Comments on Final Proposal

1. Please provide a summary of your organization’s comments on the final proposal:

CESA mostly supports the direction the ISO has taken with regards to the development of a default energy bid (DEB) framework for energy storage assets. Moreover, CESA appreciates the careful consideration CAISO staff has given to the recommendations made by the Market Surveillance Committee (MSC). In these comments, CESA focuses on the following areas:

• The ISO should reconsider the energy cost assumptions included in the DEB Final Proposal.
• The ISO should consider alternatives to using the day-ahead clearing price as the opportunity cost for the real-time storage DEB.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

CESA supports with caveats the proposed modifications to the DA formulation of energy storage DEBs. As noted by the MSC, it is reasonable to simplify the DA DEB formula given the DA market currently implicitly assumes opportunity costs by scheduling resources to charge during the lowest-priced hours and discharge during the highest-priced hours. While this modification is fair, it overlooks other issues with the current DEB formulation. In particular, as CESA has noted previously, the ISO has failed to show actual correlation metrics that support the assumption that energy storage resources will charge during the periods with the lowest prices. This assumption does not integrate the fact that energy storage resources may participate by providing different products and services within the ISO’s markets. Ignoring this fact might overlook the occurrence of apparently “uneconomic” charging; that is, charging during intervals that are outside the ones used by the DEB framework. Thus, CESA recommends the ISO re-evaluate this assumption as it could significantly underestimate the costs incurred by energy storage resources, resulting in an unfair calculation of DEBs.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

CESA supports the MSC’s recommendation to grant MPM exemptions for small energy storage assets. Given the MSC’s recommendation, the ISO has incorporated into the DEB Final Proposal a provision that states storage resources less than 5 MW and whose ultimate parent company is not a net-supplier in the ISO market will not be subject to market power mitigation. CESA agrees with this recommendation since small storage resources are not likely to exercise market power and could be unduly burdened by the application of DEBs.

4. Provide any additional comments on the final proposal for the Storage Default Energy Bid:

It is relevant to note that the current formulation of the Real-Time (RT) DEB is likely to result in significant efficiency losses due to the assumption that an n hour storage resource will face an opportunity cost equal to the nth highest day-ahead price. Scheduling Coordinators (SCs) are very likely to be able to forecast real-time prices with much greater accuracy than the simplified assumption that RT prices are equal to those of the DA forecast. Under the proposed DEB, a 4-hour battery might be forced to discharge at a price of, say, $60/MWh, because the 4^th highest day-ahead price is only $55/MWh. However, the SC might be forecasting that the real-time price will rise to $100/MWh. If the SC is correct, the grid will be operating inefficiently.

While the general issue that a DEB should not be below a resource’s actual marginal cost applies to all resources, the CAISO should recognize energy storage resources are a special case; as the complexities the ISO has faced within this initiative demonstrate. As such, CESA respectfully requests that the real-time DEB for energy storage not be implemented as proposed and be given further attention by the CAISO and stakeholders.

1. Please provide a summary of your organization’s comments on the final proposal:

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

During the October 29^th stakeholder call, PG&E reiterated its previous comments which opposed the removal of the opportunity cost component in the Day-Ahead (DA) default energy bid formula. Based on feedback from the CAISO, PG&E understands that without an opportunity cost component, the potential risk/cost of a storage resource being mitigated and then receiving a schedule to excessively cycle (e.g. more than once per day) should be captured in the variable cost component.

Given this understanding, PG&E confirmed with the CAISO that the expectation is for storage resources to include higher cycling assumptions (i.e. two cycles per day) in their variable cost component calculations and submissions. This conclusion is consistent with the language found on Pages 8-9 of the Storage Default Energy Bid Final Proposal (excerpt below):

“In this proposal, the ISO updates the proposed calculation for variable costs, including cycling costs, to correspond to a value that represents operating a storage resource beyond the specified range of performance that the resource was designed for. This value will be submitted by market participants to the CAISO and vetted. For example, this might be the cost to operate a resource beyond one cycle for most of the new storage resources that may likely be built on the system over the next few years.”

However, further discussion about what the source of information for the variable cost would be did not clarify how operations beyond one cycle per day would affect the calculation. CAISO requested documentation of the replacement costs of battery modules, rather than any costs that would reflect accelerated degradation costs (most of which would presumably take the form of lost opportunity costs in any case).

The other cost component of the proposed DEB calculation, the cost of charging, is expected to be based on historical charging costs applied to estimate the costs of charging in the four contiguous lowest cost hours of the day.  PG&E requests more clarification of how such an estimate would be performed so as not to underestimate the cost of charging and result in a DEB for use in a given market that is not in fact below the operating costs of a battery on that day.  In particular, charging costs on weekends are unlikely to be a valid basis for estimating charging costs on weekdays; charging costs on blue sky days are likely to underestimate charging costs on succeeding cloudy days; and charging costs when costs are negative are likely to zero out charging costs in the day ahead calculation on the first succeeding day when charging prices are positive.

An additional topic that PG&E believes CAISO should address explicitly is how it will plan to modify the DEB calculation for batteries with charging times of eight hours or greater, substantial numbers of which are already proposed to be added to California’s resource mix.  Because such batteries will have frequent carryover of storage from preceding and to following days, a single day evaluation of costs is likely to be incorrect under volatile market conditions.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

PG&E’s concerns with the exemption of small resources are that such an exemption will result in batteries designed to meet the exemption rather than system needs (if the opportunity cost of mitigation appears to be significant); and more substantively, that aggregates of small resources will be controlled by single entities, who can therefore exert market power without triggering mitigation.  We ask that these concerns be addressed explicitly in the final proposal, and suggest that at least in the latter case, control of multiple batteries as well as their sizes should determine mitigation exemption rules.

4. Provide any additional comments on the final proposal for the Storage Default Energy Bid:

A discussant brought up the question of how an alternative DEB would be negotiated in case of frequent mitigation.  PG&E supports explicit consideration of frequent mitigation in the DEB proposal, and in particular how DEB’s may be renegotiated in cases where frequent mitigation is causing obvious economic harm (for example, cases in which total day ahead revenues are negative but due to mitigation a battery is not eligible for bid cost recovery based on its own bid costs).

1. Please provide a summary of your organization’s comments on the final proposal:

SCE is supportive of the proposed day-ahead default energy formulation whereby the opportunity cost consideration has been eliminated due to the simultaneous optimization for all 24 hours in that market. The decision to not subject offers to mitigation when those offers represent requests to charge energy storage resources at market clearing prices below $0/MWh is also supported. When this attractive incentive exists for receiving revenue for charging the resource during those intervals given the price realization, it is very unlikely that the choice to charge will not be exercised if the resource is not charged. However, SCE remains uncomfortable with the market power mitigation exemption granted to small resources below the 5 MW threshold particularly when the threshold requirement is fulfilled and the resources are controlled by a single market participant such that when load pockets arise, the potential for market abuse exists.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

SCE supports the updates to the day-ahead default energy bid formulation. The decision to limit charging costs to a minimum cost of $0/MWh is meaningful since any inclination to avoid charging below $0/MWh implies the energy storage operator is willing to leave money on the table which can alleviate the pressure of lower than expected net revenues being realized during hours when either charging costs are higher than expected or discharge revenues are lower than expectations.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

SCE supports the decision to grant exemptions from mitigation for small resources with caveats. To the extent that the size limit does not present opportunities for the exercise of local market power in localized load pockets, the exemption is supported. SCE encourages the CAISO to keep monitoring this exemption to ensure that exploitative behavior of the exemption is not encouraged among market participants. SCE remains uncomfortable with the situation of a single market participant owning and controlling many resources, with each resource below the threshold size exemption, though in aggregate the portfolio equals or exceeds the size exemption such that the individual resources within the portfolio can be offered in the market in a manner that influences price formation. 

4. Provide any additional comments on the final proposal for the Storage Default Energy Bid:

None.

1. Please provide a summary of your organization’s comments on the final proposal:

Vistra opposes the CAISO presenting the storage Default Energy Bid (“storage DEB”) for approval by its Board of Governors as detailed in the Final Proposal and the more detailed description in the Final Proposal on Energy Storage and Distributed Energy Resources.

In our polled response we note that our opposition is with caveats. Vistra opposes the CAISO’s proposed formulation described in its October 22nd Final Proposal unless the following revisions to the formulation and policy are adopted:

1. Applies mitigation to any storage resource regardless of size if it fails the market power mitigation test and mitigates to its Default Energy Bid type based on its ranking.
2. New Default Energy Bid option for a Storage Default Energy Bid revised to[1]:

Where:

           Estimated cost for resource to buy energy as function of duration and round-trip efficiency.

                   Energy duration as registered in Master File.

                    Round-trip efficiency as registered in Master File.

                Custom Operations & Maintenance adder negotiated with the CAISO and registered in Master File as specified in Business  Practice Manual Market Instruments Section 4.1, Page 47, and detailed in CAISO Tariff Section 39.7.1.3.2.2. where for storage custom O&M cell degradation costs are appropriate.

           Daily opportunity cost as function of duration.

GMC         Grid Management Charge adder pursuant to Section 39.6.1.6.4.

FMU         Frequently Mitigated Unit adder pursuant to Sections 39.7.1.4 and 39.8.

In Vistra’s comments on the Storage Default Energy Bid Draft Final Proposal issued on September 15^th we requested the CAISO update its proposal so that the storage DEB option would include expected costs and have access to other risk mitigation tools that the CAISO makes available today to DEB options for multiple other resource types. We reiterate the rationale for our opposition to a proposal that does not accommodate the following in its formulation of a mitigated price for storage resources:

• Grid Management Charge (“GMC”) adder[1] will apply across the full output: Storage will incur GMC costs across the full output range of the asset, so the GMC adder should be included in its DEB across all segments. Vistra would like to emphasize for CAISO that the storage DEB proposed is a cost estimate similar to the variable cost option and similarly should include costs the resource is expected to incur. The GMC is included in both natural gas and non-natural gas resources’ variable cost option DEB pursuant to Tariff Section 39.7.1.1.
• Frequently Mitigated Unit (“FMU”)[2] adder will be included, if eligible: FMU adder is eligible to any Frequently Mitigated Unit today that meets the CAISO’s criteria included in Tariff Section 39.8. We reiterate that since storage DEB is a cost-based DEB it should be treated similarly to the variable cost option cost-based DEB. Any storage resource that meets the criteria, including the mitigation frequency criteria, should have its mitigated price formulated with the FMU adder even when electing the storage DEB.
• Variable Energy Opportunity Cost[3] will be included, if eligible: Daily limitations are likely to be the majority of limitations on storage resources initially, but this may be in some instances a function of storage operators translating longer term limitations into daily limitations. Additionally, as storage technology development continues and a greater variety of technical configurations become operational, storage resources may be subject to longer term limitations. Vistra believes it is appropriate to allow storage the ability to seek use limited status and any associated Variable Energy Opportunity Cost for limitations that span beyond a single day. It is appropriate so that if the longer-term limitation can be supported, then the storage operator will have equivalent access to existing CAISO processes. Further, we reiterate the principle that the storage DEB is a cost-based DEB and should have access to include the adders that the variable cost option DEB has access to including the Variable Energy Opportunity Costs.

Vistra appreciates the work that CAISO has put into developing this new Default Energy Bid option for a more robust cost-based approach to valuing storage resources expected costs. However, it is unclear how valuable the proposal will be if it excludes from this cost-based DEB for storage the above detailed mechanisms available to improve the valuation of the existing cost-based DEB, variable cost option. Vistra continues to believe that the Opportunity Cost for the daily duration limitation could be improved by using the average of the n­­^th highest hour evaluated or the n-1^th highest hour because it would better mitigate forecasting error in this component. However, we understand that compromises are needed to move forward in this effort. We appreciate the CAISO requesting stakeholders be open to evaluating the success of its proposed method for the Opportunity Cost before seeking a different approach. Vistra can support the CAISO’s proposed method for the Opportunity Cost. However, we cannot support the proposal without the revisions described above and respectfully ask the CAISO to revise its proposal accordingly.

[1] CAISO Tariff, Section 39.6.1.6.4.

[2] CAISO Tariff, Sections 39.7.1.4 and 39.8.

[3] CAISO Tariff, Sections 39.7.1.1.3.

[1] Vistra requested revisions to the storage DEB formulation shown in bold red font or bold black font where the CAISO proposed formulation is shown in black font.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

Vistra supports the most recent concept adopted by the CAISO in its day-ahead storage DEB proposal that removes the Opportunity Cost component. However, as we explain in the remainder of our comments unless the necessary changes to the underlying formulation are adopted by the CAISO, Vistra cannot support the CAISO’s overall proposal for the day-ahead storage DEB.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

Vistra does not support the CAISO’s proposal to exempt storage resources 5 MW or below (“small”) from market power mitigation. We understand from the CAISO’s written proposal and the discussion at the October 29, 2020 stakeholder meeting that the primary concern raised by the Market Surveillance Committee (“MSC”) was a concern for small resources “that an inaccurate default energy bid could potentially be harmful to those resources” and that “small resources may not have the ability to exercise market power”.[1] We do not agree that the concern raised is reasonable or sufficient to support a need for preferential treatment that could unduly discriminate against other resources.

As explained in our prior comments and at the stakeholder meeting, Vistra views this proposal as imposing differential treatment on similarly situated resources. By proposing to treat a certain class of resources differently, CAISO is proposing to create two classes of storage resources for applying mitigation that introduces asymmetry to the rules in a way that provides preferential participation rules to a specific class over another.

Vistra understands the basis for the CAISO and MSC concerns that the new rules may (1) over mitigate and (2) storage DEB could be inaccurate. We disagree that these concerns are unique to “small” resources as defined by the CAISO. This same risk would be held by 6 MW storage resources, 100 MW storage resources, or even 4 MW gas turbines. In fact, the concerns about over mitigation exacerbated by the potential inaccuracy of the variable cost option has been vetted repeatedly in CAISO’s stakeholder processes on mitigation, mitigated prices, and bidding flexibility since Market Redesign and Technology Upgrade go live. To address these concerns, the CAISO includes a Frequently Mitigated Unit Bid Adder as described in CAISO Tariff Section 39.8. Market participant eligibility for a FMU Bid Adder for the next operating month is based in part on if in the previous twelve months its mitigation frequency is greater than 80 percent. The Tariff Section 39.8.3 further specifies that the FMU Bid Adder will either be “a unit-specific value determined in consultation with the CAISO; or (ii) a default Bid Adder of $24/MWh.”

To put a fine point on it, the risks raised by the CAISO and MSC are inherent in CAISO’s mitigation design regardless of the DEB option selected. The responsibility for managing these risks is placed on market participants. This proposal inappropriately removes tools that increase market participants’ ability to mitigate these risks from one type of resource without sufficient justification.

[1] Final Proposal Energy Storage and Distributed Energy Resources – Storage Default Energy Bid, California ISO, October 22, 2020, Page 11, http://www.caiso.com/InitiativeDocuments/FinalProposal-EnergyStorage-DistributedEnergyResourcesPhase4-DefaultEnergyBid.pdf.

4. Provide any additional comments on the final proposal for the Storage Default Energy Bid:

Vistra appreciates the opportunity to provide feedback in this stakeholder process. Vistra respectfully requests the CAISO consider and evaluate its comments on this important topic. We would like to note that we understand the effort involved in responding to stakeholder comments but that more fully responding to stakeholder comments would help us to better understand the rationales behind CAISO’s proposal. The proposal appears to be striving towards introducing an enhancement to the existing DEB paradigm, but the proposal is still lacking in detail and needs refinements for it to be a benefit to stakeholders. Vistra was disappointed to see that in CAISO’s Final Proposal summary of stakeholder feedback the CAISO did not include or respond to the various concerns and specific requests made by Vistra. We respectfully find this lack of response to fall short of CAISO’s standard for sufficiently considering stakeholder feedback. We share the CAISO’s interest to design and propose an enhancement to its DEB paradigm that will be an improvement and are committed to collaborating. We request the CAISO respond to our comments in another iteration of this proposal and make the necessary revisions at a minimum to the storage DEB formulation to include the GMC and make the FMU and Variable Energy Opportunity Cost adders available if eligible.