Please provide a summary of your organization’s comments on the draft final proposal:
Vistra appreciates the opportunity to provide comments to the CAISO on its storage Default Energy Bid (storage DEB) proposal updated in the September 15th Draft Final Proposal. Vistra appreciates the effort and details the CAISO has put forward on this topic. Vistra understands the importance of a robust market power mitigation paradigm to support efficient market outcomes so that the fundamentals can provide meaningful information to the market and the market can be confident that prices do not reflect the exercise of market power. While Vistra conceptually supports the CAISO’s proposal to expand its mitigation paradigm to applying mitigation in its Non-Generator Resource (NGR) model, we remain concerned with some practical implications and consequently have modest request for revisions as well as requests for additional clarity on certain elements. The remaining comments will discuss in more detail Vistra’s requests for additional clarity and consideration on the storage DEB proposal.
First, Vistra is uncertain whether the day-ahead and real-time storage DEB formulations in Equations 1 and Equations 2 are intended to be storage DEB components that replace the Incremental Cost Curve as registered in Master File and provide guidance for the custom Operations & Maintenance Adder negotiations in the DEB formulation currently used for non-gas or if the equations are intended to fully replace all components contained in the current formulation.
Vistra interprets the CAISO’s proposed DEB formulation where it shows the following summation in the two equations to be proposing that the Enδ/η input will functionally replace the ICC and O&M adder in the current formulation where the details in the proposal on the p input is providing additional details for the CAISO’s custom O&M negotiations. Vistra supports the inclusion of variable operating costs in storage DEB formulation but believe there is a need for additional clarity. Currently, in non-gas fired resources DEB formulation there is the O&M adder for operations and maintenance costs, which can be a default value or an SC can request establishing a custom O&M with the CAISO. In the August 21, 2020 ESDER 4 Final Proposal and the September 15, 2020 storage DEB Draft Final Proposal, the CAISO states that “this data will be collected via CAISO master file process that is already in place to capture resource specific data”. Vistra requests the CAISO clarify that the existing process in place for establishing through requesting a custom O&M adder consultation pursuant to Tariff section 184.108.40.206.2 will remain unchanged as result of this proposal. If the process for registering is intended to be different than the current custom O&M negotiation, we respectfully request more transparency on what the proposed change will entail.
Vistra asks the CAISO to provide clarity on whether the CAISO’s proposal is to continue to include GMC, FMU (if eligible), and Variable Energy Opportunity Cost (if eligible) in the future storage DEB formulation. For context, the current non-gas fired resources' DEB formulation documented in CAISO’s Market Instruments BPM in Section D.5.8 is:
ICC is the Incremental Cost Curve as registered in Master File
O&M is the variable operating and maintenance adder either default or custom, if negotiated
GMC is the Grid Management Charge adder
FMU adder is the Frequently Mitigated Unit adder, if resource is eligible
Variable Energy Opportunity Cost is the variable energy opportunity cost for registered use limited resources with calculated or negotiated VEOC to reflect use limitations over greater than 24 hours
If Vistra’s interpretation is incorrect and the CAISO does not currently intend to include these components, Vistra requests the CAISO revise its proposal to include in its DEB formulation the additional components that all resources may be eligible for today. Vistra asks the CAISO to clarify the:
- GMC adder 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.
- FMU adder will be included, if eligible: FMU adder is eligible to any Frequently Mitigated Unit in today’s Tariff and should continue to be available to any resources that meet the mitigation frequency criteria even under the adoption of storage DEB.
- Variable Energy Opportunity Cost 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.
With a lens towards implementation, we have a few practical questions. First, we are unclear on whether the variable operating costs (p,O&M) on the discharge side is expected to be established as a curve across the discharge segment or as a constant value and ask the CAISO to specify this detail as soon as practical. Second, we believe it is unclear where it is appropriate for the longer term major capital expenses for battery storage augmentation needed roughly on a five-year basis to be included in the storage DEB since there are no commitment bids in NGR – the variable operating costs, variable energy opportunity costs, or negotiated DEB. We would ask the CAISO to provide additional information on what guidelines the CAISO will provide Scheduling Coordinators for estimating variable operating costs and for including the longer-term augmentation expenses.
 California ISO, Fifth Replacement Electronic Tariff, Section 220.127.116.11.2, Variable Operation and Maintenance Cost Under the Variable Cost Option.
 California ISO, Business Practice Manual, Market Instruments, Version 60, Section D.5.8, Page 260, https://bpmcm.caiso.com/BPM%20Document%20Library/Market%20Instruments/BPM_for_Market%20Instruments_V60_clean.doc.
 California ISO, Fifth Replacement Electronic Tariff, Section 18.104.22.168, Variable Cost Option.
Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:
Vistra supports the CAISO’s update to its storage Default Energy Bid (DEB) proposal that removes the Opportunity Cost component from the day-ahead storage DEB formulation. Vistra understands the Opportunity Cost component is meant to represent opportunity cost for daily limitations, which can be optimized within the day-ahead market given its 24-hour optimization window. Since the daily limitation cannot be fully considered in the real-time market given that the longest real-time optimization window only captures 4.5 hours, Vistra believes it is appropriate that the Opportunity Cost component is in the real-time storage DEB formulation.
While we support the recent change, we do not believe the current method is the preferred approach for setting the Opportunity Cost (OC). Vistra believes the method for estimating the opportunity cost that the CAISO is proposing may undervalue the opportunity cost of the resource’s dispatches in real-time by using the 4th highest hour’s day-ahead energy price. If the day-ahead energy prices included perfect insight into the real-time market outcomes, then Vistra would be comfortable with adopting the use of the 4th highest non-contiguous hour as the OC. However, there are deviations between day-ahead and real-time prices where there is the possibility that real-time prices may increase across more than four hours where the four highest hours in real-time are no longer aligned with the hours identified in the day-ahead process. For example, in the scenario where the four highest hours of integrated forward market locational marginal prices (LMP) are for HE17 at $100/MWh, HE18 at $115/MWh, HE19 at $250/MWh, and HE20 at $500/MWh, this would result in an OC of $100/MWh being included. An issue could arise if in real-time the LMPs increase to prices above $100/MWh over more hours than 4 such as LMPs for HE16 at $100/MWh, HE17 at $110/MWh, HE18 at $250/MWh, HE19 at $500/MWh, HE20 at $500/MWh, and HE21 at $1,000/MWh. Under this scenario, Vistra is concerned that there is the possibility of dispatching storage resources mitigated in real-time for HE16-HE19, which would result in the asset not being available for HE20 and HE21 when the CAISO grid has the greatest need for its energy. To mitigate this risk, Vistra requests the CAISO revise its proposal to set the OC based on the average of the four highest non-contiguous LMPs from the integrated forward market. While we believe there are arguments for using the highest hour, we think applying an average balances the interests to both set DEBs that mitigate market power and allow the daily limitation to be reserved for the highest hours in real-time even in scenarios where IFM undervalues those hours.
Provide your organization’s comments on the exemptions from the mitigation for small resources:
Vistra respectfully requests the CAISO consider not moving forward with its proposed update in Section 4, “Exemptions from mitigation for small resources”. We do not find it persuasive that “small resources may not have the ability to exercise market power” since our view is that this concern is more a commentary on whether the market power mitigation assessments are mitigating appropriately. Local market power mitigation (LMPM) has both a constraint and a resource test and Vistra believes if there is a concern with over-mitigating in the resource test for “small resources” that this concern is more appropriately handled in a project reviewing the local market power mitigation design than in this effort applying mitigation to storage resources. Further, Vistra views this proposal as imposing differential treatment on similarly situated resources since a 4 MW storage resource within a net supplier’s portfolio would be subject to mitigation whereas a 4 MW storage resource that is not within a net supplier’s portfolio would not be subject. While Vistra assumes this proposal was written this way because the CAISO is also trying to mitigate any incentive for a net supplier to exercise market power across its portfolio, Vistra continues to believe that is a broader concern with the CAISO’s existing market power mitigation mechanisms and not unique to storage assets. An additional example of different treatment comes between resources subject to mitigation that are below 5 MW of different technology types. We are not aware of the CAISO exempting other technologies from mitigation that are sized below 5 MW. We believe that to create two classes of storage resources for applying mitigation introduces asymmetry to the rules in a way that provides preferential participation rules to a specific class over another.
As an alternative, Vistra requests the CAISO clarify that storage resources – above and below 5 mw - are eligible for the Frequently Mitigate Unit (FMU) adder to be included in its storage DEB (as requested above). Vistra shares the concern that there is a risk that storage resources – both above and below 5 MW – may be frequently mitigated by the CAISO’s market power mitigation assessments and believes that if a resource is frequently mitigated so that it cannot appropriately manage its cost recovery or operational risks that the FMU is an existing mechanism to help mitigate this risk.