Comments on Straw proposal

1. Please provide a summary of your organization’s general comments on the straw proposal and presentation for this initiative:

CDWR has no comments at this time.

2. Provide your organization’s comments on the proposed market parameter changes, as described in the straw proposal:

CDWR has no comments at this time.

3. Provide your organization’s comments on the change to the shift factor parameter threshold as described in the straw proposal:

CDWR supports the CAISO’s proposal for eliminating the 2% threshold rule at large aggregation points.  CDWR believes the proposal is beneficial to the CAISO’s efforts of improving the CRR Design and the CRR Auction Efficiency.  CDWR believes that both expected benefits mentioned by the CAISO: 1. Reducing the overpayment of CRR settlements due to overestimating the implied CRR flow on a given transmission constraint; and 2.  Flow contributions not accounted for in DA flow settlements by means of not collecting congestion rents in some cases lead to flow reversal of CRR payments, could improve the CRR Auction Efficiency.

CDWR suggests that CAISO moves a step further and investigates the possibility of removing the 2% threshold rule at the Interties and at the rest of the CAISO nodes.  CDWR believes that, although not as big as the large aggregation points, the Interties have a greater impact on maintaining the CRR Auction Efficiency since the Marginal Cost of Congestion (MCC) of the Interties is, on average, much larger than the MCC at the large aggregation points.  Therefore, eliminating the 2% rule over the Interties might be more beneficial than eliminating the 2% rule at large aggregation points.  CDWR would like to ask CAISO to perform some studies to evaluate and compare the benefits of eliminating the 2% rule at the Large Aggregation Points and at the Interties.  Furthermore, CDWR suggests that CAISO could perform another study to show the benefit of eliminating the 2% rule at all CAISO nodes.

4. Provide your organization’s comments on the proposed procedure to expedite parameter changes, as described in the straw proposal:

CDWR notes that the proposed Tariff language says, “CAISO must notify market participants,” but there is no timeframe on when that will be.  CDWR would like for CAISO to include language that an immediate Market Notice be provided and that a stakeholder meeting for discussions and feedback within a week of any changes be provided.

5. Provide your organization’s comments on the CAISO proposes to pursue a parameter change procedure that allows to make expeditious parameter changes, as described in the straw proposal:

CDWR has no comments at this time.

6. Attachments

1. Please provide a summary of your organization’s general comments on the straw proposal and presentation for this initiative:

DC Energy generally supports the CAISO’s straw proposal to reduce the shift factor effectiveness threshold at Default Load Aggregation Points (DLAPs) and to create a Parameter Change Procedure that allows for temporary changes to scheduling run parameters.

2. Provide your organization’s comments on the proposed market parameter changes, as described in the straw proposal:

We support the CAISO’s proposed market parameter changes and offer one minor enhancement. As part of the proposed procedure, the CAISO indicated that it would notify market participants of any temporary modifications to its scheduling parameters and explain the reasons for the change. We agree this transparency is important and propose that the reason is posted to market participants no later than 24 hours after the change was made.   

3. Provide your organization’s comments on the change to the shift factor parameter threshold as described in the straw proposal:

We support the CAISO’s proposal to reduce the shift factor effectiveness threshold to near-zero for Default Aggregation Points (DLAPs) in the CAISO’s day-ahead and real-time markets.   The proposal will improve market efficiency by increasing the potential economic bids and thus, offer more ways to resolve congestion. It will also protect against CRR revenue inadequacy on constraints where the 2% effectiveness threshold prevents the settlement of market flows that contribute to congestion funding.  The issue was first identified in the CAISO’s CRR Market Analysis Report published in May 2020. It continues to be a significant source of revenue inadequacy and increases the potential to reverse a CRR’s value from a positive payout (credit) to a negative payout (charge).  CRRs serve to protect supply and demand from unknown congestion costs and this risk turns an expected hedge into an unexpected liability.  This works counter to the purpose of CRRs as a risk mitigation tool. We ask that the CAISO move urgently to correct this straightforward market inefficiency.  

Moreover, the root cause of CRR value reversing its value is not confined to the shift factor effectiveness threshold. The CAISO pointed out in its CRR Market Analysis Report that day-ahead loop flows are also a significant source of missing congestion funding.  Today, the CAISO applies a global derate factor in the CRR auction to derate offered capacity to account for unsettled loop flows in the day-ahead market.  The problem is a global factor is not aligned with the CAISO’s ‘by constraint’ assignment of shortfall to CRR holders. For example, the global derate factor may cause overfunding on one constraint while another constraint is underfunded, but yet the surplus from one constraint cannot be used to shore up the inadequacy on the other.  To protect against the possibility of CRR settlement reversal due to unsettled loop flow we ask the CAISO to consider a floor on CRR settlement so that the pro-rata allocation of shortfall cannot exceed a CRRs notional payout.  Also, we request the CAISO provide ongoing reporting of the unsettled flow issue at the Market Planning Performance Forum.  Ideally, this would include its daily dollar impact on congestion funding with an assignment of each dollar to a root cause category (i.e., loop flows, shift factor effectiveness threshold, etc).  This type of analysis was reported in the CAISO’s CRR Market Analysis Report published in May 2020. 

4. Provide your organization’s comments on the proposed procedure to expedite parameter changes, as described in the straw proposal:

5. Provide your organization’s comments on the CAISO proposes to pursue a parameter change procedure that allows to make expeditious parameter changes, as described in the straw proposal:

6. Attachments

1. Please provide a summary of your organization’s general comments on the straw proposal and presentation for this initiative:

Middle River Power LLC (“MRP”) notes its concerns with the CAISO’s proposals below. 

2. Provide your organization’s comments on the proposed market parameter changes, as described in the straw proposal:

3. Provide your organization’s comments on the change to the shift factor parameter threshold as described in the straw proposal:

The CAISO’s proposal to address concerns that applying the shift factor threshold to aggregated pricing locations (e.g., Default Load Aggregation Points and Trading Hubs) results in overpayment and underfunding of Congestion Revenue Rights is to eliminate the use of shift factor thresholds for those aggregated pricing locations but continue to apply the shift factor threshold to individual pricing nodes. 

While the CAISO has described and, to some extent, quantified the effect of the problem, the CAISO has neither described nor quantified what the effect of applying the proposed solution will be.  MRP expects that the proposed change will increase the prices associated with aggregated pricing locations relative to the prices of individual pricing locations and will affect how market participants have hedged, and will hedge, the risks associated with participating in the CAISO’s markets.   

MRP offers that the problem giving rise to the need for this solution is yet another issue that arises because of differences between the network model used for Congestion Revenue Rights (CRRs) and the network model used in the CAISO's markets.  On page 8, the CAISO notes that, while the CAISO applies a 2 percent shift factor threshold for the market model, the CRR model accounts for any shift factor contribution even if the contribution is smaller than 2 percent.  This begs the obvious question: what would the result be if the CRR network model enforced the same 2 percent shift factor threshold as used in the market network model?   MRP notes that while it is practically impossible for the market network model and the CRR network model to be identical because the CRR network model cannot possibly anticipate all the real-time topology changes to the market network model, using the same shift factor threshold for both network models would help converge the two models without introducing a new and unquantified impact to CAISO market prices.  

MRP believes the CAISO and market participants would be better served for the CAISO to take steps to converge the network model used for CRRs and for the CAISO’s markets than introduce unquantified pricing effects in the CAISO’s markets by eliminating the shift factor threshold for some, but not all, of the CAISO’s market pricing nodes. 

In summary, MRP believes the CAISO should, before proceeding with its proposed solution,:

1. describe and quantify the effect of its proposed solution on CAISO market prices; and
2. consider making changes to the CRR network model to better align that model with the CAISO market network model instead of making asymmetrical changes to the CAISO’s market model (i.e., applying the shift factor threshold to some, but not all, pricing nodes).

4. Provide your organization’s comments on the proposed procedure to expedite parameter changes, as described in the straw proposal:

MRP recognizes the CAISO’s desire to implement a framework that allows the CAISO the ability to temporarily modify Scheduling Run parameters to ensure the market solution is feasible or to avoid operational or reliability problems without having to first file those proposed changes with the Federal Energy Regulatory Commission (“FERC”).  That said, as FERC has recognized (and the CAISO acknowledged), the Scheduling Run parameters affect the terms of CAISO transmission service and must be included in the CAISO Tariff. 

MRP generally finds that the CAISO’s proposal to allow it to make temporary modifications to Scheduling Run parameters, as long as such changes do not affect the relative Scheduling Run priorities, without first filing those changes with FERC, is reasonable.   MRP offers one addition to the proposed language.    

While the CAISO’s proposed new Section 31.4.1 includes a provision that requires the CAISO to “…notify Market Participants of any temporary modification [to Scheduling Run parameter values] and explain the reason for the change”, that language does not compel the CAISO to timely notify Market Participants of any such changes.  MRP encourages the CAISO to modify this language to include a requirement for the CAISO to timely notify Market Participants, such as “(ii) notify Market Participants of any temporary modification and explain the reasons for the change as soon as reasonably possible.”

MRP expects that such un-filed temporary changes will be infrequent.  MRP suggests the CAISO commit to FERC in the transmittal letter conveying the proposed new tariff language that the CAISO will launch a stakeholder initiative to re-examine both the Scheduling Run parameters and the process for making temporary modifications to those parameters if the changes occur more often than very infrequently. 

5. Provide your organization’s comments on the CAISO proposes to pursue a parameter change procedure that allows to make expeditious parameter changes, as described in the straw proposal:

6. Attachments

1. Please provide a summary of your organization’s general comments on the straw proposal and presentation for this initiative:

N/A

2. Provide your organization’s comments on the proposed market parameter changes, as described in the straw proposal:

N/A

3. Provide your organization’s comments on the change to the shift factor parameter threshold as described in the straw proposal:

PG&E appreciates the CAISO’s investigative work on this issue and agrees that the proposed changes would help close a portion of the existing congestion miscalculation issue.  PG&E is concerned however that applying these changes to only the Trading Hubs and DLAPs may not be sufficient.  To that end, PG&E requests that the CAISO perform further analysis to see if it would be appropriate to apply these modifications, or some similar adjustments, to large single-node resources (i.e., Intertie delivery nodes, large generation delivery points, etc.).

4. Provide your organization’s comments on the proposed procedure to expedite parameter changes, as described in the straw proposal:

PG&E appreciates the CAISO efforts to make enhancements that help avoid market operational or reliability problems.  PG&E requests the CAISO provide details on specific scenarios that would necessitate temporarily modifying scheduling run parameter values, and communication protocols to Market Participants for rescinding temporary changes.  If the CAISO identifies scheduling run parameter values have potential to cause repeated future operational or reliability problems, PG&E requests the CAISO clarify if they intend to submit multiple temporary changes or pursue a more permanent CAISO Tariff update. 

5. Provide your organization’s comments on the CAISO proposes to pursue a parameter change procedure that allows to make expeditious parameter changes, as described in the straw proposal:

N/A

6. Attachments

N/A

1. Please provide a summary of your organization’s general comments on the straw proposal and presentation for this initiative:

Salt River Project Agricultural Improvement and Power District (SRP) appreciates the CAISO’s presentation for this initiative. SRP requests that the CAISO provide additional details and clarification in future stakeholder meetings and revisions to the proposal.

2. Provide your organization’s comments on the proposed market parameter changes, as described in the straw proposal:

SRP requests that the CAISO provide greater detail in future revisions to the proposal to allow market participants to better evaluate the effects of the proposed changes.

3. Provide your organization’s comments on the change to the shift factor parameter threshold as described in the straw proposal:

SRP requests that the CAISO expand the analysis presented in the straw proposal to include specific constraints and impacts on pricing if the 2% threshold was removed for default load aggregation points and trading hubs. This may include a “What If” analysis or study for both the Day-Ahead Market and Real-Time Market.  SRP also requests that the CAISO provide information on the threshold for other Independent System Operators and compare the CAISO’s threshold.

4. Provide your organization’s comments on the proposed procedure to expedite parameter changes, as described in the straw proposal:

SRP requests that the CAISO provide detail on the method it proposes to use to notify participants of expedited parameter changes and the proposed timing of notifications. SRP also requests the CAISO expand the next revision of the proposal to include a description of the level of detail it expects to include in the explanations of need for changes.  SRP requests that the notification to the participants occur before the changes are implemented with an explanation of the reason immediately following the implementation, and before the temporary changes revert back to normal.

5. Provide your organization’s comments on the CAISO proposes to pursue a parameter change procedure that allows to make expeditious parameter changes, as described in the straw proposal:

SRP requests that the CAISO expand the discussion of the expedited parameter changes discussions to include additional examples of instances when the CAISO would implement the procedure, and, if possible, provide an estimate of how frequently the CAISO expects to use the procedure.

6. Attachments

 No attachments

1. Please provide a summary of your organization’s general comments on the straw proposal and presentation for this initiative:

The Six Cities generally support the CAISO’s Straw Proposal for this initiative.  Specifically, the Six Cities support:

1.  The CAISO’s proposal to apply a shift factor threshold of zero or near zero at large aggregated locations (DLAPs, Trading Hubs, and ELAPs) for purposes of both congestion management and determining Marginal Costs of Congestion at those locations, while retaining the currently effective 2 percent shift factor for non-aggregated locations.  The proposal to effectively account for all flows at aggregated locations with large flow volumes appears likely to improve both the efficiency of the congestion management process and the consistency of congestion rents and notional payments to CRR holders.
2. The CAISO’s proposal to establish an expedited procedure to allow modification of scheduling run parameters in Tariff Sections 31.4, 34.12.1, or 34.12.2 on a temporary (ninety day) basis to address operational or reliability problems that otherwise would require out-of-market intervention by operators, subject to filing for FERC approval of such modifications within thirty days and subject to maintaining the relative scheduling run priorities specified in the indicated tariff sections.  The proposed procedure to allow expedited modification of scheduling run parameters subject to prompt review by FERC appears to provide a reasonable process for addressing issues associated with specific parameter values that otherwise would require out-of-market interventions while maintaining previously established relative scheduling priorities.

2. Provide your organization’s comments on the proposed market parameter changes, as described in the straw proposal:

See Six Cities’ response to Item 1 above.

3. Provide your organization’s comments on the change to the shift factor parameter threshold as described in the straw proposal:

See Six Cities’ response to Item 1 above.

4. Provide your organization’s comments on the proposed procedure to expedite parameter changes, as described in the straw proposal:

See Six Cities’ response to Item 1 above.

5. Provide your organization’s comments on the CAISO proposes to pursue a parameter change procedure that allows to make expeditious parameter changes, as described in the straw proposal:

See Six Cities’ response to Item 1 above.

6. Attachments

1. Please provide a summary of your organization’s general comments on the straw proposal and presentation for this initiative:

2. Provide your organization’s comments on the proposed market parameter changes, as described in the straw proposal:

3. Provide your organization’s comments on the change to the shift factor parameter threshold as described in the straw proposal:

4. Provide your organization’s comments on the proposed procedure to expedite parameter changes, as described in the straw proposal:

5. Provide your organization’s comments on the CAISO proposes to pursue a parameter change procedure that allows to make expeditious parameter changes, as described in the straw proposal:

6. Attachments

1. Please provide a summary of your organization’s general comments on the straw proposal and presentation for this initiative:

WPTF appreciates the CAISO raising this issue again to address. We understand it was identified a few years ago but given the other more pressing market design challenges since summer 2020, was placed on hold for some time. Thus, rather than leaving the issue unresolved, the CAISO rightfully opted to re-engage stakeholders on this topic.

Overall, WPTF believes this is a reasonable approach that strikes an appropriate balance between efficient market outcomes and price formation with efficient generation dispatch and good utility practice. Ideally, the CAISO would be able to remove the 2% threshold from the market in its entirety to fully align with the CRR market, but again, understand there is a balance to be had. That being said, WPTF does ask that the CAISO continue to monitor this issue as it applies to the aggregated points and other pricing nodes that will still retain the 2% threshold, and to the extent this becomes more prevalent at those locations, the CAISO act quickly to remove the threshold. Additionally, WPTF asks that as a backstop to retaining the 2% threshold at some locations, that the CAISO put in place a floor for CRR underfunding as discussed in more detail in response to question #3.

2. Provide your organization’s comments on the proposed market parameter changes, as described in the straw proposal:

3. Provide your organization’s comments on the change to the shift factor parameter threshold as described in the straw proposal:

WPTF believes removing the 2% threshold from DLAPs and THs is a reasonable approach to addressing the issue while balancing efficient market outcomes and price formation with good utility practice. We appreciate the CAISO acting quickly, especially given that the threshold has had detrimental impacts on CRR underfunding recently, the cost of which are now being passed onto the CRR holders. This inappropriate cost allocation alignment makes it nearly impossible for CRR participants to accurately value CRRs in the market and must be addressed.

Retaining the 2% threshold in the market for some locations does introduce two adverse market impacts (discussed below). We understand that the overall magnitude of these adverse impacts are expected to be minimal, which is why we are supportive of this proposal being a reasonable approach, but ask that the CAISO continue to monitor the issue and also consider a backstop mechanism for CRR underfunding that results from retaining the 2% threshold.

First, since only the larger aggregated locations (DLAPs and THs) will no longer have the threshold in place, that means that the smaller aggregated load locations (e.g., CLAPs and Sub-LAPs) and pricing nodes at generating locations will have a slightly different price formation than the DLAPs and THs. Specifically, the DLAPs and THs will now have congestion components that reflect all the congestion on the system whereby the locations with the threshold still in place will have congestion components not as robust. In other words, load and generation will be exposed to slightly different settlement practices depending on where they are settled. For example, load settled at the DLAPs will have a more robust congestion cost component (reflecting all the congestion on the system) while load settled at the locations that retain the 2% threshold will not. While we understand the impact on the aggregated locations with the threshold still in place is small, its an inconsistency in price formation that should at least be acknowledged. We ask that the CAISO continue to monitor this issue as it pertains to the smaller aggregated locations and pricing nodes with the threshold still in place and be ready to act quickly to the extent the magnitude of the issue increases.

Secondly, this proposal still enables the potential for CRR underfunding due to the CAISO not fully collecting congestion costs with the 2% threshold still in place. Under this proposal, there will remain locations where load is settled at prices that do not fully reflect the congestion on the system. It could be the case that not enough congestion costs are collected by the CAISO, contributing to CRR underfunding. Given the recent changes in how CRRs are settled, the cost of underfunding is now borne by the CRR holders. Thus, WPTF does not believe it’s appropriate to pass these costs onto the CRR holders that arise from how the CAISO is collecting (or in this case not collecting) all of the congestion costs from the system.

Given that we understand the reasoning behind the CAISO not removing the 2% threshold from all locations, we ask that the CAISO implement another form of backstop on CRR underfunding such that these costs are not inappropriately passed on to CRR holders. The CAISO could put a floor that ensures the CRR funding never goes negative in a given hour. This would be consistent with how other ISOs treat CRR underfunding. Additionally, it aligns with what we believe was FERC’s understanding of how the CRRs would be settled under the changes that were implemented in 2019. Specifically, in response to the concern raised by WPTF that CRR holders will be charged regardless of whether they are the proximate cause, FERC noted that “under CAISO’s proposal, the amount that CRR holders would be entitled to is simply limited based on the revenues collected in the CRR balancing account.” Thus, it seems that the FERC was of the understanding that CRR holders would never be charged as a result of CRR underfunding, which could continue to be the case even with the 2% threshold removed for some locations.

Lastly, we appreciate the CAISO making changes that better align the energy market model and CRR model. As such, we are curious if the CAISO, at any point in this process, weighed the pros and cons between this approach and adding the 2% threshold in the CRR market.

4. Provide your organization’s comments on the proposed procedure to expedite parameter changes, as described in the straw proposal:

5. Provide your organization’s comments on the CAISO proposes to pursue a parameter change procedure that allows to make expeditious parameter changes, as described in the straw proposal:

6. Attachments