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