Bonneville Power Administration
Submitted 10/11/2024, 01:37 pm
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
CAISO PFE co-lead, James Friedrich, provided an excellent presentation on September 30 summarizing Phase 1 of the PFE working group meetings. BPA recognizes the complexity of these topics and complication they present for policy development and implementation. However, the importance of these topics appears to be undermined by the lengthy timeline. Considering the time invested already in Phase 1, targeting Board review and voting dates over 2 years sends a signal to stakeholders that these issues are not a priority. BPA is also concerned that it will be challenging for stakeholders to maintain consistent engagement over the lengthy time period. BPA urges the CAISO to shorten the Phase 2 timeline in order to maintain momentum and priority for these important market design features.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
See comments under Question 1.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
BPA agrees with the intention of the CAISO to include additional market design experts from other ISOs to share their opinions and working experiences with these design elements. We agree that all the ISOs have design differences and understand not all market design elements may transport from one ISO to another. However, we believe this outside information can be valuable in our future group discussions.
California Community Choice Association
Submitted 10/14/2024, 12:32 pm
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
The California Community Choice Association (CalCCA) appreciates the opportunity to comment on the Price Formation Enhancements Discussion Paper and agrees with the timeline for the scaricity pricing/BAA-levelmarket power mitigation (MPM) scope items.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
Yes. CalCCA understands the CAISO’s desire to ensure the market sends the right price signals. Prices should rise as supply becomes scarce and prices should remain high during scarce conditions to ensure the market sends the right price signals during periods of scarcity to attract supply and encourage generator performance and to ensure the market allows for cost recovery of the marginal unit. Scarcity pricing should not, however, incentivize resources to bid above marginal costs or bid in a manner that triggers scarcity pricing. “Maintaining incentives for resources to bid marginal costs” is missing from the scope, problem statements, and Discussion Paper generally. CalCCA’s highest priority within the scarcity pricing element of the initiative is to maintain the incentive for supply to bid its marginal cost and refrain from creating incentives for supply to bid above marginal costs or bid in a manner that is intended to trigger scarcity pricing whether a scarcity event is actually present.
Comments on the Scarcity Pricing Scope Items in the Discussion Paper
The Discussion Paper states that “some key administrative penalty prices in the ISO market’s pricing run may no longer align with the evolving conditions in the Western Interconnection.”[1] It also states that “there is no inherent reason why penalty prices must be tied to a bid cap,” and an alternative anchor could be the Value of Lost Load (VOLL).[2]
The Discussion Paper fails to recognize that there are inherent differences between the CAISO balancing authority area (BAA) and the rest of the Western Interconnection necessitating differences between CAISO’s administrative penalty prices and scarcity pricing in the rest of the West. The CAISO operates a wholesale energy market with a market clearing price that all generators are paid based upon the bid price of the marginal resource. The resource adequacy program compensates resources for dedicating themselves to the CAISO market through a must-offer obligation. Other BAAs, outside of their participation in Western Energy Imbalance Market or a future Extended Day-Ahead Market, do not have market clearing prices, and can therefore pay the next generator more during times of scarcity without having to pay all the other generators it transacted with the same price. Attempting to align penalty prices in the CAISO’s market with prices in a scarce bi-lateral market will come at the expense of California ratepayers who must pay all generators, not just the marginal resource, a market clearing price that (1) is attempting to compete with a buyer that does not have to pay all generators the same price, and (2) is not reflective of its marginal costs.
The CAISO should not presume scarcity pricing should be set based on the VOLL rather than the costs of the marginal resource. As the Discussion Paper notes, scarcity pricing is currently tied to the bid cap. During times of scarcity, demand response resources are typically the marginal unit and therefore set the price at their VOLL for voluntary load curtailment, which is typically at or near the current bid cap. Therefore, demand response resources are likely to be the last available supply to be dispatched. Once demand response has been fully utilized, regardless of whether consumers are willing to pay more to avoid involuntary demand curtailment, there is no additional supply to pay for and simply increasing prices would not result in more available supply.
A scarcity pricing mechanism that sets prices based upon demand’s willingness to pay to avoid involuntary load curtailments is problematic because it can (1) compensate supply above the marginal resource’s costs at a cost to consumers, (2) degrade the incentives for resources to bid at their costs, and (3) create perverse incentives for generators to intentionally withhold supply in order to artificially trigger scarcity pricing. It will be extremely difficult to determine a value that adequately reflects consumers’ willingness to pay to avoid involuntary load curtailments while protecting consumers from excessively high prices. This is especially the case when demand is inelastic and scarcity conditions are present, or participant bidding can give the appearance the scarcity conditions are present even if they are not.
[1] Discussion Paper, at 11 (footnote omitted).
[2] Id.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
No. There are no additional MPM elements CalCCA recommends for the scope of Phase 2. CalCCA supports the following MPM elements documented in the Discussion Paper:
- Modify the BAA-Level MPM Methodology to Use a Grouping Approach: CalCCA supports “evaluat[ing] and refin[ing] the proposed BAA grouping approach.” The CAISO should consider this a high-priority scope item.
- Determine if the CAISO Should be Included in BAA-Level MPM: The BAA-level MPM methodology should treat the CAISO BAA like any other BAA, meaning it would not assume the CAISO BAA to be competitive. CalCCA supports this treatment. If there are hours where the CAISO BAA is not structurally competitive, the CAISO should have a mechanism to mitigate against the exercise of market power. MPM only mitigates uncompetitive hours, not every hour, and it only mitigates bids that are above the resources’ default energy bids (DEBs) or the competitive locational marginal price (LMP), so there is little risk associated with including the CAISO in BAA-level MPM. For these reasons, the CAISO should highly prioritize including the CAISO BAA in the BAA-level MPM approach.
The CAISO should consider removing the following MPM elements documented in the Discussion Paper:
- Modify the BAA-Level MPM Methodology to Only Mitigate Pivotal Suppliers: Before modifying the methodology to only mitigate pivotal suppliers, the CAISO should evaluate whether only mitigating bids from pivotal suppliers will result in a market power mitigation mechanism that ensures competitive outcomes. If the CAISO only mitigates pivotal suppliers, could the CAISO risk creating additional pivotal suppliers that go unmitigated? This will depend on how competitive the market is beyond the three pivotal suppliers (or the three highest pivotal suppliers and any supplier replacing the third while the residual supply index is less than one). Before determining whether to modify the methodology to only mitigate pivotal suppliers, the CAISO should explore further whether doing so will ensure just and reasonable rates.
- Consider an Impact Test to Only Mitigate Offers with LMP Impacts Above a Defined Threshold: CalCCA does not support only mitigating offers with LMP impacts above a defined threshold. The need for this proposal could negatively impact ratepayers, and no stakeholder has demonstrated the need for such a change. Again, MPM mitigates only uncompetitive hours and only bids that are above the resources’ DEB or the competitive LMP. DEBs ensure that the mitigated resources still recover their costs. At worst, the mitigated bid will cover all costs of providing the energy in the market and if the market clearing price is higher, the resources will still receive market rents.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
CalCCA agrees the CAISO should consider fast-start pricing on a slower track than scarcity pricing/BAA-level MPM. Discussions in the first phase of working groups have not demonstrated benefits associated with fast-start pricing to justify associated cost increases. The CAISO has other mechanisms for ensuring fast-start resources recover their costs without the customer cost impacts associated with fast-start pricing. Spending time developing fast-start pricing is not a good use of CAISO and stakeholder time and resources when the CAISO already fully compensates fast-start resources for their start-up costs.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
The CAISO has other mechanisms for ensuring fast-start resources recover their costs without the customer cost impacts associated with fast-start pricing. The CAISO compensates fast-start resources for their start-up costs outside the market rather than in the locational marginal price. Under fast-start pricing, fast-start resources’ total compensation would remain the same, but the market clearing price would rise to include start-up costs and award that higher price to all resources that clear the market.
The CAISO, the Department of Market Monitoring, and stakeholders have raised a series of concerns with fast-start pricing, including its impacts on the CAISO’s ability to procure flexible resources in real-time, resulting in infeasible dispatches and weakening price signals to provide ramping capability. The CAISO should not ignore these concerns in favor of implementing a seemingly unnecessary pricing structure that would increase customer costs for an unclear benefit.
For these reasons, CalCCA continues to oppose including fast-start pricing in the scope of the Price Formation Enhancements initiative.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
CalCCA has no additional feedback at this time.
California Public Utilities Commission - Public Advocates Office
Submitted 10/14/2024, 04:49 pm
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
The Public Advocates Office at the California Public Utilities Commission (Cal Advocates) is the state-appointed independent ratepayer advocate at the California Public Utilities Commission (CPUC). Our goal is to ensure that California ratepayers have affordable, safe, and reliable utility services while advancing the state’s environmental goals. Our efforts to protect ratepayers include energy, water, and communications regulation advocacy.
Cal Advocates provides the following requests and recommendations:
- The CAISO should explain its decision to reverse previously held positions and prioritize fast-start pricing (FSP) development at the outset of the proposal development phase;
- The CAISO should exclude analysis of the sensitivities that utilize the constant amortization methodology from the FSP scope;
- The CAISO should discontinue analysis of sensitivities involving startup time over 30 minutes and minimum up time over 60 minutes;
- If the CAISO staff analyze additional sensitivities, they should analyze a startup time ≤ 15 minutes option; and,
- The CAISO should study the impacts of FSP on Bid Cost Recovery (BCR) payments.
Cal Advocates has no comments on the proposed timeline at this time.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
Cal Advocates has no comments at this time.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
Cal Advocates has no comments at this time.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
Cal Advocates has consistently recommended that the CAISO not implement FSP.[1] Cal Advocates is not the only organization to express skepticism regarding FSP. The table below collates the positions of all stakeholders that submitted comments on the CAISO’s April 8, 2024 Working Group Session 16, Analysis on Fast Start Pricing. The table replicates stakeholder responses to the second question, “Please provide your organizations level of priority (High, Medium, Low) as it relates to further policy development for Fast-Start Pricing.”[2]
Table 1: Stakeholder FSP Prioritization
|
Stakeholder
|
Level of priority (Low/Medium/High) or Indicative Statement
|
|
Cal Advocates
|
“Remove from scope”
|
|
Northern California Power Agency
|
“Cease further policy development”
|
|
Department of Market Monitoring
|
“FSP is inconsistent with the features of locational marginal pricing”
|
|
Los Angeles Department of Water and Power
|
Low
|
|
California Community Choice Association
|
Low
|
|
CPUC Energy Division
|
Low
|
|
Pacific Gas & Electric Company
|
Low
|
|
PacifiCorp
|
Low
|
|
Portland General Electric
|
Low
|
|
Six Cities
|
Low
|
|
Southern California Edison Company
|
Low
|
|
Public Generating Pool
|
Medium
|
|
Seattle City Light
|
Medium
|
|
Bonneville Power Administration
|
Medium-High
|
|
Public Power Council
|
High
|
|
Salt River Project
|
High
|
|
Tacoma Power
|
High
|
Eleven out of seventeen stakeholders classified FSP as low priority or asked the CAISO to stop policy development. These eleven stakeholders are either part of the CAISO or have, at a minimum, indicated an intent to join the Extended Day-Ahead Market. Both CAISO staff time and stakeholder efforts would likely be better used for other policy matters.
Nonetheless, Cal Advocates understands that the CAISO intends to continue policy development of FSP and is committed to further constructive engagement. However, it still remains unclear why the CAISO has decided to reverse its previous position and prioritize FSP re-evaluation.[3] The CAISO’s recent analysis identified increases to market costs if FSP is adopted,[4] consistent with the findings of other grid operators.[5] The CAISO has stated that FSP may provide benefits; namely, to enable certain fast-start resources (FSRs) to inform energy market price formation if those FSRs are dispatched on the margin but fail to meet the entire need of marginal load.[6] Today, FSRs that do not inform the LMP when dispatched for marginal load are made whole through BCR payments with respect to their economic bid.[7]
Given that FSP does not appear to benefit grid reliability but would increase costs to ratepayers, Cal Advocates requests that the CAISO explain its decision to reverse previously held positions and prioritize FSP development at the outset of the proposal development phase.
[1] Cal Advocates previously recommended that the CAISO remove FSP from the scope of the PFE initiative, citing that the CAISO’s findings to not adopt FSP in 2016 remain relevant today in addition to unnecessary increased costs to ratepayers. Cal Advocates, Comments on Price Formation Enhancements Working Group 6, November 3, 2023. Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/6705ab14-132f-4a74-a0db-4ad6ba98b9b5#org-20bc9248-0b32-4d23-b075-70bbd48cf411.
[2] Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/0591bdde-d87a-425f-8dcc-df8468dd66b7.
[3] In 2016, the CAISO argued that FSP would be “unlikely to improve price formation in the CAISO’s market.” Price Formation Enhancements: Stakeholder Workshop, June 9, 2022 at 9. Available at: https://www.caiso.com/InitiativeDocuments/Presentation-PriceFormationEnhancementsWorkshop-June9-2022.pdf.
[4] Price Formation Enhancements: Analysis on Fast Start Pricing, April 8, 2024 (April Analysis) at 10 and 74. Available at: https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Apr8-2024.pdf.
[5] The Midcontinent Independent System Operator (MISO) found that FSP increased prices between $0.50 and $1.45/megawatt-hour (Potomac Economics, 2022 State of the Market Report for the MISO Electricity Markets, June 15, 2023 at 41. Available at: https://www.potomaceconomics.com/wp-content/uploads/2023/06/2022-MISO-SOM_Report_Body-Final.pdf.). The Pennsylvania-New Jersey-Maryland Interconnection (PJM) found that FSP increased prices as well as increased reliance on uplift payments (Monitoring Analytics, LLC, State of the Market Report for PJM: Volume 1, 2023, March 14, 2024 at 21 and 30-32. Available at: https://www.monitoringanalytics.com/reports/PJM_State_of_the_Market/2023/2023-som-pjm-vol1.pdf.).
[6] Price Formation Enhancements: Working Group Session #6, October 12, 2023 at 11-17. Available at: https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Oct12-2023.pdf.
[7] Price Formation Enhancements: Working Group Session #9, December 11, 2023 (December Analysis) at 17. Available at: https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Dec12-2023.pdf.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
The CAISO should focus the scope of fast-pricing design in four ways. First, the CAISO should follow the May 2024 recommendations of Cal Advocates[1] and the Department of Market Monitoring[2] and exclude analysis of the sensitivities that utilize the constant amortization methodology from the FSP scope. Exclusion of the constant amortization methodology would eliminate four sensitivities and save CAISO staff and stakeholder time. Based on the CAISO’s analysis, the constant amortization methodology would result in the:
- Highest average price increases;[3]
- Highest hourly price spikes in 2022-2023;[4]
- Highest intra-CAISO monthly price impacts;[5]
- Most pronounced skew in the distribution of price changes in CAISO and in the system-wide market arrangement,[6] and;
- Largest increases in costs of supply with FSP for CAISO and in the system-wide market arrangement.[7]
Conversely, the other two amortization methodologies (average and adjusted) consistently lead to smaller cost increases. However, between the average and adjusted methodologies, one is not always less costly than the other. Thus, the CAISO should focus its analysis on the average and adjusted amortization methodologies to examine the methodologies in comparative detail and identify the best outcome for ratepayers.
Second, CAISO staff should discontinue analysis of sensitivities of startup times (STUT) over 30 minutes and Minimum Up Times[8] (MUT) over 60 minutes, which would eliminate an additional four sensitivities. CAISO analysis indicates that STUT ≤ 60 minutes is more costly than a STUT ≤ 30 (although the differences are less pronounced than the difference between the constant amortization methodology and the other options).[9] Likewise, the CAISO noted that “[a]ll other [independent system operator (ISO)] FSP models use definitions of 60 minutes or less for start-up and minimum run time”[10] while no other ISO uses an MUT greater than one hour.[11] Restricting the scope of analysis to resources with STUT that are between 0 and 30 minutes and MUT that are between 0 and 60 minutes would still include 19% of gas resource megawatts in the Western Energy Imbalance Market (WEIM) footprint.[12]
Third, if CAISO staff decide to analyze additional sensitivities, Cal Advocates requests analysis of a STUT ≤ 15 minutes option. One slide of the CAISO’s presentation identified the subset of gas resources that would fit a STUT ≤ 15 minutes and MUT ≤ 60 minutes definition, and suggests that analysis of a STUT ≤ 15 minutes option is viable within the current scope of this initiative.[13] The Southwest Power Pool provides precedent to apply an even narrower definition for its FSP resources, at STUT ≤ 10 minutes.[14] Cal Advocates requests that the CAISO provide this analysis to help stakeholders understand whether an FSP definition of STUT ≤ 15 minutes and MUT ≤ 60 minutes would reduce impacts to ratepayer costs.
Fourth, the CAISO should study impacts to BCR payments. Department of Market Monitoring noted that, “the net effect of fast-start pricing on BCR is not clear. The effect on BCR would depend on the increased revenues to resources receiving BCR in the base case, net of the increased costs to resources buying energy in real-time that may have BCR payments created or increased.”[15] The ability of FSP to decrease BCR payments has not been studied in the analysis, though the CAISO discussed that BCR costs would not be significantly offset by FSP.[16] Therefore, Cal Advocates requests that the CAISO develop analysis of the impacts of FSP on BCR payments.
[1] Cal Advocates’ Comments on Working group session 16 - Fast-Start Pricing, May 10, 2024 at 1. Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/0591bdde-d87a-425f-8dcc-df8468dd66b7#org-c51db9ae-5741-470f-9861-e268b1c697ee.
[2] Department of Market Monitoring Comments on Price Formation Enhancements: Fast-Start Pricing Analysis, May 10, 2024 at 2. Available at: https://stakeholdercenter.caiso.com/Common/DownloadFile/23e2f07f-de3c-4a64-839a-0e8ea5aae1d6.
[3] Price Formation Enhancements: Analysis on Fast Start Pricing, April 8, 2024 (April Analysis) at 71. Available at: https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Apr8-2024.pdf.
[4] Assuming a 60-minute startup time. April Analysis at 72-73.
[5] Including the highest differences relative to if prices were calculated using system-wide dispatch. April Analysis at 75-79.
[6] More skew indicates more price increases due to FSP. April Analysis at 80-86.
[7] April Analysis at 87-98.
[8] Also referred to as “minimum run time.”
[9] For example, the incremental costs per month for using STUT ≤ 60 minutes are $25,000 to $29,000 higher than using STUT ≤ 30 minutes across all three amortization methodologies. April Analysis at 74.
[10] April Analysis at 9.
[11] April Analysis 17.
[12] April Analysis at 50.
[13] April Analysis at 51.
[14] April Analysis at 9 and 17.
[15] Department of Market Monitoring Comments on Price Formation Enhancements: Fast-Start Pricing Analysis, May 10, 2024 at 2. Available at: https://stakeholdercenter.caiso.com/Common/DownloadFile/23e2f07f-de3c-4a64-839a-0e8ea5aae1d6.
[16] Price formation Enhancements Working Group Recording, April 8, 2024 at 2:08:40-2:10:20. Available at: https://www.youtube.com/watch?v=4ULeI0pAo20&t=7714s.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
Cal Advocates has no comments at this time
CESA
Submitted 10/08/2024, 03:23 pm
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
The California Energy Storage Alliance (CESA) appreciates the opportunity to provide comments on the price formation enhancements discussion paper. CESA does not support the premise that scarcity pricing and balancing authority area (BAA) level market power are linked. CAISO’s continued position that there is a quid pro quo involved with developing a scarcity pricing design and enforcing system market power is misguided and inconsistent with principled market design. The market efficiency from including scarcity pricing should be considered and designed independent of market power considerations. The need to include or not include system market power in the CAISO market design should be based on a demonstration of system wide un-competitiveness, not whether or not the CAISO has a scarcity pricing mechanism in place.
CESA is perplexed that it will take until May 2025 for CAISO to develop a straw proposal on scarcity pricing and BAA-level market power given that 18 stakeholder working group meetings have been held since August 2023. Through the working groups, stakeholders have highlighted that absent an operating reserve demand curve in the CAISO market, energy prices cannot gradually rise above marginal cost before pricing is set by penalty parameters. Likewise, the CAISO proposed a change in market power mitigation to address the over mitigation of WEIM BAAs when multiple BAAs are isolated from the remainder of the WEIM footprint. Both of these proposals should be the starting point of the CAISO straw proposals which should be completed no later than March 2025.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
The foundation of the scarcity pricing design is an operating reserve demand curve that results in energy prices rising gradually above marginal cost prior to prices being set by penalty parameters. The formulation of the operating reserve demand curve will need to consider the interactions with the imbalance reserve demand curve, flexible ramping product demand curve, and ancillary services scarcity reserve demand curve. In addition, the scarcity pricing design should consider if a new product is needed such as an hourly replacement reserve product, a latent reserve product, or hourly uncertainty product. If a new product is needed, it will be important to understand how that changes the requirements of other products currently and planned for in CAISO’s day-ahead and real-time market.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
CAISO has demonstrated that the current market power mitigation design in WEIM is over-mitigating non-CAISO BAAs in the WEIM footprint. Automatically triggering market power mitigation when transfer limits into a WEIM BAA is binding was appropriate at the start of WEIM given each BAA was dominated by a single large vertically integrated utility. However, as the WEIM footprint grew and access to WEIM transfers expanded, it is not appropriate to automatically apply mitigation when a transfer limit is binding into a group of WEIM BAAs if the group of WEIM BAAs would have passed the CAISO’s three pivotal suppliers test.
The issue with WEIM market power mitigation is independent as to whether the CAISO balancing authority is structurally competitive and if not, should system market power mitigation measures be developed. CAISO should perform an updated study to determine if the CAISO balancing authority area is competitive or not. If not, CAISO will need to consider how to develop default energy bids for imports without undermining access to external supply during periods of tightness for west-wide energy supply.
The CAISO should be included in the WEIM/EDAM market power mitigation design changes. If it is determined that the CAISO is structurally uncompetitive, then mitigation should apply consistent with other WEIM/EDAM balancing authorities when transfer limits are binding. If the group of balancing authority areas does not pass the three pivotal suppliers test, then all BAAs should be mitigated on a system wide basis. If CAISO’s BAA is deemed competitive, then when a group of WEIM/EDAM BAAs with binding transfer limits includes the CAISO BAA, no mitigation should be triggered for the group.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
The CAISO should facilitate a frank discussion with stakeholders on whether the benefits of fast start pricing outweigh the cost of added market complexity and the need to redesign the flexible ramping product. CAISO’s analysis showed minimal changes in prices by introducing fast start pricing. A recent report published by Brattle comparing the Markets+ design with EDAM quoted conclusions from the independent market monitors of ISO/RTOs with fast start pricing that fast start pricing had a de minimus impact on market prices and PJM market monitor highlight it has distorted market efficiency. Also, CESA is unaware of any resource in the WEIM/EDAM footprint that is currently being modeled in WEIM using the constrained output generator model.
CESA is concerned that absent a direct conversation about whether fast start pricing is a priority or not for the WEIM/EDAM design, stakeholders and the CAISO will continue to waste valuable resources until the May 2027 WEM governing body decision. Since major market design changes are not implemented immediately prior to summer, the earliest fast start pricing could be implemented is Fall 2028. Given the environmental goals of many states in the West, fast start pricing may be trying to solve a problem of the past versus creating a market design for the future.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
CAISO should discuss more fully with stakeholders the needed changes to the existing flexible ramping product to implement fast start pricing.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
No comment.
Pacific Gas & Electric
Submitted 10/10/2024, 09:44 am
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
PG&E supports the timeline outlined in the Discussion Paper. We believe the proposed schedule is realistic for straw proposal of BAA-Level MPM and Scarcity pricing, considering the busy implementation in 2025. Additionally, PG&E endorses the bi-weekly meeting schedule for Price Formation Enhancements discussed by CAISO in the September 30th webmeeting. We emphasize the importance of close collaboration and early engagement of stakeholders in developing the straw proposal.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
PG&E finds proposed scope for Scarcity Pricing comprehensive and has no additional elements to suggest. We support CAISO’s efforts to explore solutions that promote transparent and accurate pricing signals, including the latent supply curve and longer-term reserves as proposed in the second element.
PG&E also supports CAISO’s plan of addressing fundamental issues in future regional markets, particularly as outlined in the first element, “Evaluate enhancements to ancillary service procurement in the real-time market
- Considering enhancements to ancillary service deliverability and full re-optimization of ancillary services in real time
- Procuring ancillary services in RTD
- Exploring SRD-like mechanisms for WEIM areas outside of the CAISO BAA that don't procure ancillary services through the market”
While PG&E acknowledges the importance of these issues, we emphasize the significant amount of work required. We respectfully request the CAISO to provide a constructive working plan with detailed presumptions and specifics. For instance, the first element, PG&E believes the assumption of EDAM participation level is crucial for studying these items, as it determines the transacted A/S in day-ahead market flowing into real-time. Additionally, we seek CAISO’s insights on whether the first element can be studied after the other three elements in developing a long-term solution. Identifying solutions for the second to fourth elements may take less time and could address the current market issues more promptly.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
PG&E finds the scope proposed for MPM comprehensive and supports CAISO’s objectives in addressing problem statements listed in the second to fourth elements.
Regarding the first proposed element, the Grouping Method, PG&E appreciates CAISO’s efforts in quickly identifying a solution direction and making good progress. However, PG&E requests clarification on whether CAISO remains open to other approaches, as we believe there may be solutions more integrated with the DCPA approach. Specifically, PG&E requests clarifications on the following questions, which may help in identifying alternative solutions:
- Is the triggering condition for BAA-level MPM the bindingness of BAA level power balance constraints?
- How are BAA level power balance constraints formulated? Does it include transfers (and import and export)?
- How is the pivotal test formulated? Are transfers included as pivotals and in the demand denominator?
- How is the competitive LMP constructed for the resources within a BAA?
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
PG&E supports CAISO’s prioritization of MPM and Scarcity Pricing over Fast-Start Pricing.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
PG&E understands that the mechanism for fast-start pricing is still under development. We are concerned about the current approach affecting prices of Fast-Start resources in both their binding intervals and advisory intervals, which differs from treatment of other resources in the Multi-Interval Optimization (MIO) In MIO, prices are only financially binding for binding intervals; resources do not receive payments induced from prices in advisory intervals. PG&E believes it is critical to ensure consistent treatment for fast-start resources and conventional resources within the same market. If CAISO retains the current approach in future Fast Start Pricing, it will be necessary to enhance the overall settlement process in MIO for all resources.
Additionally, PG&E understands that storage, particularly batteries, are not considered fast-start resources, since they do not incur unit commitment costs. PG&E requests the CAISO to confirm this understanding.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
PacifiCorp
Submitted 10/14/2024, 09:19 pm
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
PacifiCorp requests the scarcity pricing and BAA-level market power mitigation topics are worked on separately, rather than concurrently as proposed in the phase 2 timeline. In PacifiCorp’s opinion, part of the reason the policy development for bidding above the soft offer cap was successful in a short timeline was because it was the only topic stakeholders needed to focus on for multiple meetings. Similarly, the scarcity pricing sprint led to fruitful discussions because stakeholders were able to maintain focus on a single topic. It can be difficult to switch between topics while developing policy. Therefore, PacifiCorp believes it would be best if stakeholders and the CAISO worked on BAA-level MPM first and then moved on to scarcity pricing once there is progress made on policy development for BAA-level MPM. This also will reduce strain on stakeholders, like PacifiCorp, that consult internally with subject matter experts before responding to comment requests.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
No, the scarcity pricing elements highlighted in the discussion paper cover the problem statements developed by stakeholders and the CAISO.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
No, the MPM elements highlighted in the discussion paper cover the problem statements developed by stakeholders and the CAISO.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
PacifiCorp recommends the CAISO stagger when stakeholders will be working on policy development for scarcity-pricing, BAA-level MPM, and fast-start pricing. Stakeholders have clearly communicated that scarcity pricing and BAA-level MPM are higher priority than fast-start pricing, so those topics should be discussed first. In PacifiCorp’s opinion, price formation workshops have been more successful when stakeholders are able to focus on one topic at a time. The scarcity pricing problem statement development and policy changes to bidding rules are evidence of this. PacifiCorp believes future policy discussions should be structured similarly rather than rotating between topics, like what was done at the beginning of the price formation initiative.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
Before stakeholders begin to discuss fast-start pricing design elements, PacifiCorp believes there needs to be more discussion on the benefits and consequences of implementing fast-start pricing in the WEIM so that stakeholders can decide whether fast-start pricing is warranted. In particular, there needs more discussion on how fast-start pricing may interact, positively and negatively, with the multi-interval optimization and flexible ramping product. In PacifiCorp’s opinion, there are still fundamental questions about whether fast-start pricing is needed in the WEIM that should be answered before stakeholders begin working on design elements.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
Public Generating Pool
Submitted 10/14/2024, 10:05 pm
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
As framed, the joint working group process including the Scarcity Pricing and updates to the BAA-Level Market Power Mitigation Framework makes sense, and the timeline seems sufficient to enable a thorough stakeholder process. PGP agrees with other stakeholders that suggested a willingness to expedite portions of the policy or break the policy into phases to the extent that it reduces the complexity of any resulting policy proposal(s) and/or facilitates faster development of policy in some areas. A planned implementation after EDAM go-live indicates the ongoing need for forward-looking, potentially theoretical discussion about how these concepts will work within EDAM, the EIM, and the CAISO concurrently, and which may need to address complex topics related to the different market participation frameworks of various regional entities. While this can make some concepts difficult to analyze using historical data, we encourage stakeholders and CAISO staff to embrace creative solutions and focus on design compatibility with the market, products, and services (ex. Day Ahead Market Enhancements concepts, DA Resource Sufficiency Evaluation and penalty mechanisms, Energy Assistance, Recent Price Cap logic enhancements, and other recent/developing design constructs) that will be in place when this can be implemented. Based on the materials presented, it appears this is the intent, but this may involve policy from this effort impacting and/or interacting with existing market products. This may require some review of these current parameters (as designed, and as performing, where available), which could involve additional time and education to fully scope the solution set. This may indicate that the BAA MPM constructs are “easier” to tackle and translate to the future design and could be designed first while the group enhances the suite of potential solutions and coalesces on the appropriate scope for the scarcity topic.
As we progress in the policy development phase, having a more detailed roadmap of topics and when they will be covered can help participants to prepare and engage effectively, even if the schedule needs to be tentative to maintain flexibility in the process. For reference, the level of meeting planning that was provided last year for the scarcity sprint and fast start analysis was sufficient to improve preparedness and maintain the appropriate grounding in topics at hand for the meetings, and additional detail would only add to the effectiveness of this concept. PGP appreciates the efforts from facilitators to provide this information and found it to be a meaningful improvement to the stakeholder process that we would like to see continue in this initiative. To the extent that a topic is building upon education materials that have already been covered in the initiative, we recommend including reference to relevant materials and recordings in the workplan to avoid repeating too much material. We hope these suggestions can help stakeholders come prepared and feel momentum and progress in each session, and help the group to stay on-track with the proposed timelines.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
-The topic of mechanisms for prices to rise ahead of shortages seems like it may have interactions with other AS-like products in the market such as the FRP product or IR, PGP would like to learn more about these potential interactions. Similarly, discussion so far also had minimal focus on signals that may exist in the EDAM or EIM constructs that could be considered scarcity signals and apply to other BAAs, including the sign of RSE failures or calls on Assistance Energy.
-Another scoping discussion that was touched on that may warrant further dialogue is the need for DA scarcity signals vs just RT. If the issue can be narrowed to RT only (including the role of HASP and intertie trading), this may simplify the scope and potential interaction with other market products and participation frameworks while still being able to address core concerns. As noted by stakeholders, the varying participation models (CAISO, EDAM, EIM) add complex elements that are evolving, and while narrowing to RT only does not eliminate the need to think through any relationship to the DA market, it may still simplify the design under the current available frameworks.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
-To the extent that additional analysis or discussion can limit scope items, these topics should be pursued as soon as possible. PGP recommends discussion of a threshold to test for sufficient structural competitiveness within the CAISO footprint in advance of further analysis. How many hours or intervals with non-competitive conditions are tolerable and what is the cost of this small amount of non-competitive conditions? Could this test later be applied to other BAA areas if they gain sufficient market participation within their BAs to eliminate the need for the BAA-level tests? Similarly, if a level of tolerance for outstanding over or under-mitigation under the new grouping approach can be established up front, it may help to determine how to balance complexity and accuracy in a reasonable way.
-Further analysis on the effects of mitigation during off peak/low price periods may also be warranted. If these resources are not setting price, is there any change in market outcomes from allowing in-line mitigation during these circumstances? Are most resources in this category opportunity-cost based resources? Is it improper to enable a strong “buy”, “charge” or “fill” signal? What are the repercussions (if any) of triggering mitigation in these circumstances? Does this have an impact on price formation? How does this work in other markets that use an in-line mitigation approach, and in what ways is the CAISO unique in this regard?
-While some stakeholders, including PGP members, are interested in exploring the value in changes to a “Conduct and Impact” based mitigation framework, our understanding is that most impact-based mitigation frameworks still begin with a competitive path assessment. Analysis of whether the updates to the BAA mitigation framework would still require implementation of a BA grouping approach under an “impact” framework to accurately represent the competitive paths would be a helpful scoping item.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
PGP recognizes that stakeholders are less aligned on the need for Fast-Start as compared to the topics of scarcity and MPM. We agree with the summary of the outstanding analytical tasks that have been identified, including exploration of the compatibility with the multi-interval optimization, interaction with improved pricing logic for opportunity cost resources, and interaction with other products that are important for price formation, including the flexible ramp product, which may need continued design evolution. The longer times between meetings last year while analysis was taking place enabled the stakeholders to hone in on other urgent issues. We recommend focusing on these analytical tasks early so that the group can continue to use existing momentum on the scarcity topic without distraction. The sprint format used last year, while sometimes creating too many comment opportunities, enabled stakeholders to keep the conversation moving and reduced the need for review at the beginning of every meeting. PGP would like to continue to maximize these efficiency approaches to make substantive progress in Scarcity while we await further analysis to guide the prioritization and scope of the Fast-Start topic.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
PGP is interested in Fast-Start from the perspective of improving price signals for flexible resources. To the extent that the evolving resource mix, flexibility products, and the maximal use of the multi-interval optimization to gain market efficiency may be undermined by or incompatible with Fast-Start pricing, or to the extent that addition of a pricing run to an already complex and computationally intensive market clearing process is infeasible, these interactions should be analyzed and any related feasibility challenges should be identified as soon as possible.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
PGP found the Discussion Paper and Stakeholder Recommendations summary to be comprehensive, accurate, and useful for documenting where the dialogue has been, and where we still need to dig deeper. This initiative has a significant scope and these checkpoints are a valuable part of the process. We thank the CAISO staff for the extensive effort and flexibility to respond to issues in the process so far, and look forward to continuing to participate in these working groups to move this policy development forward.
Seattle City Light
Submitted 10/14/2024, 05:52 pm
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
Seattle City Light (City Light) appreciates the thoughtful approach that CAISO is taking to address these issues and supports building on the collaborative and iterative model that was used for the EDAM stakeholder approach. The proposed timeline anticipates taking a final proposal to the Governing Body and the Board of Governors in November 2026. To the extent possible, City Light would support more frequent meetings if it could support the completion of a Final Proposal sooner in the timeline. City Light is cognizant of the fact that EDAM will be going live in spring of 2026 and, due in part to this effort, there may be resource constraints driving the November 2026 timeline. However, if EDAM go-live is not a constraint on the timeline for this effort, then City Light would appreciate an exploration of moving up the timeline, in order to arrive at implemention of any changes as soon as possible.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
City Light does not have any additional suggestions for elements that should be included in the scope.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
City Light does not have any additional suggestions for elements that should be included in the scope.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
Similar to the comments above regarding the timeline for Scarcity Pricing/BAA-Level Market Power Mitigation, City Light supports, to the extent it is possible, any efforts that could be made to arrive at a solution for Fast-Start Pricing more expeditiously. City Light supports an approximate start date for the working groups kicking off in Q4 of 2024. The current timeline anticipates a year and a half from the development of a Discussion Paper to a Final Proposal, with the Final being presented to the Governing Body and Board of Governors in May 2027. It is understood that this work will be performed in parallel with Scarcity Pricing/BAA-Level Market Power Mitigation and that this element of the initiative will have a longer timeline based on the work performed to date. While City Light understands more time is needed for this effort, the propoal to present a final proposal in June 2027 allows for a considerable length of time. Assuming it is as approved at that time, there would need to be additional time before implementation, meaning a solution likely may not be in place until 2028. City Light would support more frequent meetings in an attempt to condense the timeline with the goal of arriving at an implementable solution in 2027.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
The four elements currently identified (definition of qualifying resources, an amortization methodology, interactions with other market features, and the feasibility of the analysis) coupled with the data that has previously been analyzed (price changes and regional variations) should provide a solid foundation for being able to effectively address this topic. Additionally, we support the suggestion from the Public Generating Pool (PGP) encouraging identification of any issues that might be specific to the CAISO markets that could create issues with development and implementation of fast-start pricing.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
City Light appreciates the work that CAISO staff put into the development of the Discussion Paper and Stakeholder Recommendations, as well as CAISO Staff’s efforts to hear, respond to, and incorporate stakeholder feedback in the development of the proposal for the scope and timelines for these initiatives. City Light also appreciates that the document provides a useful summary of the process and analysis completed so far. This sort of comprehensive documentation of issues and discussion serves as a useful launching point for the remainder of the process.
Six Cities
Submitted 10/14/2024, 03:20 pm
Submitted on behalf of
Cities of Anaheim, Azusa, Banning, Colton, Pasadena, and Riverside, California
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
Six Cities’ Comments: The Six Cities generally support the proposed timeline for the Scarcity Pricing/BAA Level Market Power Mitigation issues. In particular, the Six Cities support prioritization of those issues relative to further consideration of fast-start pricing.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
Six Cities’ Comments: The Six Cities support consideration of the topics listed under Section 4.1.2 at pages 34-37 of the September 5, 2024 Discussion Paper in the following categories:
- First Box (pages 34-35) - potential enhancements to Ancillary Services procurement, in particular, potential benefits and costs of re-optimizing all Ancillary Services in the real-time market.
- Second Box (pages 35-36) – potential development of mechanisms to allow gradual increases in prices as scarcity conditions approach, including consideration of a thirty-minute reserve product and related requirements applicable to the entire WEIM area.
- Fourth Box (pages 36-37) – development of measures to address counter-productive impacts on prices as a result of triggering out-of-market, emergency sources of supply.
In addition to the topics listed in the First, Second, and Fourth boxes under Section 4.1.2, the Six Cities also support prioritized consideration of (a) potential benefits and costs of extending the look-ahead period for real-time optimization, (b ) potential constraints on use of Ancillary Service awards procured for the CAISO BAA to support energy exports in the real-time market, to the extent that asymmetries remain with respect to Ancillary Services procurement for the CAISO BAA versus other BAAs, and (c) development of a circuit breaker mechanism to prevent unreasonably extended scarcity pricing periods.
Until the CAISO has implemented any measures relating to the topics identified in the First, Second, and Fourth boxes and assembled data on the effectiveness of such measures, the Six Cities urge the CAISO to defer consideration of proposals for further increases in administrative penalty prices or offer caps as described in the Third Box under Section 4.1.2 (at page 36). The Six Cities continue to strongly oppose consideration of Value of Lost Load (“VOLL”) estimates as a basis for pricing. The VOLL concept does not appear to be limited to any particular market conditions that are reasonably reflective of scarcity. It is also untethered to any notion of assuring just and reasonable rates for consumers, does not address or consider conditions in which the pricing of supply should reflect the cost to provide that supply, and is vague with respect to the concept of valuing avoided demand curtailment. On this latter point, for example, who determines the value of such avoided curtailment—is the intent to reflect the value of avoided curtailment as determined by end-users or particular classes of end-users? Demand response? Load serving entities? The CAISO?
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
Six Cities’ Comment: The Six Cities support consideration of the topics described in Section 4.1.1 of the Discussion Paper ( at pages 33-34) and have no recommendations for additional topics at this time.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
Six Cities’ Comments: Based on the analyses discussed during Working Group Session 16, there does not appear to be a compelling case for pursuing development of fast-start pricing within the CAISO markets at this time. The Six Cities would prefer that the CAISO defer further consideration of fast-start pricing policy changes until after DAME/EDAM implementation, so that additional analysis of the need for and impacts of fast-start pricing can be completed once the DAME/EDAM reforms are incorporated into the CAISO’s markets. Given the elements of the proposed DAME/EDAM redesign and the expectation of additional market participants bringing greater resource diversity to the day-ahead market, there may be greater convergence between the day-ahead and real-time markets and fewer overall concerns regarding price formation, and thus there may be a reduced need for fast-start pricing. Market outcomes under DAME/EDAM may also shape the elements of a fast-start pricing policy in the event the CAISO and stakeholders determine a fast-start pricing program is needed post-implementation.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
Six Cities’ Comments: In addition to the topics described in Section 4.2.1 of the Discussion Paper (at pages 38-39), further consideration of fast-start pricing should include a thorough analysis of estimated benefits versus costs of implementation, including consideration of impending DAME/EDAM design changes.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
Six Cities’ Response: The Six Cities have no additional comments at this time.
Southern California Edison
Submitted 10/14/2024, 01:46 pm
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
SCE appreciates the effort that CAISO has put into developing a discussion paper that summarizes all topics covered in the previous 18 working group sessions and for providing stakeholders with the opportunity to submit comments.
SCE believes that CAISO’s proposed timeline of approximately two years for the Scarcity Pricing/BAA-level Market Power Mitigation proposal development is too long. An initiative of this size, unlike the Extended Day-Ahead Market (EDAM), should not warrant a project timeline of more than a year. To put this into perspective, the EDAM Straw Proposal was released in April 2022, and the Board of Governors/Governing Body (BOG/GB) approval was in February 2023, taking less than a year in total. The proposed timeline for the PFE Scarcity Pricing/BAA-level MPM, from developing the straw proposal to BOG/GB approval, is two years. Such a lengthy initiative may not be an efficient use of stakeholders’ time, especially with organizations preparing for EDAM go-live and engaging with other ongoing market initiatives. The extended timeline leaves room for ineffective discussions and scope creep, introducing new ideas that do not address any specific problem but rather seek one.
SCE believes the best use of stakeholders’ time and support should be dedicated to Market Power Mitigation (MPM). The two areas of MPM that should be further explored are the BAA grouping methodology and determining whether the CAISO BAA should be included in the BAA-level MPM. SCE recommends prioritizing these areas before Scarcity Pricing and Fast Start Pricing. If possible, the MPM initiative should be aligned with the EDAM go-live, lasting no more than one year. SCE recommends that CAISO delay both Scarcity Pricing and Fast Start Pricing until after the EDAM go-live, when more is known about the new market.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
SCE recommends that CAISO narrow its scope for Scarcity Pricing. Currently, there are too many ideas without any major progress on any specific issue. Any future Scarcity Pricing design should be considered within the context of the WEIM and EDAM, not just the CAISO BAA market. The goal should be to develop a Scarcity Pricing design that is triggered only when minimum reserves and capacity for the wider footprint cannot be procured. This raises questions about whether existing designs for energy assistance to cure deficiencies and impose surcharges in the WEIM and EDAM, already address this need.1 SCE urges CAISO to explore how a new Scarcity Pricing design would coexist with these existing designs.
1 See Failure to Pass the EDAM RSE, p. 71- 73 of the Extended Day-Ahead Market - Final Proposal available at: https://stakeholdercenter.caiso.com/InitiativeDocuments/FinalProposal-ExtendedDay-AheadMarket.pdf
See Section 5.1 Curing Resource Undersupply Conditions, p. 23- 28 of the EIM Resource Sufficiency Evaluation Enhancements Phase 2 – Final Proposal available at: https://stakeholdercenter.caiso.com/InitiativeDocuments/Final%20Proposal%20-%20WEIM%20Resource%20Sufficiency%20Evaluation%20Enhancements%20Phase2.pdf
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
See question #1.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
SCE does not have any comments at this time.
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
SCE does not have any comments at this time.
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
SCE does not have any comments at this time.
WPTF
Submitted 10/15/2024, 09:29 am
Submitted on behalf of
Western Power Trading Forum
1.
Do you agree with the proposed timeline for Scarcity Pricing/BAA-Level Market Power Mitigation? If not, what modifications would you suggest?
Market Power Mitigation (MPM) and Scarcity Pricing should not be sequenced in terms of priority. The Western Power Trading Forum (WPTF) believes it is essential that these two topics progress in tandem. They are intrinsically linked, as over-mitigation can lead to unintended consequences, which are exacerbated without a robust scarcity pricing mechanism in place. Furthermore, design decisions on one topic can impact the design of the other. WPTF also seeks assurance that the California Independent System Operator (CAISO) will not sequence issues within one of these topics, as this approach can lead to inefficient and suboptimal market design. For instance, moving forward with modifications to the grouping approach should not be prioritized simply because it has been discussed more. WPTF understands the perception of progress for the BAA-level grouping approach due to the timing of its initial discussions, but this does not render it low-hanging fruit. The progress rating is merely a reflection of when each issue was originally raised and discussed in the working group process. The grouping approach was initially brought up during EDAM discussions, granting it a higher progress rating, while other triggers like an impact test were only recently introduced following an analysis presented towards the end of the meetings.
2.
Are there additional Scarcity Pricing elements you believe should be included in the scope for Phase 2? Please explain.
WPTF would like CAISO to confirm which policy initiatives will continue discussions on policy issues raised in the working group meetings but deferred. WPTF is seeking clarity from CAISO on which policy initiatives will revisit and continue discussions on critical issues that surfaced during working group meetings but were set aside. A primary concern revolves around the capability for storage resources to bid above the soft offer cap in the day-ahead market. This ability is crucial as it allows these resources to more accurately reflect their operational costs and economic realities. While CAISO introduced an interim solution on August 1, 2024, allowing such bids in the real-time market, the extension of this capability to the day-ahead market was unexpectedly withdrawn at the last moment. This removal was contrary to prior expectations and commitments, and CAISO had assured stakeholders that this matter would be revisited. The urgency for this extension stems from the need to align the bidding flexibility between different market timelines to ensure that storage resources can fully engage with their financial and operational parameters across the board.
In addition, the ability for Proxy Demand Resources (PDR) to bid above the soft offer cap was not included in the fast-tracked policy changes, even though there was acknowledgement of their similar needs. These resources face similar cost structures and operational constraints as storage resources, making it worthwhile to re-evaluate their position in the current market framework. Addressing this oversight is vital for achieving a balanced approach to market participation, allowing PDR to compete effectively and fairly alongside other resource types.
Moreover, enhancing the reference level adjustment process is pivotal for resources that have opportunity costs, such as storage and PDR. This process enhancement would enable these resources to use existing mechanisms to reflect their costs in the market accurately when they surpass the soft offer cap. Such enhancements would play a critical role in ensuring that the market design truly reflects the cost realities these resources face, thus avoiding distortion and inefficiencies that can arise from misaligned pricing signals.
Given the commitments CAISO has made to its stakeholders, including the Board of Governors (BOG) and the Governing Body, WPTF respectfully urges CAISO to clearly specify which current policy processes will address these complex and pressing issues. Clarifying this pathway will not only fulfill previous commitments but also provide stakeholders with the needed transparency and confidence in CAISO’s policy development agenda. It will ensure that the market evolves in a manner that accommodates the economic realities of all resource types, thereby promoting a fair, efficient, and reliable energy market.
3.
Are there additional MPM elements you believe should be included in the scope for Phase 2? Please explain.
WPTF acknowledges CAISO's initiative to explore a more comprehensive reform of the Market Power Mitigation (MPM) framework. However, we approach this development with a degree of skepticism on a few elements. Our main concern lies with fact that the CAISO has yet to produce a study that supports the idea of the CAISO BAA no longer being competitive at the system level. We have asked for such a study to be conducted for well over a year now and have yet to see any commitment from the CAISO to undertake such an effort. Thus we would like to see within scope of this effort, the CAISO’s commitment to conduct a comprehensive study of the CAISO’s BAA competitiveness at the system level, taking into account the expected capacity build out at time of potential implementation.
We also have concerns with the current reliance on triggers designed for Default Cost Proxy Agreement (DCPA) evaluations, which we believe may not be well-suited for System/BAA level MPM assessments. In previous discussions, we have expressed doubts about whether such an approach adequately captures the unique challenges and dynamics inherent in System/BAA level market environments. The existing triggers, by design, tend to be broad and may overlook subtleties in market behavior, potentially leading to unwarranted mitigation actions. This could stymie competitive strategies and hinder economic efficiency rather than genuinely addressing market power concerns.
The CAISO’s recent data analyses further suggest discrepancies between the present trigger mechanisms and the actual conditions where System/BAA level MPM testing is genuinely needed. This perceived misalignment casts doubt on the framework's effectiveness in distinguishing between true market power abuses and competitive market behavior, raising questions about whether current practices might lead to unnecessary and counterproductive interventions.
As CAISO considers its path forward, we hope for a re-evaluation of these triggers to ensure that they are grounded in empirical evidence and a comprehensive understanding of market realities as well as reasonable consideration of other mitigation frameworks, such as a conduct and impact test. WPTF remains cautiously optimistic that ongoing discussions will address these issues and foster an MPM strategy that better aligns with the principles of market efficiency and reliability. We remain engaged and prepared to contribute constructively to this important dialogue, advocating for strategies that help preserve and foster the key fundamentals of a competitive market and the benefits it provides all market participants.
4.
Do you agree with the proposed timeline for fast-start pricing? If not, what modifications would you suggest?
5.
What specific design elements related to fast-start pricing do you believe are crucial to include in the upcoming working group discussions?
6.
Please provide any additional feedback on the proposed scope items and timeline of Phase 2 of the Price Formation Enhancements initiative.
