciates the opportunity to comment on the Issue Paper & Straw Proposal and stakeholder meetings. PacifiCorp appreciates the CAISO putting together examples of scenarios where storage resources may receive unwarranted bid cost recovery (BCR) payments. The examples were helpful for understanding the concerns raised by the CAISO and CAISO DMM of storage resources receiving unwarranted BCR payments, thereby causing them to not be exposed to real-time prices. PacifiCorp is generally supportive of finding enhancements to the BCR rules for storage resources as the current incentives are misaligned with the intent of BCR.

The CAISO’s proposed solution would likely solve the concerns around unwarranted BCR payments to storage resources but may have unintended consequences that would cause storage resources to be managed inefficiently. From the stakeholder meetings, it seems likely that the CAISO’s proposed solution would cause storage resource scheduling coordinators to effectively “self-schedule” their resources to avoid being dispatched too early in the operating day. PacifiCorp has heard many storage resource owners explain their concerns with the proposal because it does not include enhancements that would allow storage resource owners to manage their resources more flexibly in the real-time markets. Incentivizing storage resources to self-schedule to their day-ahead schedules would be detrimental to the market because the market would lose much of the flexibility that storage provides the real-time market.

Based on discussions at the stakeholder meetings, PacifiCorp believes it may be best for the CAISO and stakeholders to focus on limiting the ability of storage resource scheduling coordinators to bid strategically to maximize BCR payments. There seems to be broad agreement that storage resources purposefully maximizing their BCR payments is bad for the market. There are solutions that have been raised by stakeholders in comments and in meetings that would likely solve this issue. PacifiCorp is not opposed to finding an interim solution in Track 1 that would mitigate some of the concerns with unwarranted BCR payments while working towards a more holistic solution that includes other storage resource enhancements that better allows them to reflect real-time prices in their bids or bid-in parameters. PacifiCorp believes there is a workable solution that limits unwarranted BCR that will not lead to the market losing the flexible attributes that storage resources currently provide.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

The wide range of concerns brought forward by storage resource owners leads PacifiCorp to believe that the timeline for Track 1 is too fast to come to a solution that has broad approval among stakeholders. It seems unlikely that the CAISO will be able to get consensus on their proposal before the September board meetings. If the CAISO wants to adopt their proposed solution, PacifiCorp believes it necessary to have more discussions about when storage resources should be entitled to BCR payments due their SOC constraint binding for reasons outside of their control.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

PacifiCorp understands the concerns that the CAISO and CAISO DMM have with unwarranted BCR payments. PacifiCorp generally agrees that storage resources are receiving BCR payments that are not aligned with the intention of BCR, and enhancements should be made to resolve this inefficiency. Fundamentally, PacifiCorp believes there should be consistent rules for BCR for different resource types. PacifiCorp asks the CAISO and CAISO DMM to continue to monitor BCR payments to storage resources that are strategically bidding to maximize their BCR payments. The CAISO has shown that this kind of manipulation is possible, and stakeholders should be made aware of how prevalent the issue is.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

Based on discussions in stakeholder meetings, it seems as though many storage resources owners don’t believe the real-time storage DEBs accurately reflect their intra-day opportunity costs. PacifiCorp is supportive of discussing enhancements to storage DEBs in this initiative.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

PacifiCorp believes the CAISO’s proposed solution could solve many of the concerns with unwarranted BCR payments, but the company has concerns with the unintended consequences of the solution. PacifiCorp does not want this solution to lead to storage resource scheduling coordinators using bids and bid-in parameters to self-schedule to their day-ahead schedules or add risk premiums in their bids. This would negate the flexibility that storage resources are able to provide and potentially increase costs for consumers.

Storage resource owners have consistently said they do not have the tools necessary to flexibly manage their resources’ SOC in real-time through bids and bid-in parameters. PacifiCorp has also heard stakeholders share concerns about being mitigated and prematurely dispatched so that their SOC is depleted, thereby making them ineligible for BCR under the CAISO’s proposed solution. Lastly, there are some stakeholders that have concerns about storage resources being discharged before their day-ahead schedules for reasons outside of their control, such as exceptional dispatch. The CAISO’s proposed solution does not consider situations where storage resource owners may not be at fault for depleting their resources’ SOC, and so it may overcorrect and take away BCR payments from storage resources that are warranted.

Based on discussions in the stakeholder meetings, PacifiCorp believes a more holistic approach is needed to limit unwarranted BCR payments while also enhancing storage resource owners’ abilities to manage their state of charge so that storage resources are used in the most efficient way. There has been broad support for not allowing storage resource scheduling coordinators to strategically bid to maximize their BCR payments. In PacifiCorp’s opinion, it may be best to find an interim solution to limit strategic bidding and develop a more holistic solution in Track 2. Pacific Gas & Electric and CESA have proposed solutions that may be sufficient as interim solutions, and so PacifiCorp asks the CAISO to consider these solutions and allow them to be further discussed in a future stakeholder meeting.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

 PacifiCorp agrees with the joint authority designation.

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

Salt River Project Agricultural Improvement and Power District (SRP) appreciates the opportunity to submit the following comments on the Storage bid cost recovery and default energy bids enhancements IPSP. SRP requests clarity on the expedited timeline and, recognizing the concern voiced by stakeholders regarding unintended consequences, would like CAISO to consider if a phased implementation could allow for more thorough stakeholder review and understanding. SRP also encourages guidelines and examples focused on co-located configurations and DEB formulations. Overall, SRP advocates for a balanced approach that ensures market efficiency and fair compensation, with adequate time and provisions for stakeholder understanding.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

SRP appreciates framing and scope of the initiative. However, SRP requests clarity from CAISO on why the initiative has been determined to be expedited and any justification for an accelerated timeline, including whether CAISO has identified that BCR has been or is currently exploited by participants for unwarranted BCR revenue. Additionally, SRP requests that CAISO share whether consideration has been given to a gradual timeline coupled with increased oversight of battery behavior to allow for thorough stakeholder review. Given the complexity of the issues as noted by the CAISO, a gradual approach may allow potential impacts, such as operational adjustments, market behavior changes, and financial impartations, to be further evaluated and addressed.

Additionally, SRP supports the alignment of the initiative with the current developmental stage of entities’ battery managment capabilities. Similar to other stakeholders, SRP is in the process of standing up batteries and cultivating expertise to effectively manage them within WEIM. Ensuring the initiative's timeline and requriments align with the readiness of stakeholders has the potential to achieve a more effective engagement and implementation/outcome of proposed changes.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

SRP does not participate in CAISO’s day ahead processes. SRP understands that the BCR exploits detailed in the examples are the result of bid adjustments between DA and RT processes.  SRP requests confirmation that the BCR exploits identified to date are only applicable to resources that participate in both DA and RT markets.

SRP advocates for fair cost recovery, including recovery of actual opportunity costs for batteries that respond to developing RT conditions. SRP values a calculated approach and thoroughly evaluated proposal; SRP supports efforts that would prevent unwarranted compensation to storage owners who manipulate bids to strategically ensure that batteries are unable to meet DA schedules.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

SRP appreciates the CAISO’s effort to address challenges caused by co-located configurations. SRP encourages the CAISO to provide guidelines on how BCR provisions will be adjusted to account for these configurations. Clarification would be helpful in regarding the management of co-located resources within the Aggregate Capability Constraint (ACC). Sub-ACC, and the Off-Grid Charging Indicator (OGCI) frameworks. While the issue paper acknowledges the need to address the interaction between these elements and BCR provisions, including specific rules and guidelines for co-located setups may be beneficial.

SRP also is very interested in CAISO’s progress toward evaluating appropriate DEB for hybrid resources (Section 3.4). Co-located and hybrid resources are increasingly critical elements of the SRP and regional resource mix, and this early consideration will ensure that additional urgent changes can be minimized.

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

SRP appreciates the initiative to address the estimation of opportunity costs within the DEB. SRP supports evaluating changes to the storage DEB formulation to more accurately estimate intra-day opportunity costs. The issue paper may benefit from specific examples or scenarios of how the revised DEB formulation would operate under different market conditions. SRP recommends the CAISO include examples to provide clarity and help ensure the DEB reflects the real-time market.

While SRP agrees that “real-time opportunity costs on days that differ significantly from what was considered when the day-ahead market was run” are not well represented by DA prices, SRP also suggests that WEIM participants do not have access to DA prices and therefore have additional difficulty in defining opportunity costs for later RT intervals. SRP advocates for consideration of WEIM participants as RT opportunity costs are better defined. 

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

SRP suggest the CAISO provide criteria for determining non-optimal energy and request clarification on how CAISO plans to implement this reclassification on a resource-by-resource basis.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

SRP supports CAISO’s Joint Authority decisional classification under the current governance structure. However, once the CAISO Board of Governors and Western Energy Markets (WEM) approve the Pathways Initiative – step 1, the Storage Bid Cost Recovery and Default Energy Bids Enhancements Initiative should transition to Western Energy Markets (WEM) Governing Body primary authority.

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

 No additional comments at this time.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

SDG&E appreciates the CAISO’s identification of potential storage BCR issues and its initiation of a process to seek a remedy. We support the straw proposal’s goal of avoiding inappropriate or inefficient BCR and believe that to the extent market manipulation is occurring, it must be swiftly addressed. Many parties have echoed this position and also pointed out that the pace and scope of the ISO’s proposed solution is likely too rapid and expansive to result in a durable solution.

The straw proposal provides sample scenarios to illustrate cases in which BCR is not appropriate. However, SDG&E notes that there are other scenarios—exceptional dispatch and mitigation—where storage BCR is reasonable and warranted. The straw proposal would reclassify all energy associated with SOC constraints during binding interval as non-optimal due to physical limitations, regardless of the root cause. SDG&E is concerned that blanket application of this new rule may lead to unintended consequences. A more measured, narrow approach may yield better results until a more holistic review of storage BCR and Default Energy Bids (DEBs) can be conducted in a more extended Track 2 timeframe. SDG&E recommends that CAISO consider designing and applying a solution only to the specific behaviors that have been identified, and then evaluating its effectiveness. A tailored application would involve fewer variables and provide better insight than a broad application, and would help to inform any necessary next steps which could be explored in the upcoming Track 2.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

While SDG&E understands and supports the intent behind this initiative, the underlying causes of the unwarranted BCR remain unclear. It would be helpful to understand whether the root cause is due to problematic bidding behavior, or a function of the CAISO market optimization that is not driven by decisions under the control of the scheduling coordinator. SDG&E encourages CAISO to provide additional data on this topic for each discrete issue, and specifically to identify what percentage of BCR is attributable to market participant behavior that inflates payments vs. other causes, as we believe there are different levels of urgency based on the origination.

In addition, the Track 1 schedule is extremely accelerated. SDG&E understands the importance of an expeditious solution; however, the changes to BCR as contemplated in the Issue Paper and Straw Proposal will likely have unintended market risks, especially without a full understanding of root causes and under a condensed timeline. As such, SDG&E recommends splitting the initiative’s current scope into: (1) Track 1 – focus on developing an interim solution tailored to address the issue of problematic bidding behaviors that lead to inappropriately high BCR payments; and (2) Track 2 –determine how to enhance the market design to ensure that storage resources are appropriately exposed to the real-time bid price when unable to meet their day-ahead schedule due to state of charge constraints (in addition to the other items already in scope for Track 2).

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

As outlined above, SDG&E recognizes there are real concerns to address with unwarranted Storage BCR. We agree that resources should not be incentivized to bid or operate in a manner that allows them to capture outsized BCR payments that are not aligned with the intent of BCR. We also agree that there should be appropriate incentives in the market for storage resources to account for real-time conditions in their bids.

SDG&E is also very appreciative of the examples provided in the Issue Paper and Straw Proposal. In addition to these scenarios, it would be helpful to understand what percentage of BCR payments are due to resources that are submitting bids in a manner that is not aligned with their day-ahead bids, as illustrated in Fig. 5, as opposed to resources that are submitting bids that are closer to the day-ahead price. This additional information would better inform us of the type of solution that would be most appropriate in an accelerated timeframe. Should the data show that a significant portion of this BCR is due to resources pursuing a bidding strategy that seeks to maximize the amount of BCR paid out when triggering the buy-back, a more tailored solution that targets these behaviors should be considered in the interim until a more holistic review of BCR can be conducted in Track 2.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

 No comment.

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

Support.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

SDG&E is concerned with the proposal to reclassify all energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations as part of the Track 1 solution. While we agree that resources should be responsible for managing their own risk, we are not certain that this proposal achieves a balanced approach that aligns market efficiency with fair compensation for storage resources. It is critical to ensure that storage resources have the sufficient tools to reflect real-time conditions and opportunity cost in their bid prices, and while much of the storage fleet is able to hedge for real-time risk by functionally self-scheduling to their day-ahead schedules via their bids, there are circumstances where it could be harmful to remove these real-time BCR payments from eligibility.

One such situation could include when a resource is exceptionally dispatched (ED) to discharge prior to their day-ahead schedule, causing a SOC constraint to bind in a later interval. While the exceptional dispatch provisions ensure that the resource will be paid for their discharge in that period at either their bid or the LMP, there is no recompense for the inability for that resource to meet its day-ahead schedule later in the day due to that operator action. This issue would be further exacerbated if real-time prices spike above the $1,000/MWh soft offer cap and the resource is not able to respond to the discharge later due to the SOC constraint caused by the ED.  Under this scenario, SDG&E believes it would be appropriate for the resource to receive BCR and be made whole. Other scenarios, including those associated with mitigation, have been raised by other stakeholders and could warrant BCR when the SOC constraint binds.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

No comment.

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

No comment.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

The Six Cities support the CAISO’s efforts to address concerns regarding unwarranted Bid Cost Recovery (“BCR”) for energy storage resources as reflected in the Issue Paper & Straw Proposal for Track 1 of this initiative, and the CAISO’s proposal for Track 1 revisions appears to constitute a reasonable approach to addressing the identified concerns.  Consistent with discussion during the August 5, 2024 stakeholder meeting, adoption of an interim solution may be appropriate pending further stakeholder engagement to refine a more permanent solution to the underlying concerns.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

The Six Cities acknowledge the concerns raised in this initiative by the CAISO and the DMM, and agree that comprehensive review of the CAISO’s BCR framework and related market rules is warranted to ensure that energy storage resources are not engaging in uneconomic bidding or operational behavior for purposes of receiving BCR payments, and are not otherwise receiving BCR payments under inappropriate circumstances.  Accordingly, the Six Cities fully support the CAISO’s stated goal in Track 1 of this initiative to expeditiously address unwarranted storage BCR payments and related concerns with the application of existing BCR policies to storage resources.

As previously noted in the Six Cities’ July 18, 2024 comments and highlighted in the stakeholder feedback and discussion during the August 5, 2024 stakeholder meeting, there does not appear to be a clear consensus that the CAISO’s framing and scope for this initiative is sufficiently detailed to facilitate full discussion of these issues and/or ensure that only unwarranted storage BCR payments will be eliminated (recognizing that certain stakeholders such as the California Energy Storage Alliance have indicated that it may be appropriate for storage resources to receive BCR payments in limited circumstances).  Accordingly, the Six Cities note that additional information and clarity, including additional examples and discussion of instances in which the current BCR proposal should be further tailored or refined, would allow for a more comprehensive stakeholder process to address these important issues.

To that end, the Six Cities do not necessarily oppose the CAISO’s schedule for this initiative, but reiterate their previous comments encouraging the CAISO to consider whether it may be appropriate to adopt an interim solution along the lines of its current BCR proposal, subject to consideration of alternative approaches that may be suggested by stakeholders in comments, and pending further stakeholder engagement and/or processes to consider and develop specific BCR provisions applicable to storage resources.  This approach would allow the CAISO to move quickly to alleviate immediate concerns, while ensuring an opportunity for continued discussion and refinement of more durable BCR policies and relevant market rules.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

As noted above, the Six Cities support further consideration of relevant examples and other information that may be helpful in further refining the CAISO’s current BCR proposal through continued stakeholder engagement on these topics.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

The Six Cities do not have comments on this topic at this time.

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

The Six Cities do not have comments on this topic at this time, other than to observe that development of changes to the opportunity cost structure of the Default Energy Bid will take time for stakeholders to fully consider.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

As noted above, the Six Cities support further consideration of relevant examples and other information that may be helpful in further refining the CAISO’s current BCR proposal through continued stakeholder engagement on these topics.  While the specific proposal outlined in Section 4 of the Issue Paper & Straw Proposal appears to be a reasonable starting point and could serve as an interim solution, the Six Cities recognize that a long-term BCR construct may need to distinguish between state of charge (“SOC”) constraints caused by shortcomings in the CAISO market dispatch and/or market design, and SOC constraints caused by market participant behavior.  Accordingly, the Six Cities support further consideration of circumstances in which it may be appropriate for storage resources to receive BCR payments, although the Six Cities take no position at this time on future changes to the current proposal to accommodate such circumstances.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

The Six Cities do not have comments on this topic at this time.

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

The Six Cities do not have comments on this topic at this time.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

Terra-Gen, LLC (Terra-Gen) appreciates the opportunity to comment on the Storage Bid Cost Recovery and Default Energy Bids Enhancements issue paper and straw proposal (IPSP). Terra-Gen supports a comprehensive review of Bid Cost Recovery (BCR) as applied to storage resources to ensure equitable treatment and alignment with the underlying policy objectives. Such a review necessitates a more extended timeframe than the proposed one-month policy process.

CAISO should explore alternative approaches to enhancing BCR for storage resources, including those suggested by the Market Surveillance Committee (MSC). A collaborative process considering multiple options is essential. While acknowledging the potential for unwarranted BCR, Terra-Gen emphasizes that not all such instances are attributable to Scheduling Coordinator actions. Market design flaws may also contribute. A more nuanced analysis is required to accurately identify the root causes.

Issues related to storage resource exposure to real-time prices should be comprehensively addressed, including necessary modifications to the storage Default Energy Bid (DEB) and bidding flexibility. This approach will facilitate a more accurate reflection of opportunity costs in both day-ahead and real-time markets.

To address concerns regarding potentially undesirable bidding behavior, CAISO and the Department of Market Monitoring (DMM) should clearly articulate their observations and monitoring activities. Alternatively, interim or modified solutions may be considered while allowing for more comprehensive analysis.

Terra-Gen believes that CAISO should be willing to take the time to analyze these issues and demonstrate a clear distinction between SC bidding errors or intentional BCR extraction and market design limitations when determining BCR eligibility. CAISO has developed a series of complex and opaque market constraints and bidding tools for storage resource participation and market utilization. Now that CAISO and DMM have noted concerns about BCR and exposure to real-time price signals and related market incentives, these interactions and possibility for situations where BCR eligibility is warranted, such as when storage resources are mitigated, should be discussed in a more comprehensive manner that is simply not possible through such a highly compressed one-month schedule as currently proposed for Track 1.

CAISO's continued focus on narrow storage issues may hinder the effective integration of storage resources. Prioritizing the Energy Storage Enhancements initiative is essential. Any near-term BCR modifications should minimize unwarranted BCR while facilitating accurate real-time bidding by storage resources.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

Terra-Gen continues to hold significant concerns regarding the feasibility of developing, discussing, and thoroughly vetting a complex proposal within a one-month timeframe. It is imperative that CAISO engage in a collaborative, open dialogue with stakeholders rather than advocating for a predetermined solution. Terra-Gen notes that CAISO has demonstrated a continuing piecemeal approach to addressing storage BCR issues highlighted by prior CAISO commitments. CAISO committed to review of its Ancillary Services (AS) State of Charge (SOC) constraint in its emergency tariff filing in September 2022

A comprehensive review and discussion regarding the appropriate application of BCR to storage resources, including the alignment with BCR's intended purpose and the avoidance of discriminatory impacts, should be the focus of Track 2. This process necessitates a sufficient timeframe for thorough analysis and stakeholder input. While Terra-Gen understands the need for considering targeted solutions for urgent issues, Terra-Gen emphasizes the current proposal options are not targeted, and this also highlights the importance of preserving a robust and well-vetted process to ensure the fair and equitable application of BCR to storage resources. If CAISO deems it necessary to address the immediate issue of extracting additional BCR payments through floor/ceiling bidding when the SOC is binding, CAISO should only propose interim measures that would be in place only until a more comprehensive and holistic approach is vetted with stakeholders.

Regarding the scope of Track 2, it should also encompass CAISO’s full commitment to storage DEB enhancements, including the ability for storage resources to request reference level changes and bid costs exceeding $1,000/MWh in both day-ahead and real-time markets. Terra-Gen also opposes CAISO’s inclusion of Hybrid Resource DEB creation in the scope of track 2 for the following reasons. CAISO should provide a more robust discussion of outstanding hybrid resource issues regarding model parameters, hybrid resource participation and bidding tools, as well as interactions with the soft offer cap bidding rules prior to development of any new hybrid resource DEB or application of Local Market Power Mitigation (LMPM) for hybrid resources. Terra-Gen understands that CAISO is considering inclusion of hybrid resource DEBs due to the recent soft offer cap bidding rule changes, however, hybrid resource design considerations are notably more complex than other resource types and CAISO’s market design provisions dealing with the participation and operation of hybrids must be considered hand in hand with any hybrid resource DEB proposals.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

Terra-Gen highlights that many parties including the MSC have acknowledged that numerous factors beyond a Scheduling Coordinator's control can prevent a resource from fully recovering its costs through market participation. These factors, including market design limitations, real-time market dynamics, and imposed bidding constraints, have each been highlighted in MSC discussions and should be carefully considered when determining the appropriate application of BCR. For example, CAISO's market mitigation measures, the limited real-time market outlook, and the inherent variability of real-time conditions can all contribute to suboptimal resource utilization. Imposing penalties for deviations from day-ahead plans could inadvertently reduce market flexibility and potentially jeopardize reliability. Terra-Gen requests CAISO provide a comprehensive analysis of these factors to avoid unintended consequences and ensure that any BCR adjustments accurately address the underlying causes of cost recovery challenges.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

Terra-Gen opposes any proposal to apply a blanket policy reclassifying all energy associated with SOC constraints as non-optimal unless CAISO first addresses market design issues preventing accurate real-time bidding by storage resources. 

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

Disincentives are needed to ensure Scheduling Coordinators (SC) offer and perform to their optimal dispatches. Vistra has long been concerned that CAISO’s price formation is insufficient to send sufficiently strong performance incentives when a resource is driving its outcomes through self-schedules or AS self-provision, deviating from its instructions (uninstructed imbalance energy), or unavailable due to outage (derate or rerate energy). This effort has raised a new concern for Vistra that the market design may also be failing to identify when certain resources availability falls into one of the above three categories due to their complexity. Vistra supports the CAISO addressing both the price formation weaknesses that mute incentives and ensuring Optimal Energy does not include awards or instructions that meet the above conditions.

First, it is essential that CAISO commits to strengthening its non-performance disincentives when supply is needed through scarcity pricing improvements. These should be discussed broadly first in the price formation enhancements effort. It is imperative we discuss whether price formation limitations are a key contributor to the market solutions failing to support an optimal solution across the day. Price formation improvements and design improvements should be expeditiously pursued to further mitigate the concerns with suboptimal use of use-limited resources across the Trade Day. The Price Formation Enhancements initiative efforts on scarcity pricing and fast start pricing have been dormant while storage bidding issues were fast tracked for summer 2024. While Vistra appreciated CAISO addressing the hydro and storage bidding concerns, we are disappointed it resulted in progress on the other PFE tracks halting. Vistra requests PFE efforts on scarcity pricing be stood up again and progress towards a proposal and implementation no later than Fall 2025.

Second, CAISO should improve its rules to ensure storage awards or dispatches due to outages or bid parameters should not be considered optimal energy eligible for bid cost recovery. CAISO previously addressed a need to define hours where SC uses a bid parameter drive the market outcome (i.e., “restricted-ISO dispatch”) by adopting rules for end-of-hour bid parameter to make intervals with this parameter in use ineligible for bid cost recovery (BCR). Vistra supports CAISO’s proposal that applies similar treatment to the other bid-in parameters that adjust the minimum continuous stored energy or maximum continuous stored energy Master File fields. The Limited Energy Storage Resource (LESR) bid parameters that should be included in this set include Lower State of Charge Limit, Upper State of Charge Limit, and End of Hour State of Charge (EOH SOC).[1] Further, when storage operator submits an outage ticket on its Availability, Load Max, Maximum Energy, or Minimum Energy should be incorporated into BCR so that the unavailability of the full set of storage parameters is appropriately classifying market awards that are driven by the outage card as derate or rerate energy that should offset any optimal energy resulting from that derate or rerate even of the Maximum or Minimum Energy parameters.

Vistra believes CAISO is proposing an overly punitive Track 1 solution that goes well beyond excluding from bid cost recovery awards or instructions that are driven by the SC. Its proposal will capture instances in which previous market solutions produced an optimal solution driving SOC up or down in a future market run even when the previous decisions were outside the SC’s control. When a SC cedes control of its state of charge management to the CAISO and does not utilize the bid parameters made available to it to in part take over that control, the CAISO should make it whole for any losses incurred as result of the market decisions. The impact of earlier market runs affects all intra-day use limited resources and to solely focus on storage is unduly discriminatory. Beyond use limited resources, even Multi-Stage Generators subject minimum up time and minimum down time in its various configurations have these physical inter-temporal constraints that if the real-time market uses them differently to day-ahead may result in Instructed Imbalance Energy due to these inter-temporal constraints. Historically, CAISO has been concerned about market rule changes being rife for excessive BCR payments due to these MSG constraints. It appears with storage the inter-temporal constraint with greatest complexity is shifting from MSG to Limited Energy Storage Resources.

The reality is all resources with inter-temporal constraints in real-time introduce some elements of the risks being raised by CAISO in this effort. This concern has raised again the need to revisit intra-day use limitation policy and ensure that the market model can optimally manage those use limitations through real-time. It is unduly discriminatory to withhold bid cost recovery to storage when it did not take action to interfere with the market solution and it has an inter-temporal constraint bind while continuing to settle bid costs for other assets under similar conditions. Vistra requests the CAISO revise its proposal to more narrowly address its concern without penalizing all storage for the bidding behavior of select SCs.

Vistra requests the CAISO revise its straw proposal to:

1. Classify energy associated with Instructed Imbalance Energy as non-optimal excluding it from the BCR calculation in intervals where there is an active:
   1. Outage card that reduces its Pmax (Availability derate), Pmin (Load Max derate), Maximum Continuous Stored Energy (Maximum Energy derate), or Minimum Continuous Stored Energy (Minimum Energy rerate).
   2. Bid parameters that reduce its Maximum Continuous Stored Energy (Maximum Energy derate) or Minimum Continuous Stored Energy (Minimum Energy rerate).
   3. End-of-hour SOC bid parameter constraining the solution to achieve a minimum SOC at the end-of-hour as requested by the SC.
2. If a given storage resource’s SOC at the start of the binding interval is equal to its minimum or maximum SOC value, that binding interval bid cost recovery formula will use the default energy bid instead of the bid-in offers.
   1. Include a sunset date for this element to ensure there is accountability for a future filing to provide a replacement make whole payment framework needs to be in place prior to the sunset date.

With the above revised proposal, the CAISO will appropriately classify energy associated with awards or instructions that are due to outages or due to SC action to drive the market outcome. The CAISO will also further mitigate its more general concerns with BCR settlement in intervals where a SOC constraint is binding by mitigating mis-incentives to exploit BCR if a SC knows a SOC constraint will bind by limiting its bid cost assessment to its default energy bid.

Vistra acknowledges there are many potential solutions to the concerns raised where a consensus may be reached with time. It appears that stakeholders have reached consensus in supporting CAISO curing the design flaws that our requested revisions would address. If the CAISO feels this is not going far enough, then we encourage it to focus on quickly moving to the holistic BCR discussions so that a replacement framework can be designed and implemented. If the CAISO declines to adjust its proposal to address concerns we have that its proposal is overly punitive, Vistra requests the following:

• Include a sunset date to ensure there is accountability for a future filing to provide a replacement make whole payment framework needs to be in place prior to the sunset date.
• Revise its proposal to include a path for storage to dispute a Bid Cost Recovery settlement payment in the event the BCR excluding intervals with a binding SOC that the SC can support was the result of the CAISO’s market design instead of its own action.[2]

[1] Exhibit 4.2.1: Bidding limitations for NGRs, Market Instruments Business Practice Manual, Page 54-55.

[2] Vistra believes the CAISO could frame the Tariff language so that the rationale for its proposed implementation is tied to making ineligible for BCR energy as result of SC intervention and to explicitly incorporate a settlement dispute process that would allow SC to provided evidence that they believe the result was due to the market instead of its intervention.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

See Vistra’s previous comments on scope and schedule.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

Vistra agrees with expressed objectives of the CAISO, Department of Market Monitor (DMM), and the Market Surveillance Committee (MSC) that a market design should get incentives right so that its dispatch instructions across the Trade Day result in the most optimal solution possible. CAISO’s Energy and Ancillary Service (E&AS) markets should send incentives for generation and non-generating resources to perform to their binding dispatch operating targets first and foremost. Those dispatch instructions ideally are the optimal solution across the entire operating day where real-time solutions improve on the day-ahead solution. If the real-time market is producing solutions that reduce the efficiency across the Trade Day that indicates structural issues with real-time market operations, or Scheduling Coordinator (SC) action interfering with the market solution through for example a self-schedule. The more general concern raised in this effort is whether the market is optimally using the use limited resources across the Trade Day given both the preliminary day-ahead results and real-times adjustments.

CAISO’s real-time market faces structural challenges that make it difficult to achieve this ideal outcome. One of the limitations is that the real-time pre-dispatch horizon is no longer than 105 minutes (seven fifteen-minute intervals) and real-time economic dispatch is no longer than 65 minutes (thirteen five-minute intervals). This short time frame means the trade-offs of the relative value of using a resource in that market run versus a later market run is largely only accommodated through the SC bids.[1] The real-time market horizons have for years caused challenges for use-limited resources needing to manage their limitations where the horizon cannot internalize the trade-off across the day even with bidding tools. In the case of hydro, even though there is a daily maximum energy limit parameter it cannot perform as it does in day-ahead because this parameter will only limit maximum energy within the horizon not across the Trade Day. Given the market horizon does not naturally internalize the trade-off across all hours, the bids should allow the Scheduling Coordinator (SC) to inform the market of its opportunity cost if used in that market run versus a later market run. However, there are limitations to the bids ability to ensure the market can evaluate this trade-off such as (1) any mitigated bids may undervalue the opportunity costs of that use and (2) the T-75 real-time market close limits accuracy of inputs when real-time conditions change in between the market windows. Additionally, likelihood of actual regulation signal in real-time differing from the monthly attenuation factors can lead to depleting or replacing of SOC due to regulation dispatches, and it would be inappropriate to not make them whole in those periods since the resource was appropriately responding to its signals.

The discussion at the Market Surveillance Committee helped evolve our thinking that there is a need to take a step back and have a robust discussion on what the cost risks are facing storage operations. Next, the discussion should explore what type of uplift mechanism is best to ensure that the resource is made whole for its losses as result of market dispatches outside of its control that led to uneconomic, or suboptimal, awards. Storage’s discharge bid costs are endogenous to the CAISO’s market solution because absent SC action driving its awards the market decides when and at what price the “prime mover” will be procured through issuing charging awards. Given that the market determines the actual costs of a dispatch instruction, we are persuaded that there is a need to re-envision storage make whole payment that makes it whole to the discharge bid cost as function of the charge costs (i.e., charge spread) to which storage offered and should be made whole if the market results in a narrower charge spread than offered. Since CAISO’s market does not explicitly include the charge spread as an input, an uplift mechanism tailored to storage’s view of net surplus or shortfalls relative to its offered charge spreads does need a holistic discussion and make whole design proposed. Vistra requests CAISO proceed to these discussions immediately.

Vistra has provided examples of how the market outcomes could lead to lower or higher SOC levels that were the result of the market design not the SC behavior. Until a new make whole payment can be designed and implemented, Vistra recognizes that an interim solution is needed. CAISO should file the interim solution that may also capture intervals that warrant make whole payments with a sunset date to ensure there is a clear directive to continue the holistic discussion and file the replacement make whole framework expeditiously.

[1] Storage resources have a mechanism to submit a real-time self-schedule where there is an End-of-Horizon State of Charge constraint that the CAISO will enforce that ensures the SOC at the end of the market horizon is sufficient to meet the self-schedules in a future horizon. This functionality may be an option to explore applying in other elements of storage modeling for the later hours in the real-time market to achieve an ending SOC level that will align with the initial day-ahead SOC used in setting up the next day’s real-time market. If a resource opts into allowing the real-time market to align the ending SOC with the next day’s initial SOC cleared by day-ahead, this should be eligible for make whole payment. Otherwise, the initial DA SOC without a mechanism to align the ending SOC due to real-time dispatches with the SC bid-in initial DA SOC should also be ineligible if there is a binding SOC constraint in the early hours due to differences between DA and RT initial SOC.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

Track 2 BCR discussions should be the holistic discussion needed to explore a replacement make whole payment framework for stand-alone, co-located, and hybrid resources. The description is overly narrow and needs to be the holistic discussion being called for during the Track 1 discussions.

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

Vistra supports the CAISO addressing the long-standing calls for default energy bid improvements for stand-alone storage assets. Similarly, commencing discussions and putting forward a proposal for hybrid default energy bids is overdue. There are three other issues that CAISO committed to or was directed by FERC to address that should be included in this scope:

• Allow hybrid resources to bid up to the storage bid cap once the hybrid Default Energy Bid (DEB) is developed and these assets are subject to mitigation.
• Allow stand-alone, co-located, and hybrid resources to request reference level changes when costs exceed the DEB or $1,000/MWh to adjust its energy reference level based on prevailing opportunity costs.
• Allow ability to bid opportunity costs exceeding $1,000/MWh in both the day-ahead and real-time markets.

CAISO should not descope the critical issues that the CAISO deferred. This is the appropriate effort to resolve these open issues. CAISO should ensure the proposed changes improving the DEB, subjecting hybrids to mitigation, allowing reference level change requests when costs exceed DEB up to and exceeding $1,000/MWh, and allow bidding flexibility above $1,000/MWh in both day-ahead and real-time are implemented prior to summer 2025.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

See above.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

None currently. 

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.

CAISO appears to be inconsistently applying the goal of aligning treatment across storage and other resources when its unavailable for energy or AS award. When unavailable to meet a day-ahead or incremental real-time award the CAISO addresses this for conventional generation through identifying an incremental AS need for backfilling the lack of AS and assessing no-pay on the resource that was unable to meet its AS obligations. However, CAISO is not doing this for storage resources. Vistra has raised what we view as a market flaw with CAISO since we discovered its practice is to issue Fifteen Minute Market energy awards for charging or discharging depending on the direction of the AS product unavailable and avoid assessing “no-pay” while now exposing the resource to energy risks in that period. We believe CAISO should not be “converting” AS obligation into an energy award in the FMM market to “meet” AS, and instead should identify an incremental real-time AS need and assess no-pay. This request made first in 2022 and continuing to submit into stakeholder discussions has not made movement even though it would “align the treatment of unavailable [AS] from a storage asset to that of a conventional thermal asset”[1] The CAISO is leveraging the rationale of wanting to align treatment of unavailable energy from storage to conventional assets in its straw proposal for bid cost recovery treatment but continues to resist making alignments that we have identified and requested for other unavailability. If it is a new policy to strive towards alignment when energy is unavailable, this alignment goal should apply for AS unavailability. Vistra requests the CAISO move expeditiously to address the unavailability of AS misalignment we have sought solutions for in the past two years as soon as possible.

[1] Storage Bid Cost Recovery (BCR) and Default Energy Bid (DEB) Enhancements Issue Paper & Straw Proposal presentation, California ISO, Slide 26, August 5, 2024.

1. Please provide a summary of your organization’s general comments on the Issue Paper & Straw Proposal (IPSP) and the stakeholder meeting.

WPTF appreciates the opportunity to provide these comments. Our comments throughout this document reflect the following:

• WPTF supports a comprehensive review of how BCR is applied to storage resources to ensure alignment with the purpose of BCR and equitable application across all resource types. This will require more than a one-month policy process.
• Track 1 should solely focus on the more immediate concern which is the ability to bid in a way to extract additional BCR revenues with a more narrowly scoped approach. Addressing the concerns related to storage resources not being fully exposed to real-time prices due to the current BCR application should be moved to Track 2 and considered alongside changes to the storage DEB and bidding flexibility to allow accurate reflection of updated opportunity costs in both the day-ahead and real-time markets.
• CAISO should take the necessary time to explore alternative approaches, including those suggested by MSC, to enhance BCR for storage resources and not solely focus on the one solution CAISO has proposed; a collaborative discussion considering various options is necessary.
• WPTF understands and agrees that some BCR may be unwarranted, however not all may be unwarranted. There are several situations whereby a resource may have a binding SOC but it’s not due to the actions of the SC, rather a result of other market design elements. Current discussions have not adequately discussed this and have assumed all scenarios are the fault of the SC, thus constitutes unwarranted BCR.
• Any bidding behavior that may be driving the immediate urgency of this effort can be addressed by clearly articulating concerns and noting CAISO and DMM's monitoring. Alternatively, an interim or modified solution can also be considered to address what appears to be the immediate concern while still allowing longer more robust discussions to take place.
• The scope of the storage DEB topic in Track 2 should include the full commitment made by CAISO to the Board of Governors, Governing Body, and stakeholders. Specifically, this should cover: (1) enhancements to the storage DEB, (2) the ability for storage resources to request reference level changes when costs exceed $1,000/MWh, and (3) the ability to bid costs exceeding $1,000/MWh in both the day-ahead and real-time markets.

2. Please provide your organization’s comments regarding the framing, scope, and schedule of the initiative as stated in the IPSP (Sections 1 and 2).

While we appreciate the extension for comment submissions, we remain concerned about the overall timeline for developing, discussing, and thoroughly vetting a proposal within just one month, especially given the complexity of the BCR topic. It is crucial for CAISO to engage in meaningful discussions with stakeholders, rather than presenting a pre-determined solution.

The current approach seems more like a one-sided conversation rather than a collaborative process. There are alternative options that warrant discussion, as highlighted by the MSC. To the extent the CAISO feels it needs to immediately address the issue related to extracting additional BCR payment from bidding at the floor/ceiling when SOC is binding, we would be open to considering an interim solution as this seems to be the CAISO’s main urgent issue.

The CAISO can then take the appropriate amount of time and have a holistic review and discussion around how BCR is and should be applied to storage resources to provide proper incentives while aligning with the intent of BCR. Having this more comprehensive discussion should take place in Track 2 over a more appropriate timeline. If the underlying issue is related to market incentives, then simply modifying BCR may not address the root cause. During the MSC call, the MSC noted a few other approaches that we believe warrant discussion as they may better address the market incentive issue the CAISO is trying to address. We envision this discussion would also take place alongside changes to storage DEB and bidding flexibility as scoped out in our response to question #5.

In direct response to the CAISO’s request for stakeholders to specify/propose a timeline to continue the discussion; WPTF cautions against predetermining an amount of time to spend discussing an issue. Time and time again we have experienced where an artificial deadline imposed on a policy process comes at the cost of a fully developed and vetted market design change. Thus, we do not want to propose a specific timeline with an artificial deadline but rather simply request that the CAISO take the appropriate amount of time to discuss the larger issue more holistically. We could support an interim or more targeted solution to address the more urgent issue that may be resulting in larger financial impacts due to the ability to extract additional BCR payments through bidding behavior; however, we do not support sacrificing a robust and well vetted solution to holistically and appropriately ensure the application of BCR to storage resources aligns with its intent and is not unduly discriminatory.

3. Please provide your organization’s comments regarding the issue of unwarranted storage BCR and the examples included in the IPSP (Sections 3.1 and 3.1.1).

WPTF would first like the CAISO to define what it means by “unwarranted” BCR. We envision this discussion would include identifying what costs and revenues are appropriate to ensure the resource at least recovers its bid costs through market revenues in cases where, not at the fault of the SC, the market revenues received are not adequate. This discussion would include identifying all the drivers of when an SOC reaches its limit in the market and then determine which should still be eligible for BCR and which should not. For example, we could see that if a resource reaches its SOC limit due to an outage reflected through biddable parameters, then that may warrant similar treatment as thermal resources that submit an outage – specifically its classified as uninstructed energy in the BCR calculation and not eligible for BCR. However, these conversations have not taken place and are essential to this stakeholder discussion.

Second, its important to recognize that there are several other conditions that may result in a resource not recovering its costs through the market that are not due to the way the SC is bidding. All of these scenarios should be discussed with stakeholders and determine whether or not they warrant BCR and thus justify a different approach.

• Mitigation: The CAISO market automatically mitigates bids downward for local market power mitigation. Mitigated bids may be the cause of a resource being discharged ahead of its day-ahead schedule and thus not available. This is not due to SC bidding but an artifact of the market design.
• Real-time Outlook Horizon: The CAISO real-time market does not look out far enough to see through the net load peak hours when making binding discharge/charging decision midday and in hours leading up to the net load peak hours. Take for example, on a tight supply day the market may see elevated prices of $1,200/MWh going into the evening peak. Per current bidding rules, a storage resource may only bid up to $1,200MWh (assume its reflective of the 4^th highest MIBP and thus appropriately reflects the opportunity cost). The market may decide to discharge that resource in that hour even though there are higher priced hours in the net load peak hours. By the time the market sees the higher priced hours, the resource has been fully discharged because the real-time market wasn’t able to make the decision to hold back discharging that resource when the $1,200/MWh prices initially materialized. This is not due to SC bidding but an artifact and limitation of bidding per market design.
• Real-time Conditions: Real-time conditions can and do deviate from what was assumed in the day-ahead market. Thus, the optimal use of storage resources may be different in real-time than the optimal use of that same storage resource in day-ahead. This is an optimal outcome – using the resource in real-time when the real-time market needs it the most. Just because the optimal real-time use of the resource differs from the day-ahead use of the resource does not in and of itself constitute unwarranted BCR. We do not want to create an incentive through this market design change that places a higher value on maintaining day-ahead schedules when real-time conditions differ. That will remove flexibility from the real-time market and contribute to reliability concerns if the market isn’t able to meet the evolving real-time needs optimally. However, we do want to create proper market incentives and simply making storage resource ineligible for BCR may not actually achieve that objective. Again, another reason why we need to take the proper time and have a comprehensive discussion around BCR and storage resources to ensure we consider all options.
• Imposed Bidding Timelines: Resource’s last chance to update bids for a given trade hour in real-time is 135 minutes ahead of time. This, by design, limits the ability of storage resources to update real-time bids to reflect evolving real-time conditions, which is one of the incentives the CAISO has stated they are trying to create through this BCR change. Even if a SC were to update its bids in real-time to reflect real-time conditions, it has no way of doing so to reflect any unpredicted changes that occur within the next 135-minute window.
• Advisory Prices: The real-time market includes the binding interval, and several forwarding-looking intervals often referred to as advisory intervals. The advisory intervals do have an impact on the resource’s schedule for the binding interval. For example, if the advisory intervals show elevated prices, the market may charge the resource in the binding interval anticipating the need to discharge it shortly after. However, the advisory prices do not always materialize. In this example, if the high advisory prices do not materialize, then the resource is left with a higher SOC. This could result in a resource having a 100% SOC in real-time well ahead of its day-ahead charging schedule. This is just another example of how the market design itself could create a situation that CAISO’s current proposal would consider as unwarranted BCR and thus ineligible.

4. Please provide your organization’s comments regarding the issue of BCR provisions for energy storage in co-located configurations as stated in the IPSP (Section 3.2).

5. Please provide your organization’s comments regarding the estimation of opportunity costs within the storage Default Energy Bid (DEB) as stated in the IPSP (Section 3.3).

WPTF respectfully requests that the CAISO include within scope of this topic its commitment made to the Board of Governors, Governing Body, and Stakeholders during the Bidding Above Soft Offer Cap effort. Specifically, the CAISO committed to continuing the discussions to ensure that storage and hydro resources can reflect costs in the market when they exceed $1,000/MWh and consider changes to the DEB formulation, Reference Level Adjustment Process, and bidding flexibility in both the day-ahead and real-time markets.  

This is a natural policy effort to continue those conversations and simply focusing on the Storage DEB improvement falls short of CAISO’s commitment. It must be paired with the ability to accurately reflect those costs in the day-ahead and real-time markets when they exceed $1,000/MWh. This will also naturally help address some of the BCR concerns the CAISO currently has with storage resources. Having the bidding flexibility in place will enable storage resources to more accurately reflect opportunity costs in the market and help the market make the decision to hold off discharging the resource until the higher price periods.

6. Please provide your organization’s comments regarding the proposal to reclassify energy associated with SOC constraints during the binding interval as non-optimal due to physical limitations (Section 4).

WPTF is concerned with applying the solution so broadly to a wide range of situations that may result in a resource having a binding SOC and by default classifying all those situations as ineligible for BCR. While we agree there are likely some conditions that do not warrant BCR, there are also likely some conditions that do warrant BCR. We provided several examples of those in response to question #3. WPTF respectfully requests that the CAISO consider pivoting its approach to this issue and (1) consider a more narrow proposal or an interim solution to address the more imminent concern of bidding to extract additional BCR payments, or rely on the fact that market participants are good actors and thus notifying the market of undesirable behavior will naturally deter that behavior, and (2) consider alternative more holistic approaches to BCR for storage as raised during the MSC meeting such that a well-informed trade-off decision can be made in Track 2 of this effort. The MSC noted a few options that can, and should, be considered.

In this discussion the CAISO has been focused on the incentives that the current BCR application creates. However, what has been missing from this discussion is the incentives that this proposal will also create, which we see as a major drawback of this proposal. WPTF agrees that we want incentives in place for resources to bid in a way that will allow the real-time market to optimally use the resource based on real-time conditions. Real-time conditions can and do differ from day-ahead. Implementing a BCR solution that makes ineligible any interval where SOC is at min/max in a binding interval ineligible for BCR will incentivize resources to make sure they are available to meet the day-ahead schedule. That will likely look a lot like self-scheduling, which also results in price suppression. We have spent decades trying to create market incentives to increase flexibility, economic bidding, and improve price formation. Now this proposal may unwind that and reduce flexibility from some of the most flexible resources on the system. The SCs will bid in a way to ensure they can meet day-ahead schedules, regardless of real-time conditions. This could also result in reliability issues to the extent the real-time conditions have changed, and these resources would rather stick to day-ahead schedules than be re-dispatched to address real-time conditions.

WPTF supports ensuring the market incentives are in place to allow storage resources to participate in real-time based on real-time conditions. Yet the tools are not quite there yet to allow for that to occur and they need to be developed together, not one prior to the other. Thus, WPTF respectfully requests that the CAISO develop together holistic changes to storage BCR and ability for storage resources to accurate reflect costs in market offers above $1,000/MWh in both day-ahead and real-time through improved storage DEB formulations and reference level adjustment process rules.

Lastly, WPTF would like the CAISO to confirm if the SOC that would trigger BCR ineligibility is based on the market calculated SOC or the actual telemetered SOC value. Also, we ask that the CAISO confirm in writing if the trigger makes the 15-minute or 5-minute intervals from the 15-minute or 5-minute RTD market ineligible for BCR.

7. Please provide your organization’s comments regarding the proposed governance classification as stated in the IPSP (Section 5).

8. Please provide any additional comments, feedback, or examples regarding the IPSP and the stakeholder meeting. You may upload examples or data using the “Attachments” field below.