Comments on Balancing Authority Area-level Market Power Mitigation working group discussions

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

• BPA supports any potential proposals that could reduce the likelihood of over-mitigation because over-mitigation can reduce competition.  As such, BPA supports development and testing of the BAA grouping methodology.
• Contingent upon modelling results, the approach appears to be an improvement in the mitigation testing process by considering transfers on non-binding paths and likely reduces the potential of excessive mitigation in the growing WEIM landscape.  In concept, it will better reflect actual market dynamics.
• The illustrative (graphical) examples provided in the November 6 PFE WG presentation demonstrate the concept, but developing the test analysis, along with assessing impacts relative to the status quo, will be critical in determining if scenario results are consistent with expectations.
• Given the number of questions and confusion regarding the existing market power mitigation process as it applies to the CAISO BAA and the EIM BAA’s, CAISO staff may consider revisiting this information in detail, including details regarding how competitive and non-competitive components factor into the assessment. 

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

• BPA supports further investigation into these concepts.
• Ideally, an MPM test would only mitigate those who have the potential to impose market power with evidence to show they exercised and benefitted from that market power. Excessive mitigation may be avoided by only mitigating pivotal suppliers in an uncompetitive BAA.
• The November 20 WG meeting indicated more research and comparisons should be explored between the CAISO MPM algorithm and those of ISOs that utilize a conduct and impact approach for market power management.
• BPA is not opposed to dynamically evaluating pivotal suppliers but recognizes there may be a tradeoff between computing time and the incremental value to price formation.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

• BPA supports the concept of an impact test but also would like to further review how and when other ISOs employ this test.  Such questions can be provided in advance to upcoming guest speakers from other ISO’s.
• Tailoring impact test criteria to align with system conditions is desirable, in addition to employing relative (%) thresholds that can better adapt to the price level of the market.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

• The WG should continue to target the straw proposal date of May 2025.  There currently exists enough proposed logic to begin implementing the analysis for evaluation.

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

The California Community Choice Association (CalCCA) appreciates the opportunity to comment on the California Independent System Operator’s (CAISO’s) Balancing Authority Area (BAA) Level Market Power Mitigation (MPM) working group discussions. CalCCA supports the grouping approach for assessing BAAs for competitiveness as presented by the CAISO at its November 6, 2024, working group meeting. This approach will improve the CAISO’s BAA-level MPM methodology by including available supply from other BAAs in its test for competitiveness. CalCCA agrees this will better reflect actual market conditions and competitive dynamics.

The CAISO should continue to use the dynamic competitive path assessment (DCPA), which uses a three pivotal supplier test to test for competitiveness under the grouping approach. While some stakeholders expressed concern with the grouping approach because a BAA could pass individually but fail as a group, this outcome is not a flaw with the grouping approach. For example, assume an MPM test of a group with two BAAs: 

In this example, the following conclusions can be drawn:

• On its own, BAA 1 does not have any pivotal suppliers and should be competitive;
• On its own, BAA 2 has pivotal suppliers (Load cannot be met without G11, G12, and G13)
• If BAA1 and BAA2 were combined, G11, G12, and G13 are still pivotal as the 3500 MW load will need all three to operate even if all other resources are operating.

Therefore, even though BAA 1 could pass if it were tested on its own, in reality, there is direct transfer capability between BAA 1 and BAA 2. This means supply from BAA 1 is available to serve BAA 2 load and vice versa. Therefore, because the combined BAA 1 and BAA 2 load cannot be met without G11, G12, and G13, the group fails the three pivotal supplier test and supply in BAA 1 and BAA 2 should be subject to mitigation.

The CAISO should include the CAISO BAA in the grouping approach. In doing so, the CAISO BAA would be treated like any other BAA rather than assumed to be competitive. If there is the potential for the CAISO BAA to be structurally uncompetitive in some hours, the CAISO should have a mechanism to mitigate against the exercise of market power. The ability to mitigate market power when there is the potential for suppliers to exercise it will ensure ratepayers are protected against excessively high costs. At the same time, there is little risk of resources not recovering their costs with the CAISO BAA included in the grouping approach, as 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). For these reasons, the CAISO BAA should be tested for competitiveness under the grouping approach.

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

The CAISO should not only apply mitigation to pivotal suppliers. It should instead extend mitigation to all suppliers in uncompetitive BAAs, as it currently does under its system MPM in the Western Energy Imbalance Market and its local MPM for the CAISO BAA. CalCCA agrees with the reasons presented by the CAISO to mitigate all suppliers in uncompetitive BAAs.[1] The presence of pivotal suppliers indicates structural issues with market competitiveness within a BAA, and non-pivotal status does not mean a supplier cannot exercise market power. The CAISO should not risk adding computational time or introducing opportunities for gaming or collaboration by modifying its methodology to mitigate only pivotal suppliers.

The CAISO states that arguments against mitigating non-pivotal suppliers may include the following: (1) non-pivotal suppliers, by definition, cannot unilaterally influence market outcomes because small suppliers are price takers and coordination becomes increasingly difficult with three or more suppliers; and (2) mitigation of non-pivotal suppliers could be seen as overly restrictive market intervention by suppressing  price signals and discouraging efficient market entry/investment.^[2] However, the CAISO MPM is already designed to address these concerns by only mitigating uncompetitive hours, not every hour, and only mitigating bids that are above the resources’ default energy bids (DEBs) or the competitive LMP. Therefore, if a small supplier is a price taker or its bid price equals its marginal cost, MPM should have no effect on the price the supplier receives as it would receive its DEB, which should equal its marginal cost plus a buffer, or the competitive LMP if the competitive LMP is higher than the resource’s DEB. For these reasons, the CAISO should not apply MPM to only pivotal suppliers.

[1]            November 21, 2024, presentation at 20.

[2]            Id., at 21.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

The CAISO should not include an impact test that tests whether a generator's bidding behavior both deviates from expected competitive levels and “materially affects market prices.” CalCCA does not support only mitigating offers with LMP impacts above a defined threshold, as stakeholders have not demonstrated the need for such a change that could result in increased ratepayer costs. 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. Lack of an impact test would, at worst, result in mitigated bids that would cover all costs of providing the energy in the market. If the market clearing price is higher than the resources’ DEB, including those that were mitigated and those that were not, resources would still receive market clearing price and any applicable rents where that market clearing is above their marginal cost.

While the CAISO states that this proposal could help avoid “over-mitigation,” the concept of over-mitigation does not make sense with the way the CAISO applies MPM.  Assuming over-mitigation means mitigating resources’ bids when the market is competitive, then over-mitigation would have no impact on market outcomes. In a competitive market, the marginal resource would be expected to bid its DEB (which includes costs and a margin above costs for profit)[1], and that DEB would set the market clearing price that all other resources would receive. In an uncompetitive market, resources with the ability to exercise market power would be mitigated to their DEBs or the competitive LMP.

[1]            Economic theory for a competitive market would dictate that the resource bid its short-run marginal cost which would not include a margin above those costs for a level of profit that may be included in the DEB.  Therefore, it is more likely that CAISO’s MPM process results in a price level that if anything is slightly above the competitive outcome.  See section 39.7.1 of the CAISO Tariff.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

CalCCA supports the CAISO’s timeline of May 2025 for a straw proposal. The CAISO should prioritize the implementation of BAA-level MPM improvements, including testing the CAISO BAA for BAA-level MPM, ahead of the other two scoping items. Implementation of BAA-level MPM improvements should occur, at the very latest, at the same time as the implementation of scarcity pricing revisions so that generators with the potential to exercise market power cannot do so in a manner that triggers scarcity pricing without the ability for the CAISO to properly prevent such actions.

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

CalCCA has no other comment at this time.  

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

Please see the Comments from the Department of Market Monitoring in PDF attached at bottom of this template.

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

Please see the Comments from the Department of Market Monitoring in PDF attached at bottom of this template.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

Please see the Comments from the Department of Market Monitoring in PDF attached at bottom of this template.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

Please see the Comments from the Department of Market Monitoring in PDF attached at bottom of this template.

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

Please see the Comments from the Department of Market Monitoring in PDF attached at bottom of this template.

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

The California Energy Storage Alliance (CESA) appreciates the opportunity to comment on the balancing authority area (BAA)-level market power mitigation (MPM) working group discussions.  CESA agrees that the current BAA-level MPM is leading to excess mitigation within the WEIM footprint outside of the CASIO BAA and the BAA grouping methodology will more appropriately test for competitiveness. 

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

CESA believes a discussion on pivotal supplier treatment should not be isolated to BAA-level MPM.  The justification for changing the pivotal supplier treatment should apply similarly to BAA-level market power mitigation and local MPM.  Likewise, a common methodology should simplify implementation. 

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

CESA believes an impact test is needed to determine if BAA-level MPM process should be triggered.  In addition, CAISO demonstrated that the grouping approach can result in instances where the competitive LMP cannot be calculated.  The impact threshold could serve as the competitive LMP in those instances where the grouping approach could not calculate a competitive LMP.   

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

CESA believes the BAA-level MPM timeline could be accelerated; however, an updated CAISO BAA structural competitiveness analysis must be performed prior to development of a straw proposal. 

CESA does not support the premise that scarcity pricing and 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.

CAISO should publish separate straw proposals for scarcity pricing and BAA-level MPM. 

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

No additional comments. 

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

PG&E supports CAISO’s efforts to revise the BAA-level MPM to ensure fair and competitive market outcomes. We are committed to working collaboratively with CAISO to identify robust solution.

PG&E does not yet have a position on the BAA grouping methodology. PG&E would like to see further evidence of the method’s effectiveness; specifically, tests that reflect real CAISO market conditions and the complexity of its actual size.

While PG&E appreciates CAISO's efforts and the examples presented on Nov. 6, there are concerns about potential unforeseen consequences. For instance, CAISO mentioned that a competitive child group of BAAs within an uncompetitive mother group might not be mitigated. However, if the child group is not the highest priced, it may still be mitigated even if it is competitive.

Given the complexity of the actual system compared to the examples shown, PG&E believes that simulative tests with historical data for representative periods are necessary. These tests will help reveal any unforeseen consequences and assure stakeholders that the proposed grouping method effectively addresses issues like over-mitigation during off-peak times and ignoring external transfers before further development.

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

Mitigation Targets: Before discussing mitigation targets, PG&E believes there should be an agreement on the definition of competitive LMP, which includes impacts from external transfers and all internal resources, in the context of BAA MPM. Currently, CAISO's Local Market Power Mitigation (LMPM) and BAA-Level Market Power Mitigation (BAA MPM) approaches mitigate suppliers based on competitive LMP, regardless of whether they are pivotal. Specifically, in LMPM, every resource with uncompetitive congestion price components is mitigated, while in BAA MPM, all resources with uncompetitive BAA MEC are mitigated.

Dynamic Pivotal Supplier Test: PG&E finds the Dynamic Pivotal Supplier Test conceptually reasonable. To better understand its market impact, PG&E requests that CAISO provide references to its application in other markets and how those market structures differ from CAISO’s, especially when EDAM is implemented.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

Impact Test: PG&E finds the concept of an impact test reasonable but believes several questions need thorough discussion before reaching a conclusion:

1. Fairness and market consequences when bids meeting mitigation requirements fall above and below the impact threshold.
2. Frequency of impact tests resulting in higher prices for customers due to price differences within the impact threshold, leading to non-mitigation of resources.
3. Likelihood of resource mitigation during off-peak times when a BAA is import congested, as price differences may still exceed the impact threshold.

Impact Thresholds: PG&E believes the impact threshold should be robustly determined initially in a simulative environment using sufficient historical market data and should adapt to changing future market conditions. Specifically, the impact threshold should be adjusted under emergency conditions and integrated with Scarcity Pricing to incentivize market capacity while preventing price spikes from market power abuse.

Additionally, PG&E believes the impact threshold should consider resource costs, as Bid Cost Recovery is based on mitigated bids.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

PG&E finds the proposed timeline of the straw proposal reasonable. In future working groups, PG&E hopes that CAISO will consider presenting alternative solutions, particularly those used in other ISO/RTO markets, and compare their pros and cons with the proposed solutions. 

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

PacifiCorp is generally supportive of the grouping methodology. PacifiCorp believes the testing approach more accurately reflects the supply available to meet demand in EDAM and WEIM BAAs and that it will lead to a fairer MPM test overall.

If it is assumed that the CAISO BAA is always competitive, the group that includes the CAISO BAA should automatically pass the BAA MPM test. This maintains the assumption in BAA-Level MPM today that BAAs unconstrained in the import direction with the CAISO BAA are structurally competitive since the CAISO BAA is itself structurally competitive.

PacifiCorp does not have concerns with how the competitive LMP would be determined in the grouping methodology.

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

PacifiCorp is supportive of further discussing dynamically evaluating pivotal suppliers in order to apply mitigation to pivotal suppliers only if the grouping methodology is implemented. In PacifiCorp’s opinion, dynamically evaluating pivotal suppliers for mitigation without the grouping approach will likely only impact small suppliers within EDAM and WEIM BAAs since most BAAs have a concentration of supply among a few suppliers. It seems to PacifiCorp that pursuing a dynamic test would be a lot of effort for marginal improvements to the BAA-level MPM test. However, dynamically evaluating pivotal suppliers in the grouping methodology makes sense to PacifiCorp. In the company's view, it will more accurately determine which suppliers are able to exert market power in the larger group from those suppliers that are likely not able to. PacifiCorp acknowledges the CAISO’s point that there is a potential for strategic behavior if only pivotal suppliers are subject to mitigation, but PacifiCorp believes this risk is too low to justify mitigating all suppliers within a group.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

PacifiCorp is supportive of further evaluating whether an impact test could be used for BAA-Level MPM. It would appear using impact tests for MPM could potentially provide benefits to the market. Specifically, resources could better signal their willingness to generate without the risk of being mitigated and incrementally dispatched. For further evaluating whether impact tests could be used for BAA-level MPM, PacifiCorp has the following questions:

• Would the impact test apply to a supplier’s entire portfolio of resources, or individual resources within a supplier’s portfolio?
• If used in the grouping methodology, would the impact test be used in each grouping step?
• Would all the resources in a supplier’s portfolio be subject to mitigation, or only the resources that failed the impact test?
• What should stakeholders consider when determining a threshold for a supplier’s portfolio of resources, assuming the impact test is applied to the entire portfolio?

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

PacifiCorp is supportive of targeting a straw proposal by May 2025. Based on PacifiCorp’s comments above, the company believes there needs to be at least one meeting to further evaluate dynamically determining pivotal suppliers and for more discussion on using an impact test.

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

PacifiCorp asks the CAISO to evaluate if changes proposed to BAA-level MPM could affect the clearing time of the markets, particularly the real-time dispatch. This information would inform stakeholders of BAA-level MPM enhancements that are not viable because they cause the market optimization to run too long.

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

 PGP supports the approach outlined for grouping BAAs to assess competitiveness. This approach appropriately recognizes the evolving WEIM footprint and begins to address problem statement 1. “The BAA-level market power test may underestimate a BAA’s true structural competitiveness because it tests BAAs in isolation without considering external supply.”  Analysis from the ISO has indicated that this should not be overly complicated to implement and could improve the accuracy of the current mitigation approach, which addresses complexity vs benefits tradeoffs raised by some stakeholders. Regarding the details of the grouping approach, PGP would like to understand if intertie bidding needs to be enabled in EDAM areas to automatically consider transfers from outside of the footprint competitive supply. Further analysis supporting this assumption may be required.

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

PGP supports the objective of reducing over mitigation of non-pivotal suppliers (that cannot unilaterally influence market outcomes) but we recommend further analysis of whether the impact test or dynamically evaluating pivotal groups is the most effective way to accomplish this goal in light of the tradeoffs identified.If the mitigation of pivotal suppliers only concept was introduced by the Market Surveillance Committee, it may also be helpful to include any discussion or relevant opinions from that group as reference materials to improve the context around origination of this concept for participants, and to clearly articulate within the initiative the associated problem statement they identified with this recommendation, if it differs from the concern of over mitigation.

PGP recognizes the important and growing role of opportunity-cost based resources with intra-day storage, who may be uniquely impacted by mitigation during off-peak and shoulder periods, and for hydro resources, who may have non-energy objectives that may be partially met using bidding strategies in the marketplace that may not be fully captured through the Hydro DEB in all circumstances. If  market bids are not accompanied by structural market power, and therefore should not be impacting other market participants negatively, market mechanisms should not be treating this as an exercise of market power.  Mitigation should apply when non-competitive conditions are found, resource offers are above a conduct threshold (in this case the DEB inclusive of adders), and a price impact from these offers that is above tolerable levels is indicated. This combination of conditions and mitigation measures should appropriately identify and mitigate for conditions of potential market power in alignment with standard market power mitigation practices. PGP would like to discuss if the introduction of the impact test solves the identified issues (improves bidding flexibility), and if so, recommends evaluating whether the impact test, the dynamic evaluation of pivotal groups to identify pivotal suppliers, or a combination best addresses this initiative’s problem statements. If an impact test is added, it is unclear whether the design and implementation complexity of dynamically identifying the pivotal group would result in a material change in outcomes sufficient to warrant the addition of this concept.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

 PGP supports analysis of the inclusion of an impact test to complement the mitigation framework and would like to see analysis of whether this, in combination with the BAA grouping, can sufficiently address problem-statement 3. “The current BAA-level MPM uses triggers that subject BAAs to mitigation most frequently during hours when prices are generally low.”  As discussed in the meeting, the DEBs include the equivalent of a conduct threshold that can serve as an initial test of market participant behavior. This threshold is already built into the market design and applies transparently across the suite of generators and technology-types within the market, aligning with consistency, ease of implementation, and transparency principles for the market design. PGP would like to see analysis of whether inclusion of an impact test may negate the need for evaluation of pivotal vs non-pivotal suppliers once the grouping approach has identified non-competitive areas. If an impact test is included, this may naturally accomplish the intended outcome of improving bidding flexibility for small, non-pivotal suppliers.  

Given that the DEB adders are generally %-based, PGP recommends an impact threshold that is also a relative measure, recognizing that the threshold should be higher in times of high prices. Similarly, a minimum threshold ($) may provide a reasonable management tool to add operational flexibility during times of low prices while reducing the need to trigger the test, and support resolution of problem statement 3. PGP would like to see analysis on the mitigation data already analyzed to interpret whether the introduction of an impact test could have the desired effect of improving operational flexibility for intra-day storage resources and opportunity-cost based hydro resources in balance with the overall market and policy objectives of this initiative.  Finally, PGP notes that there may be benefits from a learning and regulatory perspective from adopting an approach that is widely used among other RTOs.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

 PGP recommends pursuing analysis on the components of the BAA grouping and MPM refinement that have broad stakeholder support concurrently with the development of scarcity pricing policy, with the hopes that additional complexity and design features are not required to accomplish the objectives of this portion of the initiative. The scarcity and fast-start pricing topics will require significant ongoing effort, and we recommend moving on to these less mature design topics as soon as possible to meet a May deadline. The project plan provided offers a useful roadmap that will help participants to engage efficiently in this initative and we support a pace that enables forward progress with minimal review of prior concepts. 

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

PGP appreciates staff responsiveness to questions and the willingness to explore new approaches and theoretical concepts to manage issues that have been identified with the analysis so far. From a process perspective, a review of principles should be undertaken in advance of presentation of further analytical findings. The core objective of the design changes should be to improve the accuracy of mitigation under a clear definition of uncompetitive conditions and the potential for abuse of market power.

We also recommend that the ISO continue to regularly contextualize various proposed design features within their applicability to the WEIM/EDAM area and/or the CAISO BAA, given the existing differences in mitigation approach and that various changes will apply to different parts of the market differently (while they may ultimately make the approaches more similar across the footprint). 

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

City Light supports a grouping  methodology to assess competitiveness. This approach better reflects and recognizes the broader WEIM footprint that has developed since its inception. City Light supports efforts to achieve the benefits enumerated by staff through this approach, including more accurate competitiveness assessments by considering broader supply, the reduction of unnecessary mitigation, and more accurately being able to reflect actual market conditions and dynamics. City Light also supports PGP’s suggestion for additional analysis of the grouping approach and a grouping + impact test to determine the best and potentially simplest approach to addressing the problem statements.

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

City Light believes the ability to refine the identification of suppliers who genuinely have the potential to exercise market power and to avoid unnecessary mitigation of smaller suppliers is compelling. While this approach sounds like a reasonable change, if this approach does move forward, City Light would appreciate greater discussion of the trade-offs identified such as the degree to which identifying the pivotal group dynamically may be computationally intensive and what those secondary impacts might be (such as decreased accuracy, implementation difficulty and expense). We believe it is also important to consider the likelihood for suppliers to manipulate their portfolios to avoid mitigation, and anticipated magnitude of Type II errors (false negatives). Having a greater understanding of the magnitude of these trade-offs would help us be useful as CAISO assesses the various approaches and works toward developing a straw proposal.

At this time we do not have an opinion on dynamically evaluating pivotal groups.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

City Light is interested in further exploring the use of an impact test and would appreciate the CAISO doing a deeper dive with stakeholders around the potential benefits of utilizing this tool, more dialogue on best practices used in other areas of the country, and how this option interfaces with other MPM tools. This discussion would also help to inform positions on best approaches for thresholds for the impact test.

Impact tests as a tool for MPM have been an area of discussion in regional DAM decision discussions. City Light appreciates CAISO’s analysis and assessment of whether the potential application of an impact test would provide benefits for CAISO’s markets. This work will help to inform the broader convesation in the region, as well as within this stakeholder initiative.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

City Light supports a straw proposal target by May 2025 and feels that the workshop timeline suggested by CAISO will facilitate meeting that target date. City Light appreciates that both this workstream as well as the Scarcity and Fast Start Pricing work are all tracking similar deadlines. We understand that this is requiring the CAISO and stakeholders to take up a number of complex issues in a relatively short time frame, but believe that this approach will support the consideration of the region’s DAM options. We support PGP’s suggestion that CAISO should move onto any of the less mature design topics as soon as possible to help support meeting the May deadline.  

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

City Light appreciates CAISO’s review of these issues and supports CAISO’s efforts to improve upon its current MPM processes and to understand what approaches will best serve its markets, resolve identified concerns, improve mitigation practices and resolven potential uncompetitive conditions. As noted above, MPM has been a key consideration in the discussions around DAM decisions in the region. This Stakeholder Initiative will help to inform broader conversations about DAM options.

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

Six Cities’ Response:  The Six Cities generally support adoption of a grouping approach for evaluating and mitigating market power at the BAA level.  Any such grouping methodology should include evaluation of potential market power within the CAISO BAA, rather than continuing to assume that the CAISO BAA always is competitive.  The Six Cities’ support for application of a grouping methodology to evaluate BAA level market power rests on recognition of the enhanced access to supply sources achieved by the Western Energy Imbalance Market and anticipated under the Extended Day-Ahead Market.  At the same time, it has been widely recognized that overall supply conditions throughout the western region have tightened, especially during net peak hours.  Application of a grouping approach to BAA-level market power mitigation and including the CAISO BAA in the evaluation process appropriately consider both the benefits of west-wide market expansion and the challenges of tightening supply in the CAISO BAA and throughout the region.

In comments submitted on October 5, 2023, the CAISO’s Department of Market Monitoring (“DMM”) identified several potential concerns with a sequential grouping approach that appears similar to the methodology described during the November 20, 2024 working group session.  The Six Cities recommend further evaluation of the suggested grouping methodology and the approach for determining the competitive LMP with specific reference to the concerns previously identified in the DMM comments, along with potential modifications to the methodology that could mitigate any concerns that remain. 

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

Six Cities’ Response:  The Six Cities oppose limiting mitigation only to the top three pivotal suppliers in a non-competitive area in view of the potential that some additional combination of other suppliers could be able to exercise market power.  Further consideration of applying mitigation to an expanded group of significant suppliers (as opposed to all suppliers within a non-competitive area) may be reasonable, but the Six Cities would appreciate further information regarding the anticipated costs versus benefits of such an approach, including potential consequences of increased complexity.  Because mitigation allows all suppliers to bid up to Default Energy Bids based on estimated marginal costs plus a buffer, it is not clear that mitigating all suppliers results in unreasonable restrictions on prices.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

Six Cities’ Response:  At this time, the Six Cities are not persuaded that a conduct and impact test offers sufficient benefits over a pivotal supplier approach to justify increased complexities that would appear likely to result from implementation of a conduct and impact approach.  Before spending significant resources to refine a conduct and impact proposal, the Six Cities request additional analysis to support a conclusion that application of such an approach would offer benefits or advantages adequate to justify additional costs of development and implementation.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

Six Cities’ Response:  The Six Cities have no recommendations at this time for revisions to the working group sequence.

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

Six Cities’ Response:  The Six Cities recommend that the CAISO include evaluation of the impacts of proposed BAA level market power mitigation measures in the market simulation analyses preceding implementation of the EDAM and Day-Ahead Market Enhancements.

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

SCE supports CAISO’s proposed grouping methodology for market power mitigation. The proposal provides a methodical approach by utilizing existing practices for testing structural competitiveness, with an added layer that considers how the market will evolve in EDAM. This added layer includes grouping BAAs together to test structural competitiveness using the three pivotal supplier test. This additional step is the right approach, given how EDAM will optimize the dispatch solution for least-cost dispatch if transfer constraints allow for it.  

SCE recommends CAISO move forward with the method to the next phase of the initiative as it has received a lot of support from stakeholders.   

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

SCE believes that mitigation should extend to all suppliers in uncompetitive BAAs, not just to the 3 pivotal suppliers. This approach ensures a more comprehensive and effective mitigation strategy. Resources that do not belong to pivotal suppliers can still significantly impact the price of congestion by not bidding competitively. By extending mitigation to all suppliers, the market can prevent any supplier from exploiting uncompetitive conditions.  As stated in the Price Formation Enhancements November 20th, 2024 presentation on slide 20, the 3 pivotal supplier test only identifies structural issues but does not indicate which suppliers can exert market power.  Replacing the 3rd largest supplier with the next largest suppliers in the supplier stack could still result in uncompetitive conditions hence why mitigation should apply to all resources that aren’t bidding competitively.

SCE supports the current use of the Dynamic Competitive Path Assessment to identify potential market structure issues.  The DCPA is a simple evaluation that first uses price separation between BAAs as a precursor before performing the 3-pivotal supplier test.  The test has been proven to provide timely identification of suppliers whose actions can impact market prices.   By continuing to use this test, the market can ensure that mitigation measures are applied appropriately and effectively, adapting to changing market conditions and preventing any potential market manipulation.  Furthermore, SCE believes the using DCPA is simple enough where it won’t require much computational capacity from the market optimization.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

SCE believes any Market Power Mitigation design should foster competitive bidding resulting in the most economical and efficient outcome.  It is crucial that any design should ensure fair competition and prevent any supplier from manipulating market prices to their advantage.  This is a crucial principle to follow to maintain market efficiency and to protect consumers from unfair pricing. 

SCE believes the impact test does the opposite of preventing suppliers from manipulating market prices and does not support including the impact test as part of the BAA-level mitigation framework. The impact test offers suppliers the opportunity to bid uncompetitively, i.e., higher and above marginal cost, while also avoiding mitigation.  SCE believes CAISO should stay the course and not introduce new designs when CAISO has already received much support for the BAA grouping method.  Over-mitigation appears to be a major concern for some stakeholders, and SCE believes the grouping method can help solve that problem allowing BAAs to be tested as a group alleviating the concerns of over-mitigation.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

SCE appreciates CAISO’s effort in addressing critical issues identified in the Price Formation Enhancements initiative.  However, SCE has significant concerns regarding the concurrent progression of Fast-start Pricing, Market Power Mitigation, and Scarcity Pricing and the impact on stakeholders’ ability to provide meaningful discussions and feedback.   

SCE believes that CAISO could achieve the development of a comprehensive straw proposal by May 2025 if the focus is solely on Market Power Mitigation. SCE recommend that CAISO consider addressing Market Power Mitigation and Scarcity Pricing as separate initiatives. Fast-start pricing should also be delayed until a straw proposal is developed for Market Power Mitigation and Scarcity Pricing.  A more focused approach, rather than a parallel one, could prove more effective by enhancing stakeholder focus, participation, and analysis.   

SCE urges CAISO to consider a more phased approach to these initiatives. By prioritizing Market Power Mitigation initially and subsequently addressing Scarcity Pricing, it will offer sufficient time for stakeholders to discuss the different designs with their respective organizations and to be fully engaged in these initiatives.  This approach will lead to more robust and well-supported market designs.

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

SCE does not have any additional comments.

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

The challenge with providing input on the CAISO’s current ideas is that they build off of a test that is trying to test local market power but doing so under a blunt approach of BAA mitigation that introduces confusion on whether there are system market power risks in addition to the known local market power concerns. CAISO’s existing Balancing Authority Area (BAA) mitigation is a blunt implementation decision to allow CAISO to mitigate WEIM BAA that are generally vertically integrate when the transfers into its BAA are binding. Vistra acknowledges that the original implementation applied to BAA largely representing vertically integrated utilities may have been a reasonable short cut when WEIM was in its early days. Now that WEIM has expanded significantly and certain parties are even considering moving their participation into the day-ahead market, it is time to apply a durable market power mitigation test throughout the entire market footprint that works for an extended day-ahead market (EDAM) and extended real-time market (i.e., Western Energy Imbalance Market or WEIM). The BAA mitigation applies when BAA power balance constraint binds as a proxy for the transfer constraint into that BAA binding and assuming all resources should be mitigated since it’s a single “pivotal” suppliers.

While CAISO’s proposed ideas to expand the BAA mitigation to apply at a BAA group instead of every BAA and to consider adopting an impact test are trying to resolve infirmities with its BAA mitigation applying only to non-CAISO WEIM BAA that are largely vertically integrated utilities, the threshold question is whether the entire market footprint should be subject to the same type of market power mitigation testing and whether that testing should be for system and/or local risks. On the first question, we believe sound market design would test all resources for mitigation consistently across the entire footprint under a singular, elegant market power mitigation design. That could either be a traditional conduct and impact test if we arrive to a conclusion that there are both system and local (internal to BAA and between BAA) risks of market power. That singular design could be expanding the existing Local Market Power Mitigation (“LMPM”) test that includes constraint and resource test to binding transfer constraints and factoring the transfer congestion into the calculation of competitive versus non-competitive Locational Marginal Prices (“LMP”) at the resource’s node.

CAISO should provide analysis to support whether it believes there is a need to test for system market power or local market power both internally to a BAA and the transfers between BAAs. Vistra’s understanding of the need is the latter to test whether a resource has a locational advantage to exercise market power on uncompetitive constraints where constraints include internal BAA and BAA transfer constraints. Vistra’s understanding is that there are not concerns of system market power across the entire EDAM or WEIM footprint but instead concerns that there could be local areas whether internal to a BAA or regionally within a zone of BAA that would be vulnerable to exercise of local market power.

Given our understanding of the market power risks, Vistra recommends the CAISO deactivate the BAA mitigation and extend its local market power mitigation test to:

• Perform the Dynamic Competitive Path Assessment that performs the constraint test on binding internal constraints and binding transfer constraints across the entire footprint in both its day-ahead and real-time,
• Calculate the Non-Competitive Locational Marginal Price () at a resource node to be the sum of its shift factor times shadow price for noncompetitive internal and non-competitive transfer constraints,
• Calculate the Competitive Locational Marginal Price () at a resource node to be the sum of its shift factor times shadow price for only competitive internal and transfer constraints,
• Mitigate resources where its resource test fails when the non-competitive congestion component is greater than 0 because it has a locational advantage that would have an incentive to withhold counterflow supply to the binding constraint would identify failures due to the combination of both uncompetitive internal and transfer constraints, and finally

• Deactivate non-CAISO WEIM BAA mitigation as it is unnecessary given the above improvements.

Finally, Vistra continues to urge the CAISO to implement EDAM in a manner that would allow this level of LMP decomposition. While we understand CAISO wants to imbed the marginal cost of transfer congestion in the Marginal Energy Costs, this choice appears to be driving CAISO into making sub-optimal design choices instead of ensuring the Marginal Cost of Transfers (“MCT”) is a separate component that can be used in instances like this more appropriately to identify the Non-Competitive or Competitive LMPs.

If CAISO refuses to pivot to test the binding constraints, internal or transfers, under our well vetted local market power mitigation design then at a minimum it should cure the significant flaws that exist with its BAA mitigation. At a minimum, CAISO should group BAAs to try to avoid instances of testing when there are no binding transfer constraints and apply some method of locational advantage test for the resource so that the resource is only mitigated if it is situated in a location that has the potential to exercise market power through withholding supply of counterflow to relieve the binding transfer constraint. It will be difficult to evaluate whether any impact threshold proposed is just and reasonable or not as this approach is trying to fit a square peg (i.e., local market power test) into a round hole (i.e., system market power test). The short answer on the impact threshold discussion is that whether a resource is locationally situated at a place that it may have an incentive to withhold counter flow supply that would relieve a binding transfer constraint is its shift factor to that uncompetitive transfer constraint.

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

The CAISO’s existing local market power mitigation has reasonable rules for testing for uncompetitive constraints using pivotal suppliers. The CAISO should extend this LMPM and use the existing rules.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

The CAISO’s existing local market power mitigation has reasonable rules that include performing a resource test where the non-competitive LMP calculates the portion of the LMP congestion that would be due to uncompetitive constraints. If this non-competitive LMP is greater than zero then the resource is situated at a location with a shift factor that would result in a benefit to the resource if it were to withhold its counterflow capacity. Otherwise, the resource would not benefit from any withholding and as such should not be mitigated. The CAISO should extend its LMPM design, and use the existing rules for testing for potential impact of exercising local market power.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

If CAISO pivots to the approach outlined above to eliminate BAA mitigation and extend its LMPM to transfer constraints, then this timeline is feasible. If CAISO desires an approach that tries to rationalize employing its flawed BAA mitigation to CAISO BAA while also applying the existing LMPM test then this timeline is not feasible as it will be much more complex and need to be rigorously vetted to ensure that it does not lead to overmitigation of resources within CAISO BAA once extended.

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

None at this time.

1. BAA Grouping Approach: Please provide your organization's feedback on the proposed BAA grouping methodology for market power mitigation:

a) Do you support grouping BAAs to assess competitiveness? Why or why not? b) What changes, if any, would you recommend for the testing approach? c) What changes, if any, would you recommend for determining the competitive LMP?

Grouping Approach

WPTF acknowledges and appreciates the effort and thought CAISO has dedicated to advancing the grouping approach for BAA-level market power mitigation. We agree that it is crucial to ensure the test accounts for all available competitive supply in order to avoid over-mitigation, which can lead to Type I errors. While we conceptually support the idea of considering all available supply when evaluating BAAs—since it represents an improvement over the current framework—we remain concerned with CAISO’s approach. It seems to combine aspects of a local market power mitigation framework with elements of a BAA-level or system-wide market power mitigation framework, creating potential inconsistencies and unintended consequences.

We believe there is likely a more suitable method for testing BAA/system-level market power that deserves further consideration. We continue to have reservations about using a constraint-based trigger for system/BAA-level market power. This trigger often activates during hours or intervals when the potential to exert market power is unlikely, as demonstrated by DMM’s analysis. This can lead to over-mitigation and Type I errors. Mitigating when market power does not exist (i.e., over mitigation) will not only suppress prices during periods of tight supply, when one would want and expect strong price signals, but also deter the entry of additional and much needed supply.

System/BAA-level market power mitigation should only be applied when the bidding behavior of a group of entities within the system or BAA intentionally manipulates prices to their advantage because they know the market will need their supply to meet load. Such conditions giving rise to the ability to exert market power needs to be predictable and persistent enough that it would be profitable for an entity to strategically bid high to artificially inflate prices; otherwise they are essentially pricing themselves out of the market and foregoing all potential revenue.

The CAISO’s approach, however, is triggered by a binding transfer constraint shadow price, which increases the MEC in a specific BAA. This does not necessarily equate to structurally uncompetitive conditions at the BAA or system level. The trigger must align with the test, and the test must address the specific issue at hand. The current approach fails to make these necessary connections, which is further discussed in response to question #5 along with potential changes to appropriately align the trigger, test, and issue.

Additionally, we seek further clarification from CAISO before providing any additional feedback on the grouping approach. Specifically, we would like to:

• Review examples of the test with actual test hours/intervals,
• Understand how, or if, virtuals are considered,
• Gain clarity on how net buyers are treated,
• See the actual formulas used to calculate the numerator and denominator in the RSI formulation, and
• Understand the type of demand used—forecasted or cleared given that the day-ahead market only clears bid-in supply against bid-in demand, which naturally serves as a market power mitigation mechanism

We would also like to better understand how the supply in an adjacent BAA is considered when testing a given BAA. For example, assume BAA 1 has a higher MEC than BAA 2 because BAA 1 has two transfer constraints that are binding between BAA 1 and other BAAs. Also assume there is a third transfer constraint with BAA 2 but it is not binding so BAA 2 has a lower MEC than BAA 1. When testing BAA 1, what amount of supply from BAA 2 is considered in the formulation? If the transfer constraint is not binding does the test include all supply up to the transfer limit or only the supply that is flowing on that transfer constraint?

Lastly, we would like to better understand how the pricing and triggering mechanism would work if you have two BAAs that have multiple transfer constraints between the two BAAs. Take for example, BAA 1 and BAA 2 and assume there are two transfer constraints (TX A and TX B) between BAA 1 and BAA 2. If both TX A and TX B are binding with $10 and $30 shadow prices respectfully, is the SMEC in BAA 1 (assume it is on the importing side) increased by $40 to create the BAA specific MEC? Also, if only TX A is binding but there is still transfer capacity on TX B, will this still result in price separation between BAA 1 and BAA 2, trigging the market power mitigation mechanism to test BAA 1 even though there is still transfer capacity between the two?

Competitive LMP

Regarding the competitive LMP, WPTF disagrees with the premise that a negative competitive LMP is appropriate. While we understand that the approach will take the higher of the competitive LMP and DEB—meaning that no resource will be mitigated to a negative value if every resource has a non-zero DEB in place. CAISO has noted previously where some resources have inappropriately low DEBs. In such cases, the more robust competitive LMP, as set today under LMPM, has helped mitigate issues arising from inaccurate DEBs. We should not design a market feature with a known flaw and assume that all resources will be protected simply because the CAISO’s DEB formulation is believed to be robust enough. Both CAISO and stakeholders recognize that there is room for improvement in the DEBs, as they do not always accurately reflect costs. Relying too heavily on the DEBs creates a significant risk.

Additionally, WPTF has concerns about using the MEC from the lowest-priced BAA added to the competitive group as the competitive LMP. The MEC is essentially the SMEC plus congestion from transfer constraints. First, we request confirmation from CAISO regarding whether a BAA can have an MEC that reflects negative transfer congestion due to a binding transfer constraint going out of the BAA. If confirmed, we do not believe it makes sense to simply use the MEC of the lowest-priced BAA. For example, if a BAA has a lower MEC, which is considered the competitive LMP, but that MEC includes negative congestion due to being upstream from a transfer constraint, it may not be appropriate to use that lower MEC value as the competitive LMP for the entire group. To illustrate, suppose the last BAA added to a group has an MEC of $10, but that MEC consists of $25 from the SMEC and -$15 from transfer constraint shadow prices. Should the competitive LMP for the larger group reflect the negative transfer constraint and use $10, or should it reflect the $25/MWh from the SMEC?

2. Pivotal Supplier Treatment: Please share your feedback on the concepts for identifying and mitigating pivotal suppliers:

a) Should mitigation only apply to pivotal suppliers, or should it extend to all suppliers in uncompetitive BAAs? b) What are your thoughts on dynamically evaluating pivotal groups to identify pivotal suppliers?

WPTF generally supports the idea of only mitigating suppliers that can exert market power – thus only those identified as pivotal suppliers. However, it is our understanding that that may require additional computational time, thus recognizing there may be some tradeoff discussions needed.

3. Impact Test Implementation: Please comment on the proposed "impact test" in the BAA-level mitigation framework:

a) Do you support including an impact test? Why or why not? b) What are your thoughts on impact thresholds and how they may vary based on: • Frequently constrained areas • System emergency conditions • Peak versus off-peak periods • Absolute ($/MWh) or relative (%) thresholds

WPTF generally believes that including the impact test can help reduce over-mitigation, but it is crucial that the threshold is set appropriately. Before we can opine on an appropriate threshold, it would be useful to spend more time evaluating the thresholds set by the other ISOs in context with their pricing parameters as that will obviously impact the threshold (e.g., a $300/MWh threshold with a $2,000/MWh PBC-like parameter is different than a $300/MWh threshold with a $10,000/MWh PBC-like parameter). It would also be useful to see actual sample days done with CAISO bid and pricing data to determine the distribution of impacts we may see to help inform us of an appropriate threshold.

WPTF also believes further discussion is needed to better understand how CAISO plans to use only the impact portion of a conduct and impact test. For instance, we assume that when running the impact test, CAISO will replace all bids (or possibly just the pivotal supplier bids?) with a proxy bid to determine the magnitude of impact. However, it is unclear whether the results showing a nodal LMP impact greater than the threshold would lead to mitigation of all resources or only the resource located at that LMP. Having clarity on this from CAISO would help us better assess the inclusion of an impact test.

We would also like to highlight that most other ISOs with an impact test include both the conduct and impact portions. WPTF would appreciate CAISO walking through how a conduct and impact test could work within the EDAM and then comparing it to the current approach of including only the impact portion within the existing framework as another alternative design.

4. Implementation Timeline:

a) What are your thoughts on targeting a straw proposal by May 2025? b) What changes, if any, would you suggest for the working group sequence?

WPTF believes that it is Imperative market power mitigation is not implemented unless scarcity pricing reform is also implemented. As noted for several years in these conversations, there are significant negative market impacts if mitigation occurs during tight system conditions and the CAISO has yet to implement a robust scarcity pricing framework. Thus, WPTF is more concerned about the timing of the parallel efforts and ensuring they are aligned than with the actual schedule itself, although scarcity pricing has been a top priority for several years, so we strongly encourage the CAISO to continue making progress. 

5. Other Comments: Please provide any additional feedback not addressed in the sections above.

WPTF continues to struggle with the idea of using a trigger and test that is more appropriate for local market power mitigation to be used for system/BAA-level market power mitigation. System/BAA-level market power mitigation should be applied (1) when data suggests the system/BAA is structurally uncompetitive in a persistent and predictable way and (2) when the bidding behavior of a group of entities within the system/BAA is done in such a way to artificially inflate prices to their benefit. While the current BAA-level market power mitigation may have worked well for WEIM BAAs at the onset of WEIM, it does not seem appropriate to continue down this path for a market with multiple buyers and sellers. Thus, WPTF provides below further discussion as to our concerns with the current grouping approach and highlights a potential alternative approach we believe warrants further discussion. The alternative approach also leverages the existing LMPM framework but more appropriately tests the counterflow on the binding constraints that are causing the price separation for competitive conditions.

The grouping approach proposed by the CAISO continues to lean on the existing framework which hinges on price separation occurring between two BAAs and then testing the BAA that has the “higher” price for market power. First, the BAA with a higher price may be price separated from the other BAA not because of the way the entities within its BAA are bidding. As suggested by the DMMs analysis, this can be due to the fact that another BAA has surplus renewable generation and is wanting to export as much as possible to other BAAs and/or is curtailing generation. This does not seem to be a situation where the entities within the receiving BAA are bidding in a way to exert market power within its own BAA. Rather this is a situation where due to the resource mix in another BAA, the receiving BAA now is subject to market power mitigation.

Furthermore, the price separation occurs due to binding transfer constraints. Thus, if another MW of transfer capacity was made available, there would not be price separation.  This is akin to an internal transmission constraint binding and causing price separation within the system. Under this situation though, with the LMPM, the CAISO tests for uncompetitive conditions based on the supply and demand for counterflow on that constraint because it’s the shadow price of the binding constraint causing prices to separate. Similarly here, the BAA prices separate due to the shadow price on a transfer constraint that is added to the SMEC to create BAA specific MECs. The difference in pricing is solely due to the transfer constraint. Thus, we believe its worth discussing if its more appropriate to evaluate the competitiveness of counterflow on the binding transfer constraint since that is what is driving the price separation rather than using the price impact from the binding transfer constraint as a trigger to then turn around and test the supply and demand for the entire BAA (or group of BAAs). Specifically, the transfer constraints would be treated and tested in the same manner as binding internal transmission constraints. We recognize there are some details that would need to be discussed, such as what supply to be considered counterflow supply, but believe it warrants exploration as an alternative solution to the grouping approach.

Lastly, WPTF would like to understand how other ISOs test for BAA/System level market power alongside local market power. WPTF continues to be concerned that due to the interaction of the two different mitigation tests and methodologies, there will be unintended consequences. For example, two different competitive LMPs does not make sense. Lowering one just because of the math of the other does not make sense either. It is our understanding that no other ISO has two different approaches for BAA/system level market power and local market power.