Comments on Issue paper

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

APS appreciates the opportunity to comment on this important initiative and appreciates the CAISO splitting it into its own initiative for robust stakeholder involvement to take place. APS is supportive of all the items that have been proposed in scope for this initiative for further policy development. APS ranks the relative importance to us as WEIM entity in the following order:

1. Fast Start Pricing
2. Scarcity Pricing
3. MIO and BCR for ESR
4. Market Power Mitigation Grouping

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

APS appreciates previous improvements in this area in Summer 2021 Enhancements initiative and supports further consideration of price formation during stressed system conditions where all energy and ancillary service products may not be procurable through the market. When these products are not available to be procured to the full requirements the prices should reflect these shortage conditions. APS is supportive of evaluating the inter-play between ancillary service scarcity pricing and energy pricing to incentivize supply to be available and demand to be scheduled responsive to price signals in these tight conditions.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

APS is supportive of price formation reforms to include fast start pricing and recognizes the changes that other ISO/RTOs have implemented as forming a solid basis for evaluation within the CAISO markets. As the Western grid modernizes the flexibility made available to the market by fast-start resources is a valuable service and we believe the cost of this service is best represented through the marginal price as opposed to potential payment to individual resources outside of the market through bid cost recovery.  

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

APS appreciates and supports CAISO and stakeholders’ discussion on improvements to the market multi-interval optimization and bid cost recovery in relation to energy storage resources participation in the market. APS is at an infancy stage in our participation in the real-time market with energy storage resources so have little operational experience but appreciate those with more experience proposing improvements to these resources’ participation in the market.  

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

APS is supportive of exploring the grouping market power mitigation and understanding better the benefits expected from this approach. It may be helpful to apply this new approach to past instance of mitigation within the WEIM under the current approach to represent the expected reduction in mitigation when there is competitive supply among the grouped BAAs. APS would also be interested in understanding the impacts to the CAISO BAA from this new approach as there is no current approach that tests the CAISO BAA for potential market power at a system level. APS would like to better understand the justification that the CAISO BAA can no longer be assumed to be competitive as it is the basis for the current WEIM entities market power mitigation trigger in non-CAISO WEIM BAAs. APS supports appropriate mitigation within the WEIM and is hopeful this modified approach better identifies through the dynamic path assessment and 3 pivotal supplier tests when the potential for market power is realized.  

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

APS would like to better understand the interplay between scarcity pricing and system wide or BA wide market power mitigation.  APS has concerns that at the point scarcity pricing kicks in MPM will kick in and just reduce offers to incremental cost.  This could lead to reliability concerns as suppliers choose to provide supply outside of the footprint.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

The Bonneville Power Administration (Bonneville)[1] appreciates the opportunity to comment on the issue paper and commends CAISO for allowing multiple stakeholders to present varying perspectives at workshops. 

Market clearing prices should accurately reflect the needs of the grid and the costs of meeting those needs.  Bonneville shares the belief of many other stakeholders in that appropriate price signals in the short term are essential in both incenting additional supply to prevent involuntary load shedding and ensuring the lowest long-term cost for load.  We encourage CAISO to adopt policies that limit out-of-market actions and side payments by allowing transparent, accurate price formation to communicate these appropriate price signals. 

Bonneville believes the issue prioritization to be:  scarcity pricing, fast-start pricing, and market power mitigation. 

[1] Bonneville is a federal power marketing administration within the U.S. Department of Energy that markets electric power from 31 federal hydroelectric projects and some non-federal projects in the Pacific Northwest with a nameplate capacity of 22,500 MW. Bonneville currently supplies around 30 percent of the power consumed in the Northwest. Bonneville also operates 15,000 miles of high voltage transmission that interconnects most of the other transmission systems in the Northwest with Canada and California. Bonneville is obligated by statute to serve Northwest municipalities, public utility districts, cooperatives and then other regional entities prior to selling power out of the region.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

Supply scarcity is not unique to CAISO, but the CAISO risks reliability if it is unable to attract sufficient supply to meets its demand at all times.  Observations from the events of summer 2020 demonstrated that prices did not reflect system conditions, adding to the reliability risk.  Bonneville supports the incremental approach CAISO has discussed to address this problem, largely by expanding the ability for short-term prices to rise with the goal of attracting additional supply.  Appropriate price formation should also incent long-term development of resource alternatives that help reduce undesirable system events.

Bonneville encourages CAISO to recognize that a catastrophic consequence of poor price formation, including that of scarcity pricing, is load shedding.  Therefore, scarcity pricing enhancements should be evaluated against the full cost of shedding load, recognizing such costs extend beyond the immediate economics of such an event.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

Bonneville encourages the CAISO to make a purposeful effort in adopting an appropriate fast-start pricing alternative.  Other organized markets in the country have implemented fast start pricing algorithms, and the technical challenges discussed by CAISO do not appear insurmountable.  If CAISO continues to believe implementation challenges cannot be overcome, Bonneville requests additional discussion regarding the specific challenges and potential solutions. 

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

No additional comments at this time.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

Bonneville’s primary concerns regarding market power mitigation is over-mitigation, which previous Bonneville comments state is inconsistent with our need to retain the ability to meet future load obligations without reliance on market purchases (resulting from dispatched hydro generation triggered by CAISO mitigation).  At times, market power mitigation can appear as a tool to simply lower prices rather than prevent the actual exercise of market power.  Further, BPA would urge the CAISO to reconsider their view towards a conduct and impact test similar to that employed by other markets.  Bonneville reiterates any price mitigation method should adequately incorporate all costs, including opportunity costs.

Bonneville believes BAA Grouping could marginally decrease over-mitigation by more accurately determining whether uncompetitive conditions exist.  We are supportive of measures that improve the accuracy of this determination.  As discussions in this initiative may incorporate the possibility of system market power mitigation, we request additional information regarding what it means for CAISO to be import constrained and how pivotal supply may be demonstrated for the entire CAISO footprint.   

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

No additional comments.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

The California Community Choice Association (CalCCA) understands the CAISO’s desire to ensure the market sends the right price signals during periods of scarcity and supports a robust market power mitigation design that prevents the exercise of market power on both the system and local level. At this point, more information is needed before determining that current scarcity pricing mechanisms are insufficient to incent resource availability during scarce system conditions. Fast-start pricing seems superfluous considering existing ancillary service and flexible ramping products, especially considering resources are already compensated for their start-up and commitment costs outside of the locational marginal price (LMP). In addition, examples and data around the amount uneconomic storage dispatch are cause for further investigation, but careful consideration must be made before advancing any of the proposals discussed thus far. Finally, CalCCA strongly supports further development of a system market power mitigation mechanism that applies to the CAISO balancing authority area (BAA) and Western Energy Imbalance Market (WEIM)/future Extended Day-Ahead Market (EDAM) BAAs.

In summary:

• The CAISO should provide more information to demonstrate current scarcity pricing mechanisms are insufficient to incent resource availability during scarce system conditions;
• The CAISO should not propose fast-start pricing given its impacts on existing market products such as the flexible ramping product and the fact that the CAISO covers generators’ start-up costs outside of the LMP;
• The CAISO should further explore the root causes of uneconomic storage dispatch before committing to any of the proposed changes discussed in this context to date; and
• The CAISO should further develop the proposed grouping approach to system market power mitigation in the straw proposal.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

It is not clear that current scarcity pricing mechanisms are insufficient to incent resource availability during scarce system conditions. In the straw proposal, the CAISO should provide specific information regarding how modifications to scarcity pricing would enhance reliability while avoiding adverse market impacts such as withholding to activate scarcity pricing. Any scarcity pricing proposals advanced in the straw proposal must be carefully designed to not encourage withholding supply to trigger scarcity pricing. Further, any scarcity pricing proposal must be tied to a robust system market power mitigation proposal to protect consumers from the exertion of market power.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

CalCCA does not support including fast start pricing within the scope of this initiative. The CAISO market is uniquely situated to incent and compensate resources that provide the operational attributes necessary to reliably meet flexible ramping needs, making fast-start pricing superfluous. The flexible resource adequacy program requires load serving entities (LSEs) to conduct advanced procurement of resources with operational attributes needed to meet ramping needs. In addition, the flexible ramping product compensates resources for providing flexible ramping capability needed to address changes in forecasted net load and uncertainty in the real-time market. Finally, the CAISO  compensates resources for their start-up and commitment costs outside of the market, rather than including such costs in the LMP, so that resources fully recover their marginal costs.

The CAISO and the Department of Market Monitoring (DMM) raised a series of concerns with fast start pricing within the Federal Energy Regulatory Commission (FERC) Notice of Proposed Rulemaking (NOPR) in Docket RM17-3. These concerns include that fast start pricing would undermine the CAISO’s efforts to procure flexible resources in real-time, result in infeasible dispatches, and weaken price signals to provide ramping capability when coupled with the flexible ramping product. These concerns remain relevant, and the CAISO should not abandon them in favor of implementing an unnecessary pricing structure.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

The CAISO should include the multi-interval optimization’s interaction with storage resources in scope of the Price Formation Enhancements initiative to further examine instances of uneconomic storage dispatches. The CAISO and stakeholders must cautiously consider the proposed solutions discussed thus far and the potential impacts of such proposals.

The presentation by Rev Renewables at the June 9, 2022 workshop provides an example of the CAISO market dispatching storage resources uneconomically.[1] The example in Rev Renewables’ presentation shows a storage resource discharging at prices above $900 per megawatt-hour (MWh) at the beginning of hour ending (HE) 9. Despite having additional state-of-charge available at the end of HE 9, the resource receives a charge instruction when prices were still high, above $500 per MWh, and a subsequent discharge instruction once prices decrease to $35 per MWh.

This initiative should explore the root causes of uneconomic dispatches, such as the one described in Rev Renewables’ example, before making a determination on the best path forward. Rev Renewables’ example shows high prices early in the morning (HE 9) when prices typically would not reach the $900 per MWh level under normal conditions. This may signal that there was a localized transmission issue resulting in unexpectedly high prices at that time. The market would not capture unpredictable system conditions such as these in the advisory prices. Alternatively, uneconomic dispatches such as those presented by Rev Renewables could result from systemically inaccurate advisory prices. The CAISO’s presentation at the October 1, 2021 Market Surveillance Committee (MSC) meeting demonstrates storage resources are dispatched out of merit up to roughly 20 percent of the time in some months.[2] If these dispatches are primarily driven by systemically inaccurate advisory prices, efforts to improve the accuracy of these prices would be the best path forward.

CalCCA cautions against proposals that jump to removing the multi-interval optimization or removing storage resources from the multi-interval optimization. Removing storage resources from the multi-interval optimization could cause more harm than good, in terms of both reliability and economic efficiency, because the market would not position resources accounting for anticipated prices later in the day. Modifications to bid cost recovery may be an alternative to modifying the multi-interval optimization. However, this change could have significant cost implications and the CAISO and stakeholders should carefully consider the impacts of such a change before moving forward. Any proposed changes to resolve uneconomic storage dispatches should be advanced after more information is revealed regarding the root causes of the uneconomic dispatches.

[1] http://www.caiso.com/InitiativeDocuments/RevRenewablesPresentation-PriceFormationEnhancements-June9-2022.pdf

[2]             See slide 12 at http://www.caiso.com/Documents/EnergyStorageEnhancementsMIO-Presentation-Oct1_2021.pdf.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

CalCCA strongly supports including system market power mitigation in the scope of this initiative. The CAISO should develop a system-level market power mitigation methodology that applies to both the CAISO and other BAAs participating in the WEIM or future EDAM. The grouping approach described in the issue paper has merit and warrants further development. In the straw proposal, the CAISO should provide an assessment of different groupings of BAAs to determine the groups that need to be tested under system market power mitigation to ensure the CAISO’s methodology captures all instances when groups could exercise market power.  

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

CalCCA has no additional comments at this time.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

The California Energy Storage Alliance (CESA) appreciates the opportunity to provide feedback to the California Independent System Operator (CAISO or ISO) on the Issue Paper of the Price Formation Enhancements (PFE) Initiative. CESA supports the scoping process of the ISO, as it has allowed market participants to provide input ahead of the posting of the Issue Paper, fostering a broader understanding of the issues at hand and enabling more substantial feedback from stakeholders.

In these comments, CESA offers feedback on which issues pose the greatest challenges to achieve pricing efficiency and should thus be prioritized by the ISO. Furthermore, CESA recommends a series of initial analyses to better understand which measures or proposals posed by ISO within the Issue Paper merit further development. In addition, CESA requests inclusion of an additional topic to the scope of the PFE initiative. CESA’s comments can be summarized as follows:

• CESA supports consideration of higher penalty prices for ancillary service (AS) scarcity pricing.
  • CESA supports exploration of the proposal to raise penalty prices of both AS and the flexible ramping product and advises the ISO to produce examples that would capture the effects of penalty prices between $500/MWh and $1,000/MWh for both AS and the flexible ramping product.
• CESA strongly supports the incorporation of fast-start pricing methodologies to the markets administered by the CAISO.
  • CESA recommends the ISO estimate the price impacts of defining fast-start resources as either 30- or 60-minute start resources.
    • At this time CESA does not consider that any resource class should be excluded from the analyses.
    • These analyses should also estimate the impacts of applying fast-start pricing in either both the day-ahead and real-time markets or only the latter market.
• CESA supports the CAISO exploring a weight methodology to mitigate concerns related to multi-interval optimization for storage resources.
  • CESA recommends the ISO collaborate with experienced market participants to identify examples that could be used to test a series of what-if scenarios with different weights applied across the binding and advisory intervals.
  • Modifications to the bid-cost recovery (BCR) mechanism should be considered in conjunction to the CAISO’s revision of fast-start pricing rules.
• CESA requests consideration of the use of load conformance in the RT markets as part of the scope of the present initiative.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

CESA supports consideration of higher penalty prices for AS scarcity pricing

Scarcity pricing refers to the process of establishing and setting prices when there is insufficient supply to cover the energy, ancillary services, or ramping product requirements. In the Issue Paper, the ISO notes that, following the events of August 2020, a series of modifications to scarcity pricing rules have been enacted.[1] These enhancements have been critical to ensure that supply receives adequate price signals in periods of grid stress, thus incenting the participation of a broader set of resources. In this context of increased weather, load, and supply variance, CESA agrees with the importance of bolstering scarcity pricing rules and processes to ensure the ISO has the adequate toolkit to preserve reliability in all hours. As noted in the comments below, CESA is particularly supportive of the ISO focusing its consideration of scarcity pricing enhancements as they relate to AS penalty prices.

While the improvements adopted following the August 2020 rolling outages have had significant impact, the ISO notes in the Issue Paper that the current energy bid caps may not provide adequate incentives to market participants, particularly during tight system conditions. Namely, CAISO has observed that load-serving entities (LSEs) face little price risk when day-ahead energy prices clear near the bid cap, thus incenting LSEs to under-schedule their load and wait for the real-time market to secure supply. On the other hand, resources scheduled for energy in the day-ahead market face little price risk when day-ahead prices clear near the bid cap if their supply is unavailable in real-time. While CESA agrees that these conditions may occur, it is unclear that energy scarcity pricing enhancements would address the issue at hand. As further developed in CESA’s response to Question 6 of these comments, the systematic under-scheduling of load has created significant pricing inefficiencies, forcing the ISO to routinely use load conformance to mitigate the potential for energy shortfalls. Thus, rather than considering incremental improvements to the current energy scarcity pricing methods, the ISO should prioritize consideration of means to minimize under-scheduling that would force the usage of load conformance.

As noted in the Issue Paper, scarcity pricing is also utilized when the ISO determines that there will be insufficient supply to meet AS and ramping product requirements. This has proven to be complex since the ISO only procures incremental AS in the real-time market if the amount procured in the day-ahead market is not sufficient to meet requirements. Today, the real-time market re-optimizes ancillary services with energy only in the intervals when the real-time market must procure additional ancillary services. For this reason, AS scarcity prices do not always occur in tight conditions. In addition, the CAISO only procures AS in the fifteen-minute market and not the five-minute market. As a result, ancillary services scarcity pricing in the real-time market only affects fifteen-minute market prices and not five-minute prices.

Given the increased weather, load, and supply variance, CESA agrees that consideration of enhancements to AS scarcity pricing is timely and reasonable. In the Issue Paper, the ISO posed raising the penalty prices of both AS and the flexible ramping product (FRP) from its current value of around $250/MWh to a value closer to $1,000/MWh. The ISO argues that this would allow prices to rise more gradually to the $1,000/MWh power balance constraint penalty price ahead of tight supply conditions. Moreover, the ISO notes that, if the flexible ramping product demand curve had a higher maximum price than the current $247/MWh, these higher prices would be reflected in energy prices as the market forgoes greater FRP procurement. CESA supports exploration of this proposal and advises the ISO to produce examples that would capture the effects of increased penalty prices for both AS and the flexible ramping product. After reviewing the best practices overview provided by the ISO, CESA recommends considering values between $500/MWh and $1,000/MWh for this initial exploration.  

[1] Namely, the ISO has increased the energy bid cap and power balance constraint penalty price in the pricing run from $1,000/MWh to $2,000/MWh, energy bids above $1,000/MWh are now allowed, and energy from generation the ISO releases from contingency reserve to serve load is now added to the bid stack with a bid price equal to the market’s applicable energy bid cap.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

CESA strongly supports the incorporation of fast-start pricing methodologies to the markets administered by the CAISO

Fast-start pricing refers to policies or methodologies created to recognize that fast-start resources are the marginal resource used to meet the next increment of demand. Today, the two most-commonly used fast-start pricing tools are minimum output limit relaxation and the inclusion of commitment costs into the locational marginal prices. In the Issue Paper, the ISO notes that it is willing to reassess its initial position regarding the need for fast-start pricing in the markets it administers. In this context, CESA welcomes the ISO’s recognition that fast start pricing could result in prices that more accurately reflect system marginal costs in a regional market context.

The exclusion of fast-start pricing in the markets the ISO administers creates significant market inefficiencies and fails to provide the adequate incentives for maximizing the use of cleaner, lower cost resources that can displace costly thermal peakers. As noted by Powerex and the Public Power Council (PPC), the ISO’s exclusion of fast-start pricing has required development of a framework of side-payment structures that not only distort the markets as they fail to properly account for the real cost of serving California’s load, but also effectively subsidize a subset of polluting thermal peakers.[1] By using side-payment frameworks to compensate for minimum run time and start-up costs, the ISO effectively allows these assets to be dispatched as if they had significantly lower marginal costs, resulting in overreliance on these resources. If, alternatively, these assets had all of the aforementioned costs reflected within their marginal costs, the ISO market optimization would seek to minimize their use, a desirable goal that aligns with ratepayer interests and decarbonization efforts. Instead, the current exclusion of fast-start pricing continues to keep Californians dependent on costly peakers by overutilizing them and allowing them to be made whole because of the fact that their dispatch was not driven solely by marginal costs.[2] The lack of fast-start pricing has required such a reliance on side-payments structures, such that BCR mechanisms are almost exclusively used for this purpose,[3] despite the fact that other resource classes could benefit from reforms to this mechanism, as explored in CESA’s answer to Question 4 of these comments.

In this context, CESA strongly supports the incorporation of fast-start pricing methodologies to the markets administered by the ISO. This being said, CESA is aware of the ISO’s concerns surrounding the potential for infeasible dispatch instructions as a result of the interactions between fast-start pricing and the ISO’s FRP dispatches. As such, CESA recommends the ISO prepare an overview of these concerns, the potential issues that could occur, and any and all examples that could inform the discussion surrounding how best to incorporate fast-start pricing without hindering the current optimization process. Moreover, CESA urges the ISO to build upon the analyses produced by Powerex and PPC in order to enable stakeholders to provide substantial feedback regarding the definition of fast-start resources and its application in either both the day-ahead and real-time markets or solely in the latter. To this effect, CESA recommends the ISO collaborate with Powerex, PPC, and their consultants to estimate the price impacts of defining fast-start resources as either 30- or 60-minute start resources. At this time, CESA does not consider that any resource class should be excluded from the analyses. As noted above, these analyses should also estimate the impacts of applying fast-start pricing in either both the DA and RT markets or only the RT market.

[1] Powerex and PPC, “The Importance of fast-Start Pricing in Market Design: Including the Cost of Starting and Operating Natural Fast Peaking Units in Wholesale Market Prices”, June 2022, at 12. Available at: http://www.caiso.com/InitiativeDocuments/Powerex-and-Public-Power-Council-Report-Importance-of-Fast-Start-Pricing-in-Market-Design.pdf

[2] Ibid, at 13.

[3] Ibid, at 12.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

CESA supports the CAISO exploring a weight methodology to mitigate concerns related to multi-interval optimization for storage resources

In the Issue Paper, the ISO notes that, today, its market dispatches resources optimally across a single financially binding 5-minute interval and 12 additional advisory 5-minute intervals in the RT market. Importantly, this optimization includes identical weighting for each market interval. This process is called multi-interval optimization (MIO). In previous initiatives, stakeholders have underscored that MIO has resulted in uneconomic dispatch instructions for energy storage resources. Particularly, stakeholders have highlighted that MIO might prematurely discharge or unduly charge a resource in anticipation of the prices estimated over the next 12 advisory intervals, resulting in suboptimal dispatch instructions for the binding interval.

After being tangentially raised in both the Resource Adequacy (RA) Enhancements and Energy Storage Enhancements (ESE) initiatives, CESA appreciates the ISO’s consideration of this issue within the present initiative. As the Issue Paper acknowledges, some of the market participants with the most significant experience managing energy storage assets within ISO’s footprint have underscored how MIO has materially affected their operations and expected revenue streams, complicating their bidding strategies and, more importantly, resulting in dispatch instructions that do not align with the ISO’s reliability objectives. In this context, three proposals are posed for consideration:

• Option 1: Removing/making optional MIO for energy storage resources.
• Option 2: Placing different weights across the binding and advisory intervals considered in MIO.
• Option 3: Mitigate the impacts of uneconomic dispatch associated with MIO by awarding BCR so that the resource is made financially whole in the real-time market if it is dispatched uneconomically in real-time.

CESA does not believe that Option 1 is desirable, as it would lead to a disparate treatment of resources within the ISO optimization, and it may yield more reliability and operational concerns than it solves. Option 2, on the other hand, is promising and should be pursued immediately. To this end, CESA recommends the ISO collaborate with experienced market participants to identify examples that could be used to test a series of what-if scenarios with different weights applied across the binding and advisory intervals. These examples should keep bidding equal across all cases to easily identify the effects of the applied weights. The cases should explore scenarios in which:

• Only the binding interval receives a higher weight, and all advisory intervals are weighted equally.
• The binding interval is weighted higher, and the early advisory intervals receive a higher weight relative to the later advisory intervals.

Regarding Option 3, CESA considers that this approach should be considered in conjunction to the ISO’s revision of fast-start pricing rules. As noted in our response to Question 3 of these comments, BCR has been largely utilized to make whole a single resource class due to the lack of fast-start pricing within the ISO’s markets. Insofar as the ISO is able to revise fast-start pricing rules, it will be able to modify the BCR so that it may be readily applicable to make whole all resource classes, not just thermal generators. As such, CESA considers that Option 2 might be better suited for immediate development and refinement while Option 3 should be developed in conjunction to fast-start pricing rules.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

CESA offers no comments at this time.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

CESA requests considering the use of load conformance in the RT markets as part of the scope of the present initiative

As noted in our response to Question 2 of these comments, CESA is concerned with the routine use of load conformance in the RT market by the ISO as a means to mitigate what appears to be a systematic under-scheduling of load on behalf of load serving entities within the DA market. Load conformance effectively modifies the final loaf requirement the RT markets need to clear against supply, A positive conformance effectively increases the load requirements and will alter the overall market solution. According to a March 2022 report by the CAISO, load conformance overall tends to be positive and have a larger magnitude in the hour-ahead scheduling process (HASP),[1] where positive conformance has reached values as high as 2,000-3,000 MW, as shown in Figure 1.

Figure 1.  Monthly trend of historical HASP conformance [2]

CESA acknowledges that load conformance is an essential tool available to the ISO to provide the market signals necessary to retain reliability. Nevertheless, the fact that these tools are available does not imply that they should be needed with the frequency and magnitude they are currently used. The usage of load conformance paired with the misaligned LSE incentives that the ISO alludes to in its discussion of scarcity pricing within the Issue Paper warrant consideration of means to mitigate systematic under-scheduling of load and its effects on pricing. Thus, CESA request considering the use of load conformance in the RT markets as part of the scope of the present initiative.

[1] CAISO, “Load Conformance Impact on the Resource Sufficiency Evaluation”, March 2022, at 8.

[2] Ibid, at 9.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

Please see the pdf attached below the final question for DMM's complete set of comments.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

Please see the pdf attached below the final question for DMM's complete set of comments.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

Please see the pdf attached below the final question for DMM's complete set of comments.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

Please see the pdf attached below the final question for DMM's complete set of comments.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

Please see the pdf attached below the final question for DMM's complete set of comments.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

Please see the pdf attached below the final question for DMM's complete set of comments.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

The Public Advocates Office (Cal Advocates) at the California Public Utilities Commission (CPUC) is California’s independent consumer advocate with a mandate to obtain the lowest possible rates for utility services consistent with reliable and safe service levels, and the state’s environmental goals.

Cal Advocates makes the following recommendations:

Scarcity Pricing Issues

• The CAISO should balance the use of scarcity price incentive payments with the use of new and existing penalty tools.
• The CAISO should enhance the Resource Adequacy Availability Incentive Mechanism (RAAIM) to appropriately penalize resource adequacy (RA) resources that fail to deliver.
• If the CAISO adopts scarcity pricing, its use should be limited to the period that begins when the CAISO initiates load shedding and ends when either the CAISO cancels load shedding, or investor-owned utilities (IOUs) begin to restore load, whichever is earlier.

Fast Start Pricing Issues

• Given that the CAISO has historically had concerns about fast-start pricing, the CAISO should explain why fast-start pricing would be more economically efficient under the Extended Day-Ahead Market than under the current market structure. 
• Cal Advocates agrees with the CPUC Energy Division’s observation that if fast-start pricing is a necessary prerequisite for Extended Day-Ahead Market (EDAM), then the benefits and costs of fast-start pricing should be considered holistically in assessing whether or not EDAM provides net benefits to CAISO ratepayers.
• Any proposal to implement fast-start pricing must consider how to address the interaction with CAISO load-serving entities’ (LSEs) current long-term capacity contracting and exceptional current RA market pricing trends.

Multi-Interval Optimization (MIO) Issues

• The CAISO should not eliminate the MIO.
• The CAISO should not remove storage resources from the MIO.
• The CAISO should further examine advisory interval weighting.  
• If the CAISO implements bid cost recovery for uneconomic dispatch in the MIO, the CAISO should also require resources to pay back gains from MIO dispatches that yield additional revenue using the same counterfactual scenarios used in calculating BCR compensation. 

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

• The CAISO should balance the use of scarcity price incentive payments with the use of new and existing penalty tools.

In this Price Formation Enhancements (PFE) initiative, the CAISO will consider scarcity pricing changes to improve real-time market price incentives during periods of tight supply conditions.[1]  Scarcity pricing is a market tool that sets special prices for energy, ancillary services, and ramping products when supply of those products is insufficient to meet demand, namely during a power balance constraint violation.[2]  The CAISO states that scarcity prices are important to attract supply and reduce demand during tight system conditions and also to incentivize resources to be available and perform.[3]

Scarcity pricing adjusts the clearing price of energy paid to generators, which is ultimately borne by ratepayers.  When scarcity pricing occurs, the real-time market (RTM) price of energy can increase.  This increase can penalize generators who fail to deliver energy if they were committed in the day-ahead market (DAM) since those generators are typically charged the real-time price of energy for the volume of undelivered energy.  However, energy that is scheduled in the RTM that successfully delivers is paid the scarcity price, which typically is above the usual locational marginal price (LMP) of energy used during normal power balance constraint conditions. 

Since the CAISO intends to use scarcity pricing to incentivize resources to be available and perform, the PFE initiative should also consider options to properly penalize resources that fail to meet delivery obligations.  Scarcity pricing must exceed the DAM price to effectively penalize non-deliveries scheduled in the DAM that are charged the RTM price.  The CAISO should explain exactly when a DAM-scheduled resource would face costs for non-delivery, and should determine the necessary price spread between the DAM price and RTM scarcity pricing that would effectively incentivize generators to deliver committed energy.  In order for the CAISO and stakeholders to develop efficient solutions, the CAISO should also clarify if bid cost recovery may in some instances prevent this type of buy-back penalty.[4]

The CAISO should also explore other types of penalties for non-deliveries to ensure scheduled resources actually deliver.  At the June 9, 2022, stakeholder meeting, the CAISO and CPUC’s Energy Division also discussed that certain imports may not be liable to pay the buy-back penalty at real-time prices if those import resources fail to deliver.[5]  The CAISO should explain in its next proposal how certain imports may not be subject to penalties for non-delivery, including any factors that may weaken the effectiveness of existing penalties like the Uninstructed Deviation Penalty.[6]  Existing penalties or lack of penalties for undelivered commitments should be enhanced or developed in this initiative in order to incentivize successful deliveries and help mitigate the use of scarcity pricing.

• The RAAIM should be enhanced to appropriately penalize RA resources that fail to deliver.

Scarcity pricing would likely occur when available supply is insufficient to meet demand.  The CPUC’s RA program establishes resource obligations to make all necessary supply available to the CAISO.  The CAISO maintains the RAAIM in part to penalize RA resources for failing to make themselves available to and deliver to the CAISO.[7]  The Department of Market Monitoring has stated that the RAAIM as currently designed “provides fairly weak incentives for resources to be available and perform.”[8]  Contracted RA resources are either owned by LSEs or contracted by LSEs to be available to the CAISO according to RA obligations.  Failing to effectively penalize RA resources for reneging their obligations threatens reliability and enables a resource to collect unearned capacity payments.

The CAISO should, either in this or another initiative, enhance the RAAIM to strengthen the penalties for non-delivery of RA resources.  The purpose of the RA fleet is to create sufficient supply to meet reliability events, and that purpose is undone if RA resources fail to deliver.  At this time, Cal Advocates does not offer a proposal for how to best enhance RAAIM but one step in the right direction would be to increase the RAAIM Price   from $3.79 per kilowatt-month to a rate that better reflects the value of capacity during scarce conditions.[9] 

• If the CAISO adopts scarcity pricing, its use should be limited to the period beginning when CAISO initiates load shedding and ending when the CAISO cancels load shedding, or IOUs begin to restore load, whichever is earlier.

The CAISO has outlined two categories of concerns that are scoped into the scarcity pricing component of the PFE initiative: inappropriate incentives for market participants during tight system conditions, and pricing during ancillary services shortages.[10]  Discussion during the July 12, 2022 workshop suggested that the CAISO is open to making changes to the demand curve for the Flexible Ramping Product (FRP) to increase its bid cap and provide an earlier price signal that ancillary services may be approaching scarcity.[11]  The CAISO should clarify if it intends to consider raising the bid cap beyond $2000 per megawatt-hour (MWh) for scarcity pricing, or if it intends to prevent prices from collapsing during a load shedding event.  Cal Advocates opposes raising the bid cap to another, higher level because raising the bid cap is unlikely to solve the bidder incentive problems.  Moreover, raising the bid cap would simply relocate the same challenges to a higher price level and thereby increase ratepayer costs. 

If the CAISO does adopt scarcity pricing in some form, it will need to determine an appropriate trigger mechanism.  Intuitively, ongoing load shedding might seem to be a useful trigger.  However, load shedding is an inherently lumpy process in terms of capacity and time.  For example, during the August 14, 2020 load shedding events, the CAISO ordered two phases of 500 MW load shedding for a total of one hour.[12]  However, PG&E failed to comply with the one hour load shedding timeline and exposed their customers to outages lasting up to 2.5 hours,[13] and PG&E’s load was not fully restored until 30 minutes after the CAISO canceled the Stage 3 Emergency.[14]  If scarcity pricing were tied to load shedding, CAISO ratepayers would have been exposed to excess prices for a full 30 minutes longer than if CAISO had declared a Stage 3 Emergency.  This exposure effect would have been even more egregious on August 15, 2020, when the Stage 3 Emergency lasted 20 minutes but PG&E shed load for a full 90 minutes.[15]  Tying scarcity pricing to load shedding would have resulted in 70 superfluous minutes of costs to ratepayers on August 15, 2020. 

Beyond the temporal problems of tying scarcity pricing to load shedding, the amount of load shed also poses challenges to attributing the downstream costs for scarcity pricing.  Notably, while the IOUs responded with a total of 1,072 MW load shed on August 14, 2020, the FRCA notes that “some of the smaller [utility distribution companies] failed to respond”[16] and that “[s]elected non-CPUC jurisdictional entities…stated that they did not shed load on either day.”[17]  It is possible that the non-participation of non-CPUC jurisdictional entities led to extended load shedding events because these entities failed to respond to CAISO orders.  This failure would violate cost causation principles by exposing CAISO ratepayers to longer periods of high prices that could have been ameliorated if all entities shed load according to their obligations.

Alternatively, scarcity pricing could be tied to the CAISO issuing an Energy Emergency Alert (EEA) 3.  However, the EEA3 comprises actions undertaken in the CAISO’s former Stage 2 and Stage 3 emergencies.[18]  For example, the CAISO’s EEA3 procedure calls for steps to avoid load shed, such as “procuring Legacy RMR and any other available Out-of-Market Operating Reserve.”[19]  If these actions are successful, they can avoid the need for the CAISO to call for load shedding.  Another problem with tying scarcity pricing to the EEA3 is that if an EEA3 is initiated under the same conditions as Stage 2 emergencies, scarcity pricing would likely begin prior to load shedding and could end long after load shedding.  The timing of Stage 2 and 3 emergencies on August 14, 2020 demonstrates this problem.  Figure 1 shows a timeline of events on August 14, 2020.  The CAISO declared a Stage 2 emergency at 3:20 pm (yellow box), upgraded to Stage 3 at 6:58 pm (initiating load shedding, the red box), downgraded to a Stage 2 at 8:38 pm, and cancelled the Stage 2 emergency altogether at 9:00 pm.  If the CAISO’s EEA3 is in fact triggered by the same contingencies as a former Stage 2 emergency, and scarcity pricing were tied to the EEA3, ratepayers would have faced almost six hours of elevated prices, which is untenable. 

Figure 1: August 14, 2020 Emergency Stages and Load Shedding Timeline

Focusing on the August 14, 2020 example, the optimal time period when scarcity pricing could have had utility for the CAISO was the period from when the CAISO began to shed load (6:38 pm) until the time when load began to be restored (7:59 pm, green box).  Artificially maintaining prices at the bid cap would not have helped prior to the declaration of the Stage 3 emergency because the Real-Time Market and Fifteen Minute Market had already been at or around the bid cap for about 40 minutes, sending a clear and obvious price signal.[20]  Conversely, the market settling prices did not increase in the interval immediately after SCE began to restore load at 7:59 pm, indicating that the load shedding was adequate for restoring the CAISO’s operating reserves above the 6% threshold.[21]  It would not be rational to continue scarcity pricing when CAISO entities are able to successfully begin restoring load, even if the CAISO has not yet downgraded its emergency status. 

The events of August 15, 2020 yielded a slightly different scenario for determining when to end a scarcity pricing event.  Figure 2 illustrates the timeline of CAISO emergency stages and load shedding.  On August 15, 2020, the CAISO cancelled its Stage 3 Emergency at 6:48 pm, three minutes prior to the IOUs beginning to restore load at 6:51 pm.[22]  In this scenario, the period when a form of scarcity pricing might be useful for attracting external bids was from the start of load shedding to the time when the CAISO cancelled load shedding (green box). 

Figure 2: August 15, 2020 Emergency Stages and Load Shedding Timeline

In summary, if the CAISO is considering utilizing scarcity pricing to attract external generation, any mechanism that artificially maintains bid prices at the bid cap should be targeted precisely and limited to the period that begins when the CAISO initiates load shedding and ends either when the IOUs begin to restore load (as on August 14, 2020) or when the CAISO cancels load shedding (as on August 15, 2020), whichever occurs first. None of these conditions map neatly onto the EEA levels that the CAISO now uses to guide system emergencies. 

[1] CAISO, Price Formation Enhancements Issue Paper, July 5, 2022 (Issue Paper), p. 3.

[2] The power balance constraint is the normal operating and pricing conditions of the integrated forward market and real-time market which allows the marginal price of supply (generation) to clear at a level that provides sufficient energy and/or ancillary service products to meet demand.  If the power balance constraint system is unable to procure sufficient supply, a power balance constraint violation occurs and the CAISO will use other tools, including scarcity pricing, to modify load and/or increase generation.  See also CAISO Tariff Appendix C, Section C.

[3] Issue Paper, p. 3.  See also, Issue Paper, p. 7 (“Penalty prices should be sufficiently high to incentivize performance of scheduled resources and induce availability of resources (including imports) to the maximum extent possible.”)

[4] The CAISO describes that in some instances bid cost recovery can be made if a DAM schedule is found to be infeasible in the RTM.  State of charge requirements for energy storage resources may be one legitimate instance of infeasibility, but it is unclear if bid cost recovery is being appropriately applied in other instances if a DAM commitment fails to deliver.  Issue Paper, p. 19.

[5] Price Formation Enhancements Stakeholder Workshop at 0:14:29, June 9, 2022 (Workshop Video), available at: https://youtu.be/dOap2rQvihY?t=869.

[6] Uninstructed Deviation Penalties apply costs to deliveries that deviate from CAISO schedules.  Negative deviations are charged 50% of the real-time LMP.  CAISO BPM CC4470 Version 5.0, available at: http://www.caiso.com/Documents/February29_2008Amendment-Tariff-ImplementCharge_UndeliveredImportorExportBidsinDocketNo_ER08-628-000.pdf.  See also CAISO Tariff 11.23.

[7] RAAIM also makes incentive payments if an RA resource performs well or above its commitment.  CAISO Tariff 40.9.6(b).

[8] CAISO Department of Market Monitoring, Comments on Resource Adequacy Enhancements Sixth Revised Straw Proposal – Phase 2A, February 1, 2021, p. 3, available at: http://www.caiso.com/Documents/DMMCommentsonResourceAdequacyEnhancements-SixthRevisedStrawProposal-Feb12021.pdf.

[9] The RAAIM Price is currently set at 60% of the CPM Soft-Cap Price of $6.31/kW-mo.  CAISO Tariff 40.9.6.1.

[10] Issue Paper, pp. 11-13.

[11] Workshop Video at 0:34:00, available at: https://youtu.be/dOap2rQvihY?t=2040.

[12] CAISO, CPUC, and the California Energy Commission, Final Root Cause Analysis: Mid-August Extreme Heat Wave (FRCA), January 31, 2021, p. 34.

[13] PG&E load shedding on August 14, 2020 lasted from 6:38 pm until 9:08 pm.  FRCA, p. 35.

[14] CAISO downgraded the Emergency from Stage 3 to Stage 2 at 8:38 pm on August 14, 2020.  FRCA, p. 29.

[15] FRCA, p. 35.

[16] FRCA, p. 36.

[17] FRCA, p. 35.

[18] CAISO, AWE to NERC EEA Training, April 20, 2022, p. 12, available at: https://www.caiso.com/Documents/Presentation-AWE-NERC-EEA-Training-Apr20-2022.pdf.

[19] CAISO Operating Procedure No. 4420, System Emergency, version 14.0, May 1, 2022, p. 13.

[20] Issue Paper, p. 8.

[21] Issue Paper, p. 8.

[22] Once again, PG&E was unable to restore load until much later at 7:55 pm.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

The CAISO states that it believes it is appropriate to reconsider fast-start pricing “[a]s the ISO and other entities explore broader regional market participation.”[1]  This connects the fast-start pricing reconsideration to the ongoing EDAM Initiative, which would integrate several external balancing area authorities into a larger market.  However, CAISO staff also suggested that the CAISO believes that fast-start pricing is supportable on its own merits,[2] although the CAISO has historically expressed concern over fast-start pricing.[3]  In its next proposal, the CAISO should explain why it believes fast-start pricing would be more economically efficient under EDAM than under the current market structure.  Additionally, Cal Advocates agrees with the CPUC Energy Division’s observation that if fast-start pricing is a prerequisite for EDAM, then the benefits and costs of fast-start pricing should be considered holistically in assessing whether EDAM provides net benefits to CAISO ratepayers.[4]  

Finally, any proposal to implement fast start pricing must consider how to address the interaction with CAISO LSEs’ current long-term capacity contracting.  A substantial share of RA is subject to Integrated Resource Plan or Renewable Portfolio Standard contracts with terms of 10-year terms (or longer),[5] and LSEs will be unable to renegotiate contract costs for the foreseeable future.  During the PFE workshop, the CAISO dismissed the link between capacity contract pricing and market revenues, suggesting that capacity payments should cover suppliers’ going-forward fixed costs.[6]  This is empirically a stale assumption.  The average price of RA capacity reported by CPUC-jurisdictional LSEs in 2020 was $4.97/kW-mo,[7] which far exceeds the Annual Technology Baseline estimate for the going forward fixed costs of a combined cycle thermal resource in 2020 at $2.25/kW-mo.[8]  Likewise, this heuristic assumption about capacity pricing is out of step with the historically exceptional circumstances and prices shaping the current RA capacity market.  The CPUC recently updated stakeholders on Summer and Midterm Reliability resource procurement, noting heretofore-unseen supply chain challenges such as manufacturing disruptions, shipping disruptions, market-tightening and intense competition with other markets, wide-ranging materials shortages, and commodity market challenges.[9]  Additional factors include the CAISO’s Interconnection Supercluster 14, which is extending deadlines and causing delays.[10]  The long-term implications of the current RA capacity market are not part of a recurring pattern of objections.  Where bidders have leverage due to the ongoing tightness of the capacity market, the competitiveness of a bidder’s bid increasingly turns on the bidder’s ability to translate estimated market revenues into bid discounts, even as the bid remains above true going-forward costs.

[1] Issue Paper, p. 13; see also Workshop Video at 48:37, available at: https://youtu.be/dOap2rQvihY?t=2917.

[2] Workshop Video at 1:12:40, available at: https://youtu.be/dOap2rQvihY?t=4360.

[3] Issue Paper, p. 14.

[4] Workshop Video at 1:22:00, available at: https://youtu.be/dOap2rQvihY?t=4920.

[5] See CPUC Decision (D.) 19-11-016, Decision Requiring Electric System Reliability Procurement for 2021-2023, November 7, 2019; issued in Rulemaking (R.) 16-02-007; and CPUC D.21-06-035, Decision Requiring Procurement to Address Mid-Term Reliability [2023-2026]), June 24, 2021; issued in R.20-05-003.

[6] Workshop Video at 1:16:40, available at: https://youtu.be/dOap2rQvihY?t=4600.

[7] CPUC, 2020 Resource Adequacy Report, April 2022, p. 24, available at: https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/resource-adequacy-homepage/2020_ra_report-revised.pdf.

[8] National Renewable Energy Laboratory, Corrected 2021 Annual Technology Baseline (ATB), August 12, 2021, “Natural Gas_FE” tab, retrieved from https://data.openei.org/submissions/4129.

[9] CPUC, Tracking Energy Development: Presentation at CEC Staff Workshop on Summer and Midterm Reliability, May 20, 2022, p. 5, available at: https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/summer-2021-reliability/tracking-energy-development/cec-may-reliability-workshop-tracking-energy-development-may-2022.pdf.

[10] CPUC, Tracking Energy Development: Presentation at CEC Staff Workshop on Summer and Midterm Reliability, May 20, 2022, p. 5, available at: https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/summer-2021-reliability/tracking-energy-development/cec-may-reliability-workshop-tracking-energy-development-may-2022.pdf.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

The CAISO seeks stakeholder input on proposed solutions to revise the MIO used in the real-time dispatch (RTD) market.[1]  Stakeholders claim that the MIO leads to un-economic dispatches in the RTD due to short-term forecast uncertainties.[2] 

Stakeholder suggestions include:

• Eliminate the MIO.
• Remove storage resources from the MIO.
• Place more weight on early advisory intervals than later advisory intervals.
• Award resources bid cost recovery (BCR) so that the resource owner is made financially whole in the real-time market if it the resource is dispatched uneconomically in real-time.

Cal Advocates recommends:

The CAISO should not eliminate the MIO.  The MIO is the primary tool used to position all resources to meet load in the real-time market under dynamic conditions by incorporating short-term system information that is not available in either the day-ahead or fifteen-minute markets.[3]  If the MIO is eliminated, operators would need to rely more heavily on exceptional dispatch (ED), which is not optimized, but rather issued in response to quickly changing conditions based on operator experience.  More frequent ED is likely to lead to a similar or greater level of un-economic dispatches for energy storage resources.

Storage resources should not be removed or be allowed to opt-out from the MIO.  As energy storage resources become a significant component of the CAISO fleet, storage will increasingly be needed to maintain system reliability.  If the MIO has visibility into only a part of the overall fleet, other resources such as gas units may be dispatched in real-time in place of storage to meet dynamic system conditions.  Such outcomes would lead to greater costs and greenhouse gas emissions.

The CAISO should further examine advisory interval weighting in the MIO.  The MIO dispatches resources in the next 5-minute interval (the binding interval) based upon forecasted prices in the subsequent 12 5-minute intervals (the advisory intervals.)  Stakeholders suggest that more weight should be placed on early rather than later advisory intervals because of greater price uncertainties in the later intervals.[4]   At the October 1, 2021, Market Surveillance Committee meeting, committee member Scott Harvey indicated that other ISOs use various methodologies to place more weight on earlier system price forecasts, but that the methodologies were largely heuristic, not sophisticated, and could lead to other unanticipated and detrimental outcomes.[5]  The CAISO should conduct rigorous testing of alternative weighting schemes using historical market data and should investigate both positive and negative effects on economic dispatch for individual resources, as well as impacts on system cost and reliability.

Any revisions to BCR should comprehensively evaluate changes for all resources, and not be implemented in isolation for specific resource types.  The CAISO should not adopt specific bid cost recovery modifications targeted at compensating energy storage for uneconomic dispatches in the MIO over just 12 five-minute intervals.  The CAISO should only modify BCR to achieve overall efficient market outcomes, while assuring that ratepayers do not inordinately bear the costs of BCR.

If BCR is implemented for uneconomic dispatch in the MIO for storage, Cal Advocates recommends that the resources be required to pay back gains from MIO dispatches.  Payments back to the CAISO should be calculated using the same counterfactual scenarios used in calculating BCR compensation to the resources. 

[1] Issue Paper, p. 3.

[2] Issue Paper, p. 16.

[3] Issue Paper, pp. 16-17.

[4] Issue Paper, p. 16.

[5] Market Surveillance Committee Meeting General Session, October 1, 2021, available at: https://www.youtube.com/watch?v=7Jg6M7r5FK4.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

Cal Advocates has no comment on this topic.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

Cal Advocates has no additional comments.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

Calpine appreciates the CAISO’s acknowledgement that modifications to price formation could improve the functioning of the CAISO markets.  Both supply and demand will respond to prices which accurately represent the reliability risks the CAISO faces. Calpine completely agrees that a retrospective review of the CAISO’s unexpectedly low prices during recent shortages indicates the need for change.

In addition, the recent passage of AB205 while beneficial in meeting reliability targets, could have profound impacts on price formation if unaddressed by the CAISO.  Specifically, AB205 encourages the development of a $5 billion strategic reliability reserve including generation and demand-side resources (e.g., extending OTC units, expanding ELRP programs and building new resources).  These resources, which could count in the thousands of MW, would be dispatched outside the CAISO markets during tight supply conditions.  This incremental supply would tend to reduce clearing prices precisely at times when the CAISO most needs to attract resources from outside the State and if unchecked could discourage the operation of resources inside the State. There is no better time to carefully consider implementation of scarcity pricing mechanisms that might counterbalance these potentially difficult outcomes.   

As was expressed in the collaborative paper produced by Calpine and GDS Associates (GDS Report), improvements to scarcity pricing would be our first and highest priority for CAISO consideration. Specifically, as in our ORDC proposal, prices should begin to reflect scarcity prior to, as well as during, tight supply conditions and those prices should rise above marginal costs.  As stated by MSC Member Jim Bushnell, in 2019:

Prices are supposed to rise to very high levels when system conditions get tight – to price levels that are well above the operating costs of all generation technologies.

In contrast to the recommendations of the GDS Report, the CAISO suggests raising the Flexible Ramp Product (FRP) and Ancillary Service (AS) demand curves.  As discussed below, Calpine does not object to careful implementation of these changes, but they will not result in effective scarcity pricing.  Neither of these products target or attempt to directly price the risk of aggregate capacity shortfalls.

We also highly prioritize further investigation of dispatch irregularities potentially driven by the multi-interval optimization (MIO).  Like Rev Renewables, Calpine has experienced storage unit dispatch (and to a lesser extent, conventional unit dispatch) that is inconsistent with binding price outcomes and results in uncompensated losses.    

Finally, we ask as our third priority, that the CAISO examine and discuss simple solutions to appropriately include the cost of fast-start resources in LMPs.   

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

As in the GDS Report, Calpine supports the CAISO’s consideration of raising the RT bid cap (and Power Balance Constraint or PBC) when the DA market experiences tight conditions.  Further, we agree with the assertions of the Issue Paper that bidding incentives are much more closely aligned with reliability objectives if RT prices are allowed to rise and create risks for load under-scheduling, resource performance and virtual products.  Calpine does not have a specific proposal for the ultimate limits on RT bids/PBC but those decisions could be best informed by a diligent study of the Value of Lost Load. Calpine would recommend that as a first step, the CAISO should commission such a study. Finally, the CAISO might consider more explicit, bolt-on mechanisms for resource performance – such as the pay-for-performance measures of the East.

AS and Locational FRP Demand Curve Changes

First and foremost, Calpine continues to support the implementation of locational FRP and the other proposed changes this fall to make FRP deliverable as well as effectively signal scarcity in ramping capacity.  

In the issue paper, the CAISO posits, “One potential option to enhance the CAISO’s shortage pricing without re-optimizing ancillary services may be to increase the penalty prices of both flexible ramping product and ancillary services from around $250/MWh to a value closer to the $1,000/MWh penalty price for violating the power balance constraint.” This proposal might tend to bring product prices closer to the PBC once scarcity is present.  Calpine is not opposed to this suggestion but does not believe that it is a substitution for a scarcity pricing mechanism that signals aggregate capacity shortfalls.  In fact, these demand curve changes would continue to be reactive to actual shortage, rather than proactively signaling anticipated or likely scarcity.  If pursued, the CAISO must move both AS and FRP in a manner that preserves the relative order of relaxation in the scheduling run.  That is, the penalty parameters must allow relaxation of FRP in order to hold AS. 

Ramping product shortfalls do not necessarily signal aggregate capacity shortfalls.

Most of the time, shortfalls in ramping do not signal an impending load curtailment.  The flexible ramping product simply parses out whether the market should use energy from a resource now or save it for 5 minutes from now.  When ramping capability sporadically becomes scarce, it does not present an immediate reliability issue because the CAISO has alternatives.  It is not the kind of issue that would cause CAISO to take extreme actions or shed load, as aggregate capacity shortfalls would.

The purpose of the flexible ramping product is to (1) address the price formation issue with the multi-interval optimization when energy opportunity costs are incurred to meet forecasted net load (forecasted movement) and (2) maintain additional ramp capability to meet a range of future net load forecasts in subsequent market runs (uncertainty awards).  Holding back additional upward ramp capability will result in a slightly higher energy price in binding intervals but avoid spurious price spikes that are not reflective of energy scarcity when sufficient capacity is online but ramping capability is not managed.

The demand curve for the flexible ramping product is not equivalent to an operating reserve demand curve for capacity and is not a substitute for an early-warning scarcity mechanism.  The FRP demand curve does not signal aggregate capacity shortage, rather it is making a rational economic trade-off based on the expected value of the ramp capability for energy now versus materialized uncertainty later. It can be and is relaxed prior to the AS constraint because there is not a reliability standard associated with managing available ramp capability while there is for AS requirements. 

The flexible ramping product demand curve ensures the correct economic decision is made between holding ramp capability for uncertainty that may materialize later and dispatching for energy now.  This does not provide a similar economic signal as a reserve demand curve.  The reserve demand curve is not used to make rational economic trade-offs within the current market run.  It reflects an approaching capacity shortage by gradually raising energy prices above the marginal energy bid to signal the need for additional supply offers in future hours.

In short, the flexible ramping product demand curve is not a scarcity pricing mechanism.

The CAISO should revisit the point expressed by Dr. Scott Harvey.

It is instructive to review Figure 2 of the Issue Paper (reflecting Slide 8 of Dr. Harvey’s December 2020 presentation.)  The CAISO properly highlights only part of the problem identified by Dr. Harvey – that FMM and RTD prices collapsed while the CAISO was still interrupting load.  Not only do we need to understand why market software allowed such a discontinuous drop in prices, but also why FMM and RTD prices separated so significantly.

But Calpine believes that the Issue Paper misses the main point of Dr. Harvey’s presentation. He generally queries outcomes after the Stage 2 emergency was declared – which was at 3:25 in the afternoon, as reported in the Final Root Cause Analysis (RCA).  RTD prices in 3 of the 4 hours of Stage 2 averaged about $100 while the CAISO “was having difficulty maintaining the reserve requirement.”  (RCA, p 34.)  FMM prices moved occasionally, but discontinuously up, then back close to RTD.  Dr. Harvey did not know then, and Calpine still does not know today, “what occurred on August 14 to allow prices to be set at levels that did not reflect a power balance violation.” 

But moving back further in time is also helpful.  Much earlier in the morning, the CAISO clearly anticipated reserve shortages and trouble meeting the net peak load.  Indeed, the CAISO was invoking the conditions of OP4420, System Emergency, earlier that morning.  Operators were contacting adjoining BAAs seeking mutual assistance or buying energy out-of-market, contacting IOUs to prepare for the deployment of demand response programs and finally, issuing a Grid Warning Notice at 11:51 a.m. because it was “forecasting possible reserve deficiencies” (Again, RCA p33.)  The result of these actions was that prices for both RTD and FMM appear to have averaged below $100 most of the morning.

Calpine does not condemn the CAISO operators for doing what they did – or how they did it. At these times, system operators commit every possible resource within their control using every in-market ad out-of-market mechanism at their disposal to manage the possibility of an upcoming aggregate capacity shortage.  They engage in these activities for good reason.  Aggregate capacity shortages present a real reliability threat.  The unfortunate consequence of many of these actions, however, is that without countervailing market corrections, they suppress clearing prices and precisely discourage the market solutions which the CAISO so desperately needs.

But if RT prices had risen in a continuous and maybe more importantly, predictable way starting early in the morning, one must ask whether energy and capacity would have been more readily available and whether demand response would have been engaged earlier and more productively.  Calpine believes it would have and that is largely the basis of our proposal for an ORDC – an early indication of tight supply conditions. 

CAISO needs a reserve demand curve that reflects the reliability value of available supply when aggregate capacity conditions are tight

The CAISO needs a properly functioning scarcity pricing market design to maintain important market incentives during tight system conditions.

The current market pricing is ineffective at signaling reliability threats as evidenced by reserve capacity shortages. Practically, the current market design only raises prices after a shortage occurs and market operators have taken extreme, out-of-market actions. And even if prices could rise, they would do so in a discontinuous, sporadic, and ineffective manner. In short, market clearing prices do not reflect the reliability value that every available resource provides to the system leading into and during stressed conditions.^[1]

There are many gaps between CAISO operators’ operational needs and the schedules/services procured in CAISO’s market.  Over the years, CAISO staff has been adding products and constraints into the market optimization to appropriately reflect the value of operational needs through market prices and ensure each resource is fairly compensated for the value it provides.  Yet there is a limit on the ability to “price” the actions of operators and an administrative demand curve can begin to reflect the approximated cost of those actions when they begin. Given the backdrop of ever-tightening capacity conditions in the West, the most important and consequential issue to resolve is rational scarcity pricing.

A reserve demand curve would provide a tangible, meaningful signal to resources that may or may not have been committed to CAISO, that are not needed for energy right now to resolve a current deficit, but would be available to CAISO for a price, and would voluntarily bid into the market when CAISO needs it.  Of course, these resources are valuable to CAISO in times of need and therefore may not be inexpensive.  CAISO should focus on developing a demand curve that raises both its energy and ancillary services prices above the marginal cost of supply as the CAISO anticipates that it will exhaust its available capacity.  Importantly, the quantity of this demand curve should be large enough to start elevating prices well in advance of the actual shortage and with enough time to induce more bidding into the market.

The benefits of administratively raising prices above the marginal cost of supply during tight supply conditions has been well documented by FERC, other ISO/RTOs, ISO/RTO market monitors across the U.S., and by CAISO in its Issue Paper. Focusing on the straightforward concept of an administrative demand curve (incorporating a value of lost load) will allow stakeholders in California to agree –  upfront – on the acceptable level of compensation in extreme circumstances and to determine what price they would be willing to pay to attract more resources to avoid compulsory demand curtailment.  It can also provide the CAISO Department of Market Monitoring another benchmark to evaluate market offers in times of tight supplies. Other ISO/RTOs have found that stakeholders are willing to come together to determine appropriate administrative prices to attract and retain supply and Calpine is hopeful that stakeholders in California can appreciate the benefits of this approach too.

There are many ways to construct a reserve demand curve.  As an example, MISO recently re-constructed its Ramping Capability and Short-Term Reserve (STR) demand curves.^[2]  Although the final curves themselves required some manipulation so as to not interfere with other MISO pricing mechanisms, the underlying method creates a relatively smooth demand curve that increases as the available capacity is depleted.  The aggregate STR requirement varies by hour and is always greater than 3,000 MW. These methods are well established and accepted in the industry and can be tuned to CAISO’s needs.

[1] Calpine and GDS Associates, Inc., “Efficient Market Prices During Tight Supply Conditions – Issues and Recommendations,” http://www.caiso.com/InitiativeDocuments/GDSAssociatesReport-EfficientMarketPricesDuringTightSupplyConditions-IssuesandRecommendations.pdf

[2] MISO staff presentation to the July 14, 2022 MISO Markets Subcommittee, “Continued Reforms to Improve Scarcity Pricing and Price Formation,” https://cdn.misoenergy.org/20220714%20MSC%20Item%2006%20Continued%20Reforms%20to%20Improve%20Scarcity%20Pricing%20and%20Price%20Formations%20(MSC-2019-1)625527.pdf

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

Calpine supports further consideration of the modeling and pricing effects of fast-start resources. We understand that the incorporation of existing market models could interfere with the price formation principles of FRP as well as require substantial modifications to the optimization.  We encourage the CAISO to identify simple approaches to incorporate the costs of fast start resources in LMPs – such as broadening the definition of a Constrained Output Generator to allow for finite ramping capability above Pmin (recognizing that one must overcome problems of monotonicity.)   

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

As an operator of both storage and conventional resources, we have experienced unexplained and in the narrow sense, irrational dispatches. Like Rev Renewables, our storage units have been held at a given SOC even though discharging is suggested by LMPs.  We presume that being pre-positioned for false outcomes is the influence of high advisory prices.  Calpine looks forward to further transparency and exploration of the accuracy of advisory interval prices. 

As part of that review, we ask that the CAISO consider the impact on all resources of modifications to the use of MIO for individual resources.  For instance, if MIO is truncated or weighted differently only for storage, it seems intuitive that it might result in larger irrational or suboptimal signals for other resources.

Should the CAISO prefer to retain the MIO for situational awareness or other reasons, Calpine would strongly support the development of prophylactic measures that limit risk of suboptimal dispatch. These measures could include the opportunity cost calculations proposed by Rev Renewables (but applied to all resources) or shorter BCR aggregation windows (e.g., moving to hourly or multi-hour BCR windows.) 

Finally, conventional resources depend significantly on the RTPD/STUC (FMM) runs for significant movements (e.g., transitions).  While we still see irrational RT dispatches, MIO in RTD is likely less of an issue for a conventional resource.   

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

No Comment

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

Thanks

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

See attachment

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

See attachment

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

See attachment

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

See attachment

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

See attachment

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

See attachment

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

In general MRP supports consideration of the issues in the issue paper in this initiative.  MRP requests the CAISO clarify that it intends to apply system market power mitigation to the CAISO Balancing Authority Area (BAA), something that the issue paper leaves ambiguous.  MRP agrees that the CAISO must consider system market power mitigation and scarcity pricing simultaneously.  Finally, MRP requests that the CAISO describe when and how it will take up the issues that it epxressly says it will not take up in this initaitive (in particular, market-based commitment costs and dynamic assessment of commitment cost market power).  

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

MRP supports consideration of all the issues raised in the issue paper – the relaxation of prices during shortage events, the effect that bid caps have on incentives during tight conditions, and the issues associated with the current ancillary service procurement methods.  

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

MRP notes that the CAISO’s objection to fast-start pricing appears to be how such pricing would interact with the CAISO’s flexible ramping product.[1]   However, MRP also notes that the CAISO’s flexible ramping product shadow price is often $0/MWh and that this product suffers from other infirmities, including the CAISO often procuring this product from resources that cannot deliver it due to transmission constraints.[2]   Given these deficiencies in the flexible ramping product, it’s not clear that fast-start pricing’s potential impact on the flexible ramping product constitutes sufficient grounds to not consider implementing it.  MRP appreciates the CAISO’s willingness to consider fast start pricing in this initiative and urges the CAISO to evaluate the benefits of fast-start pricing relative to the benefits provided by the flexible ramping product as it considers this issue. 

[1] The CAISO notes, on page 15 of the issues paper: “Specifically, the ISO argued that relaxing the economic minimum operating limit of a fast-start resource to zero could create infeasible dispatches and potentially undermine accurate price signals arising from how the ISO’s flexible ramping product dispatches and compensates resources to address ramping requirements between two successive real-time market intervals. That is because fast-start pricing considers units as dispatchable below their Pmin, so the market may see no need to dispatch units out of their merit order to secure the ramp needed to meet the net load or the net load uncertainty in a future interval.20 As a result, the market does not price the opportunity cost of ramp and does not compensate resources for their flexibility to provide ramp.”

[2] The CAISO 2022 Annual Report on Market Issues & Performance discusses the Flexible Ramping Product at length in pages 119-127. 

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

The CAISO’s multi-interval optimization (“MIO”) reflects the reality that some generating resources cannot change their operating levels instantaneously.  The MIO forecasts conditions to project where to optimally position generating resources based on those forecasts and the resources’ ability to change output.  Because forecasts of conditions and prices are never perfect, and unanticipated things happen, the MIO does not always optimally position and dispatch resources to match realized conditions and prices.  Nevertheless, until all the resources in the CAISO’s fleet have unlimited ramp rates and unlimited energy durations, the MIO is a reasonable tool to optimize operations given resource limitations.  Consequently, MRP would not support either eliminating the MIO or exempting certain resources from the MIO.  Instead, MRP supports exploring bid cost recovery to address situations in which the look-ahead dispatch does not produce an optimal result for individual resources.  That said, while MRP supports exploring changes to bid cost recovery, MRP is leery of tailoring bid cost recovery to favor certain resources over other resources and offers that any modifications to bid cost recovery should be applied to all resources in a non-discriminatory way. 

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

Both the discussion of this topic in the Issue Paper and in the CAISO’s July 12, 2022 Presentation fail to clearly and directly state that the CAISO intends to apply market power mitigation to the CAISO Balancing Authority Area (“BAA”), something it does not do today.  Instead, the issue paper and presentation present this issue more as one of whether to group certain BAAs together with performing system-level market power mitigation and the Dynamic Competitive Path Assessment.   In response to questions asked during the July 12 webinar, however, the CAISO clarified that it does intend to apply “system-level” market power mitigation to the CAISO BAA as part of this initiative. The CAISO should clarify this in its straw proposal. 

Applying system-level market power mitigation to the CAISO BAA is a significant departure from past CAISO practice, which always considered the CAISO BAA to be competitive by default.  Market participants have been divided over this contentious topic, and the CAISO, in the straw proposal, must clearly explain and demonstrate the need for this mitigation as well as set forth the details of how it intends to apply this mitigation.   While MRP appreciates that the CAISO is considering this topic in conjunction with improvements to its scarcity pricing rules (a confluence that MRP considers to be essential), the initial discussion of this topic in the issue paper is confusing and superficial, and this topic must be much more fully developed in the straw proposal.   

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

The issue paper indicates that the CAISO is not considering market-based commitment cost bids (and the corresponding issue of dynamic assessment of commitment cost market power) in this initiative.  MRP requests that, rather than just indicating that the CAISO is not planning to consider this issue in this initiative, the CAISO indicate when and how it will take up this issue. 

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

Northern California Power Agency (NCPA) appreciates the opportunity to provide these comments in response to CAISO’s Price Formation Enhancements stakeholder initiative, which is focused on revisiting price formation within the CAISO markets. NCPA does not support modifications to scarcity pricing at this time.  While NCPA shares CAISO’s concerns regarding the challenges related to price divergence that was observed during the August 2020 emergency events as discussed at the July 12, 2022 stakeholder workshop, NCPA does not believe the observed price divergence was due primarily to price formation issues in the CAISO markets (including issues related to optimization of Ancillary Services in Real Time and low Ancillary Services bid caps). As has been described in certain reports that have been published since the August 2020 emergency event, the CAISO markets were materially impacted by a number of factors, many of which were not directly related to price formation.  For example, during the August 2020 emergency event the market was impacted by a material volume of out of market dispatch of non-market distributed/backup generation (effectively acting as a load offset), and other market challenges were observed related to market products such as convergence bidding, and its impact on system reliability (to the point where CAISO elected to temporarily suspend convergence bidding until the identified issues were resolved).  As such, NCPA encourages CAISO to not solely focus on the market outcomes associated with the August 2020 emergency event as the basis or driver for revisiting price formation (including modifications to scarcity pricing).  NCPA recalls that many price divergence concerns related to the August 2020 emergency event may have been addressed as part of the Summer 2021 Readiness initiative, which resulted in increasing Real-Time prices and enhancing RDRR to send appropriate price signals when dispatched. NCPA requests that CAISO evaluate the effectiveness of the Summer 2021 Readiness pricing enhancements[1] prior to advancing this current stakeholder initiative, to determine modifications are in fact needed.  Also, NCPA suggests avoiding using an extreme market event, such as the August 2020 emergency event, and the basis for developing new rules and requirements since in such cases there are usually many factors beyond just price formation that likely influenced market outcomes. 

NCPA does not support special BCR rules for storage at this time. Many other types of use limited resources exist. Pending further discussion, NCPA does believe it would be equitable to develop new rules that would potentially ensure positive margins in every interval for only one type of use-limited resource.

[1] http://www.caiso.com/Documents/BusinessRequirementsSpecificationSummer2021Readiness-Redline.pdf

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

Please see NCPA’s comments in response to Question 1.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

NCPA has no comment at this time.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

NCPA has no comment at this time.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

NCPA has no comment at this time.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

Please see NCPA’s comments in response to Question 1.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

?NV Energy appreciates the opportunity to comment on the CAISO’s issue paper and scoping items for the price formation stakeholder initiative prior to the straw proposal phase. In general, NV Energy is supportive of the overall direction on the scarcity pricing enhancements but lists concerns to be considered in the development of a resolution. Additionally, NV Energy requests that CAISO expand the scope of this initiative to explore enhancements that would resolve long-standing issues with fast start peakers and hydro resources due to the restrictive bid cap that has been designed for commitment costs.  

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

In the issue paper, CAISO stated that market participants face little price risk by having the market price cap set at the same price for the Day-Ahead and Real-Time markets. CAISO further explains, this creates little to no incentive to properly clear Day-Ahead load which was one of the factors that contributed to the August 2020 events.  Additionally, the current pricing structure does not create the correct incentives for convergence bidding to converge market prices. To address the issues as stated above, CAISO has proposed to potentially increase the Ancillary Service and Flexible Ramping Product price caps to $1,000/MWh in order to allow the market to gradually increase in price before experiencing a power balance infeasibility.  While NV Energy appreciates the proposal and is open to the idea to increase the price caps for the Flexible Ramping Product, NV Energy is not certain that this proposal would create the correct incentives to alleviate the issues that have been identified by CAISO. CAISO has also stated that Ancillary Services are procured in the Day Ahead Market, incrementally procured in the FMM, and not procured in the 5-minute market with simplifications added into the optimization for this procurement. Considering the lack of consistency between the different market runs, NV Energy is not certain that the proposed enhancements to the Flexible Ramping Product price cap would resolve the issue and appropriately step up the scarcity price.  Moreover, NV Energy understands that the current price cap of the Flexible Ramping Product of $247/MWh was designed to remain below the Ancillary Service price cap in order to not affect the amount of Ancillary Services that should be procured in the market. By increasing the Flexible Ramping Product price cap to $1,000/MWh and setting it the same as the Ancillary Service price cap and the energy price cap, NV Energy believes that this could result in Flexible Ramp Procurement before appropriately clearing energy and Ancillary Services which should have higher priorities. .   Therefore, CAISO’s proposal should include the proposed prices for the scheduling run and the interactions with price inconsistency market enhancements (“PIME”) logic.  As CAISO has laid out the issues for scarcity pricing, it sounds as if the market would benefit from higher prices in the real-time market than in the day-ahead market. Therefore, NV Energy requests additional information and examples to better understand how the proposal would resolve the issues as stated by CAISO without impacting the current market priorities. NV Energy is supportive of enhancements that would step up the scarcity prices gradually rather than the current price spikes that occur today.   

In addition, CAISO should consider how the scarcity pricing proposal interacts with an EIM Entity when experiencing an Energy Emergency Alert (“EEA”) and the level of that EEA. It is important that the market sends the correct price signals during instances when true scarcity exists. It is possible, that an EIM Entity passes the Resource Sufficiency test and then later experiences an EEA.  Scarcity pricing should be triggered in this instance because this is a timeframe of true scarcity and CAISO should consider manual mechanisms such as flags to indicate when these emergencies occur.  This stakeholder initiative should also carefully consider the market outcome when an EIM Entity elects the financial consequences for Resource Sufficiency test failures and how this may interact with scarcity pricing changes.  

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

NV Energy has had a longstanding issue that it is unable to exercise sufficient control over its start-limited peaking units to enable their participation in the EIM market and potentially the EDAM market in the future. NV Energy has 600 MW of gas-fired capacity that can be brought on-line within 10 minutes. These units are under permit restrictions that limit the amount of starts the resources have per year. During the summer months these units provide much needed support to meet Nevada’s peak load to maintain a reliable BAA. The concern is that CAISO’s optimization can burn through the limited number of starts by excessively cycling the units without the consideration of the Balancing Authority’s reliance of these important resources.  

This concern is heightened by the restrictions placed on commitment costs. In making commitment decisions, the CAISO market separately considers the costs of bids for energy above minimum load, and the commitment costs such as the costs of starting up resources (start-up costs) and the costs of operating resources at their minimum operating levels (minimum load costs), and for resources that are modeled as multi-stage generating resources, the costs of transitioning from one resource configuration to another (transition costs). The CAISO is the only ISO/RTO that does not allow market-based commitment costs bids subject to market power mitigation.i The existing commitment cost bid caps do not consider the value to the Balancing Authority which means that these valuable resources could be cycled at unacceptable rates depleting the allowed number of starts in a manner that would render the units unavailable for their primary purpose – to serve NV Energy’s native load customers at critical times.  

In 2016, CAISO developed a methodology to calculate or negotiate lost opportunity costs for resources with a use limitation. In NV Energy’s opinion, this initiative developed a cost for resources located within the CAISO BAA to provide lost opportunity costs to resources with use limitations. If these use limited resources run into their permit limitations, then they can utilize a use limited outage card indicating this limit has been reached. If this occurs, then CAISO utilizes other resources that have bid into the energy or ancillary service market to resolve their needs to maintain a reliable grid. However, if a resource located outside of CAISO serving a different BAA runs into the limitation, then the BAA has lost a resource that simply cannot be replaced. This “missing” value is not a lost opportunity cost to the resource. Instead, the market is missing the value that these limitations have for the BAA to maintain a certain amount of the limitation to be used later in the year for reliability.   

It is important to enhance the market for fast start units or other use limited resources in order to increase the capacity that could be offered into the market to provide additional use to all market participants. Currently, there are 3 proposed initiatives in the stakeholder catalog that propose to revisit use limited resources and their opportunity costs (7.1.24) (7.1.9), and a proposal to economically start fast start resources when base scheduled (7.1.21).  Expanding this fast start pricing topic to address these long-standing concerns with a use limited resource discussion for gas and hydro units or other commitment cost enhancements that supports the ability to bid in capacity at all times of the year would provide much more value to the overall market than increasing the level of the bid stack. If CAISO continues to insist that it cannot allow market-based bids for commitment costs like other organized markets, then it should propose enhancements that recognizes the value of resources in order for these resources to bid in capacity at all times.  The current CAISO commitment costs rules are so restrictive on certain resources that it forces them online during times that are not optimal to run because the commitment cost rules do not reflect the value of the resource to its internal native load. Therefore, it is NV Energy’s opinion that these commitment cost issues be resolved before considering mechanisms that need to be carefully thought out that still do not resolve the issues of why all capacity is not bid into the market during all hours.   

It would be timely and efficient to address these issues in this stakeholder process, rather than to tackle them in EDAM. This is an issue that has been part of EIM for many years and should be resolved before any market expansion. 

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

NV Energy would like to better understand the issue as stated by WPTF that advisory intervals are inaccurate and are not materializing.  The real-time multi-interval optimization is very important for gas resources; therefore, NV Energy is not inclined to support a proposal to remove this market feature but needs more information to properly comment on this topic. Additionally, it might be best to resolve this issue with an out of market action such as changes to the real-time bid cost recovery.  

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

NV Energy requests more information on the proposed market power mitigation grouping methodology as proposed by CAISO. For instance, NV Energy would like to better understand how the CAISO BAA would be grouped with other BAA’s and how that would impact mitigation in those BAA’s.   

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

Please see comments in question 3.  

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

PG&E appreciates the opportunity to provide comments on the CAISO’s issue paper for the Price Formation Enhancements initiative.  The proposed scope of this initiative includes several impactful and complex topics, and we offer feedback on both the proposed process and substance below. 

Process and scope: PG&E supports staging this initiative in two phases

PG&E believes it is important to dedicate the time needed to fully vet the impacts of the policies proposed in the scope of this initiative by dividing it into two phases.  In particular, the fast-start pricing proposals require more in-depth analysis on the impact of different market design options and discussion of the market needs that would be addressed.  Phase 1 could focus on providing objective analysis and market simulations to improve understanding among stakeholders of the potential impacts of different fast-start pricing designs.  Any subsequent policy development informed by that analysis could occur in phase 2.  

Scarcity pricing: Enhancements to CAISO’s existing scarcity pricing framework should be linked to clearly defined problems and objectives

PG&E is concerned that scarcity pricing enhancements that are not well-designed or targeted to specific needs can harm customers.  In prioritizing the customer, PG&E also acknowledges that well-designed scarcity pricing features can be critical to supporting reliability and securing needed supply that otherwise may not be available.  

At the outset of this initiative, further clarification of the objectives and drivers of scarcity pricing enhancements is essential to developing a robust set of solutions.  PG&E would appreciate further discussion and analysis of how targeted scarcity pricing approaches would address specific concerns.  For example, PG&E sees merit in exploring different options to help the CAISO BAA compete for imports during scarcity conditions when CAISO prices are lower than those of 16 hour blocks of energy traded in other parts of the West.  PG&E also supports the objective of facilitating more gradual adjustments in prices when tight system conditions are anticipated to signal the market to better position and commit resources to shore up supply prior to an energy shortage.  PG&E offers additional comments on issues discussed in the issue paper in Question 2 below.   

Fast-start pricing: Different fast-start pricing design proposals should be comprehensively studied in the first phase of this initiative, with policy development deferred to phase 2

As stated above, the fast-start pricing issue should be considered in two phases given the significant market risks and a variety of nuanced design choices that may be considered.  In the initial phase, CAISO could provide sensitivity analysis and simulations to help level set and educate stakeholders on the expected impacts of different fast-start pricing designs.  Based on the analysis and discussion in phase 1, policy development can occur in phase 2. 

Energy storage compensation: PG&E supports allowing energy storage resources the option to be removed from the multi-interval optimization

PG&E supports further consideration of the proposal to give storage resources the option to be removed from the multi-interval optimization (MIO).  This could address the issues related to uneconomic dispatch and ensure that storage resources can be dispatched based strictly on their bids and binding interval prices.  PG&E supports this approach without also making additional changes to bid cost recovery rules that would presumably only apply to storage resources. 

Finally, PG&E would oppose any changes to the MIO or its horizon in this initiative.  Such changes would have significant implications for the Real-Time Market and require comprehensive discussion and review.

Market power mitigation: PG&E supports extending the mitigation processes to the BAA-level but has questions regarding the proposed grouping approach

In concept, PG&E is supportive of CAISO’s direction to extend BAA-level market power mitigation to CAISO’s Day-Ahead and Real-Time Markets. However, PG&E questions whether the proposed cascading approach to sequentially test competitiveness in different groups of resources is inconsistent with the CAISO’s dynamic competitive path assessment approach and could incorrectly under-mitigate market power that may exist in some BAAs in cases when lower-priced groups were never tested because the highest-priced areas passed the test. 

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

Enhancements to CAISOs’ scarcity pricing mechanisms should be linked to clearly defined problems and objectives

PG&E is concerned that scarcity pricing enhancements that are not well-designed or targeted to specific needs can harm customers.  In prioritizing the customer, PG&E also acknowledges that well-designed scarcity pricing features can be critical to supporting reliability and securing needed supply that otherwise may not be available.  

At the outset of this initiative, further clarification of the objectives and drivers of scarcity pricing enhancements is essential to developing a robust set of solutions.  PG&E would appreciate further discussion and analysis of how targeted scarcity pricing approaches would address specific concerns.  For example, PG&E sees merit in exploring different options to help the CAISO BAA compete for imports during scarcity conditions when CAISO prices are lower than those of 16 hour blocks of energy traded in other parts of the West.  PG&E also supports the objective of facilitating gradual adjustments in prices when tight system conditions are anticipated to allow the market to better position and commit resources to shore up supply prior to an energy shortage.  

As the specific objectives and problems intended to be addressed with scarcity pricing enhancements are clarified, it would be helpful for the CAISO to demonstrate the need for scarcity pricing enhancements by providing relevant data, such as:

• Real-time prices that were generally lower than they should have been
• Frequent, sudden price changes (rising or plunging) with unidentified causes

Examples of the pricing problems that occurred in August 2020 should also consider the multiple market design changes to enhance real-time pricing signals that have been implemented since then.   Implementation of FERC Order 831[1] and the Market Enhancements for Summer 2021 Readiness initiative[2] put in place mechanisms to allow real-time prices to rise and increase compensation to imports during tight supply conditions.  

The issue paper identifies two potential issues that may inhibit appropriate price signals during shortages: 1) the current energy bid caps, and 2) ancillary services and flexible ramping product penalty pricing.  PG&E offers the following comments on those issues:

• Adjusting the energy bid caps: The recent increase of the hard energy bid cap to $2,000 under FERC Order 831 should provide a strong price signal and significant incentive for suppliers to participate in the market during periods of scarcity when there is a high marginal cost of supply.  Proposals to raise the bid caps or real-time prices above the current bid caps should consider the potential for any unintended consequences or unjustifiably high costs that do not contribute to improved reliability.  For example, raising the real-time bid caps or power balance penalty prices above $2,000 could create incentives to withhold supply in DA to receive higher prices in RT. 

• Increasing the penalty prices for Ancillary Services and Flexible Ramping Product to $1,000: One stated goal of this change is to “allow prices to rise more gradually to the $1,000/MWh power balance constraint penalty price in tight supply conditions.”  PG&E conceptually supports the direction of allowing prices for energy and A/S and FRP to gradually rise together and ensuring A/S or FRP shortages are reflected in energy prices.  PG&E offers the following considerations regarding this proposal:

• • Increasing the penalty price for A/S shortages to $1,000
    • The paper states the CAISO cannot fully reoptimize A/S and energy in the RTM, because it will need to review day-ahead zonal A/S procurement.  
    • Can CAISO elaborate on why MISO, PJM and NYISO can fully re-optimize A/S and energy in the RTM but CAISO cannot?
    • The CAISO does not need to modify its DA A/S procurement; it can do zonal procurement in DAM and nodal in RTM (like MISO) or zonal in both DAM and RTM.

• • Increasing the FRP penalty price to $1,000
    • The FRP price has been $0 in nearly all intervals, and FRP refinements will be implemented this fall to fix the issue. It may be more effective to consider changes to FRP after observing the impact of the refinements.

[1] https://stakeholdercenter.caiso.com/StakeholderInitiatives/FERC-Order-831-Import-bidding-and-market-parameters

[2] https://stakeholdercenter.caiso.com/StakeholderInitiatives/Market-enhancements-for-summer-2021-readiness

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

Fast-start pricing proposals should be comprehensively studied in the first phase of this initiative, with policy development deferred to phase two

Initial discussions and comments in the June 9 workshop indicate that fast-start pricing[1] could result in significant shifts in the total market costs, market dispatch and incentives in the CAISO market.  Under fast-start pricing, the total compensation for fast-start resources would not change, but it would raise the market clearing price and award higher rents to all of the less expensive resources that clear the market.  PG&E believes more analysis is needed to understand the potential cost impacts for customers and any benefits that would accompany those higher costs.  For example, information provided by Powerex indicates that including fast-start pricing in the CAISO markets would have increased market prices paid by CAISO load by an average of $1.3 billion per year from 2017-2020.[2]    

Fast-start pricing also involves many nuanced policy decisions.  The issue paper points out the variety of design choices and implementation details that could be taken in a fast-start pricing framework, including the definitions of fast start resources, methods to incorporate commitment costs, the treatment of offline resources, among others.   

The potentially high costs and nuanced design decisions related to fast-start pricing requires a stakeholders process that allows time for thorough analysis and explanation of the potential impact of different options.  PG&E believes it would be appropriate to consider this issue in two separate phases. The first phase of this initiative could allow CAISO to perform sensitivity analysis and simulations to show the impact of various fast-start pricing design choices.  PG&E would also be interested in analysis comparing fast-start pricing to alternatives such as bid cost recovery adjustments that could address any compensation issues affecting fast-start resources.  The analysis performed in phase 1 would inform any subsequent policy development in phase 2.  

[1] Fast-start pricing generally consists of two elements: 1) expanding the eligible costs that are used to set LMPs to include the commitment costs (start-up and minimum load) of fast-start resources, and 2) allowing these resources to be considered marginal generators that are eligible to set LMPs by relaxing their economic minimum operating limit. 

[2] Pg. 8 at http://www.caiso.com/InitiativeDocuments/Powerex-and-Public-Power-Council-Report-Importance-of-Fast-Start-Pricing-in-Market-Design.pdf

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

PG&E supports giving energy storage resources the option to be removed from the multi-interval optimization

PG&E supports further consideration of the proposal to give storage resources the option to be removed from the multi-interval optimization (MIO), in order to allow storage dispatch to be based strictly on resource bids and binding interval prices. PG&E supports this approach without also making additional changes to bid cost recovery rules.

Finally, PG&E would oppose any changes to the MIO or its horizon in this initiative.  Such changes would have significant implications for the Real-Time Market and require comprehensive discussion and review.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

PG&E supports extending market power mitigation processes to the BAA-level but requests clarifications of the proposed grouping methodology

PG&E thanks CAISO for including enhancements to the CAISO’s market power mitigation framework in the scope of this initiative.  PG&E has several questions about the proposed grouping approach in the comments below. 

1. The ISO proposes “to first arrange the balancing authority areas into groups, then to stack those groups from ‘most’ constrained to ‘least’ constrained, then perform the dynamic competitive path assessment on those groups until the competitive group is found.[1]”  PG&E requests the CAISO to clarify (1) whether the CAISO proposes to apply DCPA within each group or on the interties of the group, and (2) how the DCPA would be used in the mitigation step.  PG&E would also appreciate clarification of whether the CAISO proposes to apply Pivotal Tests (instead of DCPA) within each group, similar to today’s BAA-level mitigation within EIM BAAs.

2. PG&E is concerned that the cascading approach (cited above) could falsely under-mitigate market power that may exist in some BAAs. This could mask the cases when lower-priced groups were never tested because the highest-priced areas passed the test.  In the example of Figure 4 in the CAISO’s proposal (reproduced below), the issue paper states that “Figure 4 details that only balancing authority area 5 will be included in group 1, balancing authority area 2 is included in group 2 and balancing authority areas 1, 2, 4 and 5 area included in group 3. In this proposal group 1 and group 2 will always be tested, however if either group is found to be competitive with the larger group, group 3 will be considered competitive and will not be subject to the test.”  It should be noted that BAA 1 and BAA 4 together could possess market power, as could Group 3 as a collective set of BAA 1, 2, 4 and 5[2].   

3. PG&E is also concerned that the proposed approach may not be feasible given its computational complexity. The CAISO’s proposed approach oversimplifies the problem of “grouping based on prices” in electricity markets, which is essentially cascading grouping in a valued graph.  As noted in item 2 above, a thorough test would need to include all the groups.  In the actual system, the separation of prices may not follow in the order of adjacent areas, e.g., BAA 2 (in Figure 4) could be connected to a BAA of price $50. The grouping should also consider the network topology in addition to the price level. Therefore, one higher priced group could be contained in multiple lower priced groups.  The total number of groups to be tested will be massive and impossible to be done in real-time.  A feasible option is to consider extending the LMPM at the nodal level to the BAA level or apply BAA-level mitigation to a fixed set of markets, e.g., to each BAA or set of BAAs.

[1] Page 23, I.d. 7.

[2] For BAA 1 and BAA 4 together to be uncompetitive, one could consider them as a combined node constrained behind one intertie behind BAA 3. Even if BAA 2 and 5 is competitive, the marginal supplier in BAA 1 or 4 can still manipulate the market price if they are indispensable to meet the residual demand within their BAs. See an example we provided in the Appendix.  For the same reason, Group 3 could be uncompetitive.  

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

PacifiCorp appreciates the opportunity to provide feedback on the price formation enhancements issue paper. PacifiCorp further agrees that focused attention on price formation topics impacting both the real-time and day-ahead timeframes is critically important, especially considering the ongoing EDAM market design efforts.  While all the topics covered in the issue paper are surely deserving of additional attention from the CAISO and its stakeholder community, PacifiCorp places strong priority on items directly impacting the EDAM market design initiative with the proposed ranking of topics as follows:  

1. Scarcity pricing enhancements 

2. Grouping methodology for BAA market power mitigation 

3. Multi-interval optimization  

4. Bid cost recovery 

5. Fast-start pricing  

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

PacifiCorp considers effective scarcity pricing rules and procedures a key element of a robust market design. While the CAISO implemented several enhancements to scarcity pricing since the August 2020 heat wave, several issues remain including potentially inappropriate price signals being provided to different market participants during tight market conditions. PacifiCorp considers it critical that when day-ahead energy prices clear close to the bid cap, load serving entities receive effective price signals that incentivize them to accurately forecast loads.  Additionally, when the market is seeing prices close to the bid cap in the day-ahead, eliminating convergence bidding may be optimal as this functionality of the market may not serve its intended purpose. 

PacifiCorp recognizes the potential need for the CAISO to address known shortcomings in ancillary service shortage pricing and appreciates the additional information regarding pricing practices by other ISO/RTOs provided in the appendix. Considering the intended expansion of the CAISO’s day ahead market across the region, the approach to addressing these challenges (e.g., increasing penalty prices for the flexible ramping product and ancillary services or re-designing the market processes to introduce a re-optimization of ancillary services for all real-time market intervals) will require a thoughtful and systematic assessment to understand the potential downstream implications on the EDAM market design and implementation requirements.   

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

PacifiCorp appreciates the CAISO’s openness to ensuring fast-start resources are priced appropriately and supports the investigation of improved approaches.  

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

PacifiCorp considers this issue worthy of continued exploration given the importance of having sufficient storage resources available when they are most needed. While PacifiCorp looks forward to the CAISO exploring and evaluating proposed solutions, the potentially far-reaching implications (e.g., holistic redesign of the bid cost recovery process for all resources) of changing the treatment of storage resources in the bid cost recovery process requires systematic assessment of all benefits, costs, and implications.  

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

PacifiCorp supports the further exploration and technical refinement of the CAISO’s BA grouping methodology outlined in the issue paper and discussed as part of the EDAM Initiative. Assuming future expansion of the EDAM footprint, developing and testing an efficient and principled approach to market power mitigation is prudent. The issue paper (on page 21) includes an overview of how the CAISO proposes to rank BAs in descending order of their power balance constraint shadow price and then grouping the BAs from highest to lowest into different levels or tiers. PacifiCorp requests that CAISO provide more details regarding how it intends to perform this grouping and how the tiers (presumably dynamically) will be set. Additionally, PacifiCorp requests that the CAISO include information on how it intends to assess and monitor how the new approach is performing and whether or not the CAISO intends to launch this new approach in parallel to the existing methodology for a set test period.   

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

PacifiCorp believes the topics laid out in the issue paper will greatly benefit from an in-depth look into how each component can be improved in the day-ahead and real-time markets. We look forward to engaging further on these issues. 

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

Please see Powerex’s comments available at CAISO Price Formation Enhancements Issue Paper Comments

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

Please see Powerex’s comments available at CAISO Price Formation Enhancements Issue Paper Comments

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

Please see Powerex’s comments available at CAISO Price Formation Enhancements Issue Paper Comments

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

Please see Powerex’s comments available at CAISO Price Formation Enhancements Issue Paper Comments

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

Please see Powerex’s comments available at CAISO Price Formation Enhancements Issue Paper Comments

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

Please see Powerex’s comments available at CAISO Price Formation Enhancements Issue Paper Comments

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

PGP supports the topics CAISO proposes to include within the scope of the price formation enhancements initiative which include: (1) scarcity pricing enhancements; (2) fast-start pricing; (3) BAA-level market power mitigation; and (4) the real-time market’s multi-interval optimization interaction with energy storage resources and related changes to real-time bid cost recovery. PGP encourages the CAISO to include all of these topics within scope and to avoid culling the list based on priority, given the importance of each of these issues to achieving accurate price formation. PGP also seeks clarification as to whether CAISO is proposing to include system-level market power mitigation within scope of this initiative, as discussed further in response to question 5.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

Robust scarcity pricing provisions are critical to a well-functioning market and to sending appropriate price signals to encourage supply when it is needed most to maintain reliability and prevent load shedding. A well-functioning scarcity pricing mechanism is also critical to encouraging voluntary supply from external resources. As CAISO notes, recent energy shortages and associated prices in the CAISO’s real-time market have emphasized the need for the CAISO to review and enhance its scarcity pricing provisions. PGP agrees that penalty prices should be sufficiently high to incentivize performance of scheduled resources and induce availability of resources to the maximum extent possible. A high price signal also aligns with the high value a majority of consumers place on avoiding involuntary load shedding.

PGP generally supports exploring the two potential scarcity pricing enhancements CAISO has posed in the issue paper: (1) whether the current energy bid caps provide appropriate incentives for market participants during tight system conditions and (2) whether there are appropriate enhancements to the ancillary service scarcity pricing that would make it more effective in setting prices. 

PGP would like to better understand why currently in CAISO’s markets today regulation up and spinning reserves have a fixed shortage price, whereas non-spinning reserves and regulation down have stepped penalties that increase as the reserve deficiency worsens. In general, PGP observes that shortage prices that are determined based on the degree of shortage and increase as the shortage worsens would seem to create a more appropriate price signal than a fixed price.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

PGP appreciates CAISO’s willingness to reconsider fast-start pricing for its markets because PGP believes that including fast-start resources in the calculation of wholesale market prices can be an important component of achieving accurate and appropriate price formation.  Importantly, FERC has noted the importance of fast-start pricing as it relates to accurate price formation:

“The accurate pricing of fast-start resources can advance price formation goals by more transparently reflecting the marginal cost of serving load, which will reduce uplift costs and thereby improve price signals to support efficient investments in facilities and equipment.”[1]

CAISO notes in its proposal that there are the two core elements of fast-start pricing that are commonly shared across all RTOs/ISOs and also notes that historically it has raised concerns with adopting these for the CAISO’s markets:

• Minimum output limit relaxation—where the market considers a resource as dispatchable over its entire range by relaxing its lower operating limit (Pmin) down to 0. 
• Inclusion of commitment costs in pricing--where the market incorporates start up and minimum load costs directly into the local marginal price

PGP supports CAISO exploring these elements in a future straw proposal and addressing whether the concerns it has historically raised with regard to adopting these core elements exist today and if so, what possible solutions could be developed to address these.

With respect to the areas where fast-start pricing implementation differs across RTOs/ISOs, PGP recommends CAISO host a series of stakeholder workshops to help further develop stakeholder understanding of different fast-start pricing features, the pros/cons of different approaches, and what is possible for the CAISO and its particular circumstances. 

Lastly, given the magnitude of this issue and the economic consequences for both entities outside and within California associated with either implementing or not implementing fast-start pricing, PGP recognizes the challenge before CAISO in addressing this issue. Given the importance of this topic, PGP encourages CAISO to establish a small working group of diverse stakeholders (ensuring representation from entities outside and within the CAISO BAA) tasked with developing proposals, with the assistance of CAISO staff. PGP believes this effort should begin with developing principles to guide the future work and development of fast-start pricing mechanisms.

[1]  See FERC Notice of Proposed Rulemaking in Docket RM17-3, Fast Start Pricing in Markets Operated by Regional Transmission Organizations and Independent System Operators (December 2016) at 28.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

No comments.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

PGP requests that CAISO clarify whether its proposal to group BAAs for purposes of testing for market power would include the CAISO BAA and thus amount to advancing a system market power mitigation framework. PGP believes it is important for CAISO to be transparent as to whether this is effectively what is being proposed. If CAISO is indeed advancing this concept, PGP believes it will be essential to ensure any framework appropriately determines when the CAISO BAA is import constrained and does not lead to over-mitigation. Mitigation that occurs when conditions are actually competitive (over-mitigation) is harmful because it: 1) discourages supply and demand participation in CAISO’s markets; 2) leads to a market prices that do not support suppliers’ real operating costs and; 3) discourages LSEs from engaging in long-term contracting, which is an essential protection against market power. 
 

With respect to the grouping proposal, PGP would encourage the CAISO to continue to develop scenarios that help convey the impacts of this proposal on mitigation. If there is competitive supply across a group of balancing authority areas, PGP agrees that it may be appropriate to consider the supply for the group of BAAs rather than an individual BAA if there is no congestion between the group. However, PGP would like to better understand the impact of moving from market power mitigation that occurs on a resource-by-resource basis (as is done today) to the grouping proposal whereby if the BAA group were not competitive, all resources within the BAA group would be subject to mitigation. Under the grouping proposal it would seem likely that mitigation may happen less overall within a BAA, but when it does, it would impact all resources instead of specific resources. PGP would like to understand how this might impact hydro resources in particular. To better understand the impacts of CAISO’s proposal, PGP believes it would be helpful for CAISO to perform an analysis that looks at the impacts of this new proposal on mitigation. For example, one approach could be to look at how often historically resources were mitigated for a handful for BAAs over a specific time period (without disclosing individual BAA identities) and then using that historical data, explore how the CAISO’s grouping proposal would have impacted mitigation of those specific BAAs during the historical time period analyzed. PGP requests that CAISO include within the group of BAAs it analyzes a BAA with significant hydro resources.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

No further comments.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

The Public Power Council[1] (PPC) appreciates the opportunity to provide comments on the Price Formation Enhancements Issue Paper.  PPC is encouraged by CAISO opening this stakeholder initiative and is very supportive of CAISO exploring potential improvements to price formation in the ISO markets.  PPC appreciates CAISO’s willingness to reassess its original position on fast start pricing and strongly supports prioritizing both fast-start pricing and refinements to the CAISO’s scarcity pricing.  PPC believes stakeholders and CAISO staff have correctly identified these as the two areas where CAISO can make the greatest improvements to its price formation practices.  Fast start pricing will help ensure prices more accurately reflect the true marginal cost of meeting demand, while scarcity pricing will help create stronger incentives for attracting supply as conditions lead up to and reflect times of scarcity.  These price formation refinements will lead to improved operational outcomes for CAISO during periods of significant west wide demand.  Fast start pricing and scarcity pricing improvements will also lead to prices that are more analogous with existing bilateral markets and help prospective market participants have confidence that the price formation practices in EDAM will fairly compensate their resources if they participate in the market.

PPC believes accurate market prices are essential to maximize aggregate societal benefits.  Market prices send a strong signal to consumers and producers for optimal operational and investment decisions.  Accurate prices encourage efficiency through the installation and use of the lowest-cost resources, facilitate reliability by incentivizing the right resources to be built in the first place when and where they are needed and available after coming online, and promote meeting clean energy goals through the “best fit” mix of non-emitting resources and storage.  Price formation practices that create efficient, fair, and equitable market prices are critical to individual participants, BAAs, and regions to benefit from market participation and attracting broad regional support for EDAM. 

EDAM, or any other day-ahead market that emerges in the West, will replace the vast majority of bilateral transactions that occur today.  For individual entities, the price formation practices adopted could have financial impacts that can quickly outweigh the overall benefits that are expected to be achieved through a day-ahead market and discourage or prevent their participation. If a market results in prices that are artificially low, it will benefit net purchasers at the expense of market participants that are net sellers.  This will harm rate payers in surplus regions.  For example, PPC members are consumer owned utilities with statutory preference to the output of the Federal Columbia River Power System (FCRPS).  These utilities purchase the output of the FCRPS at the cost of the system net of surplus sales that Bonneville Power Administration (BPA) can make.  These long-term contracts with BPA often make up the majority of costs that are passed onto the ratepayers of Northwest utilities.  Therefore, inaccurately low market prices harm Northwest rate payers by lowering the value of BPA surplus sales, which raises the cost of BPA long-term contracts.  Conversely, prices that are too high will benefit net sellers at the expense of net purchasers and their rate payers.  PPC supports CAISO pursuing price formation approaches that focuses on “getting prices right” consistent with industry best practices rather than focusing on winners and losers.

[1] PPC members are statutory preference customers of the Bonneville Power Administration (BPA) and represent over 90 percent of BPA’s Tier 1 sales.  Overall, Northwest public power is the largest purchaser of BPA’s power products and services and is among the largest purchasers of BPA’s transmission products and services, funding nearly 70 percent of the agency’s total power and transmission costs.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

PPC supports the CAISO pursuing modifications to the CAISO scarcity pricing framework.  PPC appreciates the work conducted by GDS Associates and Calpine to produce a report on Scarcity Pricing Market Design, and we generally support many of the principles and recommendations included.  PPC is supportive of finding an approach that would allow prices to gradually rise as the CAISO approaches a reserve shortage to prevent the price “whiplash” that can occur otherwise.  PPC would also like clarity on whether the CAISO is open to scarcity pricing in the real-time market that is calculated on the Value of Lost Load. Based on the GDS and Associates and Calpine report, raising the real-time price cap could address many of the issues experienced by CAISO over the previous summers.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

PPC strongly supports CAISO implementing Fast Start Pricing in both the real-time and day-ahead markets and is appreciative of CAISO re-evaluating is original position.  At this time, fast start pricing has become industry standard market design across the country.  FERC has recognized that the cost of starting and operating peaking units represents a marginal cost that should be reflected in prices.  All FERC-jurisdictional organized markets with the exception of the CAISO have implemented fast start pricing in their markets.  Additionally, the bilateral markets in the West have prices that reflect the costs of operating and starting peaking units.  The Energy GPS analysis on the impact of fast start pricing, included and summarized in an Issue Paper written by Powerex and PPC[1], clearly identifies the high degree to which gas-peaking units are dispatched across CAISO and the broader West and highlights the significant financial impact the lack of fast start pricing has on different regions and prospective EDAM participants.  PPC encourages CAISO to work with stakeholders on whether fast start is the correct policy direction prior to diving into technical considerations of implementing fast start in the CAISO markets.

CAISO staff has, in previous stakeholder discussions and in the Price formation Issue Paper, highlighted that there are varying technical implementation approaches for fast start pricing across the other FERC-jurisdictional ISO and RTOs.  This has been used to frame CAISO as not truly divergent in market design, because all market operators have implemented the policy differently.  However, while there are some differences in the specific technical approaches, unlike CAISO, these markets all incorporate gas-peaker start up and operating costs into their marginal pricing.  PPC is concerned that the CAISO remains the only organized market where these costs are not considered marginal and are instead recovered through side-payments.  From PPC’s perspective, the policy choice to diverge from FERC standard price formation has resulted in numerous adverse consequences.

1. Discriminatory compensation: Entities that provide the same service (i.e., that provide electricity to meet demand in peak hours) do not receive the same compensation, as the CAISO subsidizes the dispatch of fossil-fueled peaking resources through uplift payments to these resources, but does not make comparable compensation to all other resources that produce and sell wholesale electricity in the same hours.  This is particularly concerning to PPC as BPA surplus is often exported to the CAISO during the evening and morning peaks when in-state peaking units are running, yet BPA receives less compensation because market prices do not reflect market standard and FERC approved calculations of marginal costs.  As explained above, this price formation practice raises costs to Northwest rate payers.

2. Inefficient use of clean, flexible Northwest hydro resources: CAISO market prices do not provide a strong price signal for clean energy-limited resources to shape their output into the hours of peak demand through the CAISO’s organized markets; these resources may instead find more attractive  opportunities selling their output in the bilateral markets as flat 8-hour and 16-hour products, where the costs of starting and operating fast-start resources are reflected in market prices.

3. Weakened carbon-pricing programs: The calculation of wholesale market prices in CAISO-operated markets not only excludes the cost of starting and operating natural gas peaking units, but it also excludes the cost of GHG emissions from those units, which can be among the highest in the grid. This undermines a key goal of carbon pricing programs, including California’s cap-and-trade program as well as programs being explored by multiple other western states.

Transitioning to an expanded organized market without fast-start pricing would cause significant economic harm to ratepayers in the Northwest, and will fail to produce the accurate and efficient wholesale market prices necessary to support the deep decarbonization of the western grid while maintaining reliability and keeping electricity affordable for ratepayers.

[1] The Importance of Fast Start Pricing in Market Design – June 2022, Prepared by Powerex and the Public Power Council

https://www.ppcpdx.org/the-importance-of-fast-start-pricing-in-market-design-june-2022/

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

 No comments at this time.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

PPC believes a well-functioning market power mitigation framework is a key component of an organized market and would like to see more detailed information on the approach CAISO is considering.  PPC also notes that the most recent Department of Market Monitoring Annual Report found that overall, prices in the CAISO market have been very competitive and “were about equal to the competitive baseline prices DMM estimates would result under perfectly competitive conditions.”  In that light, PPC views this as one area that could be de-prioritized relative to the others identified if CAISO cannot fully resource all of the topics included in the Price Formation Enhancements initiative.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

Thank you for the opportunity to provide feedback on the Price Formation Enhancements Issue Paper.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

REV Renewables (REV) supports pricing reforms that would accurately reflect the marginal costs of fast start units. Apart from delivering more efficient short-term pricing, accurately reflecting the costs of deploying these units would send better signals to speed energy storage deployment and the transition to a more efficient, lower-emissions long-term power mix. REV also supports scarcity pricing enhancements to better reflect and incentivize reliability when power supply is needed most.

REV supports CAISO evaluating options to fix inaccurate advisory prices in Multi-Interval Optimization (MIO) that produce out-of-merit dispatch that is particularly harmful to price sensitive and responsive resources like storage. CAISO should explore options to reduce the frequency of this inaccuracy and out-of-merit dispatch, such as placing additional weight on binding interval compared to further out advisory intervals. In the absence of an MIO change or in the interim if the MIO change is a long-lead time item, REV strongly supports bid cost recovery (BCR) for uncompensated, out-of-merit dispatch of energy storage resources that results from inaccurate advisory prices in MIO. Left uncompensated, storage subsidizes market inefficient inaccurate advisory price forecasts at the expense of revenues that should have accrued to energy storage resources. REV advocates that any BCR for MIO should reflect the market opportunity costs of MIO and believes that the recently proposed CAISO BCR reforms for exceptional dispatch offer a good reference point for these types of calculations.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

Please see summary comments above.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

Please see summary comments above.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

REV supports CAISO evaluating options to fix inaccurate advisory prices in MIO that produce out-of-merit dispatch that is particularly harmful to price sensitive and responsive resources like storage. Storage economics are fundamentally different from other generation types though (faster, fuel is charge energy, etc.), and this practice of dispatching over horizon of advisory prices harms storage more than it helps. The combination of dispatching storage on a horizon of estimated prices and the inaccuracy of those prices produces inefficient out-of-merit dispatch, with units often dispatched hundreds of megawatts and hundreds of $/MWh outside of submitted bid curves, as REV showed in its presentation at the June 9, 2022 workshop for this initiative. This dispatch can prevent resources from backing day-ahead energy awards in the real-time market, creating uncertainty and an unhedgeable economic risk for storage owners that fully participate in the Day Ahead market. This issue will become more pronounced as more energy storage is deployed in California, and discourages further storage investment by harming returns.  

In the absence of an MIO change or in the interim if the MIO change is a long-lead time item, REV strongly supports bid cost recovery for uncompensated, out-of-merit dispatch of energy storage resources that results from inaccurate advisory prices and multi-interval optimization. Left uncompensated, storage subsidizes market inefficient inaccurate advisory price forecasts at the expense of revenues that should have accrued to energy storage resources. REV advocates that any BCR for MIO should reflect the market opportunity costs of MIO and believes that the recently proposed CAISO BCR reforms for exceptional dispatch offer a good reference point for these types of calculations.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

REV has no comments at this time.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

REV strongly advocates for correctly co-optimizing energy and flexible ramp in the fifteen-minute market. As we described elsewhere, the current implementation often locks energy storage resources into $0/MW flexible ramp up awards at the expense of in-merit awards worth hundreds of $/MWh. This problem should be a priority for resolution in the scheduled Fall 2022 reforms and remain a priority if these outcomes persist past the new implementation. See more detailed previous comments on the flexible ramp issue here.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

In prioritizing analysis and resolution of price formation issues, the Six Cities recommend that the CAISO focus its resources first on identifying and addressing issues that impede the ability of resources to recover identifiable operating costs.  It is not reasonable or realistic to expect resources to operate at a loss, and failing to provide adequate opportunity for recovery of operating costs is likely to result in market dysfunction over time. 

Price formation revisions that have the purpose or effect of increasing revenues above operating costs of marginal resources raise much more difficult questions.  Proponents of such measures argue that they create incentives for development of necessary supply, but it appears unlikely that simply imposing higher prices generally across a market with diversified supply options will induce development of supply resources with the attributes and capabilities needed to respond to operational challenges and to support policy objectives.  Moreover, allowing collection of revenues that exceed operating costs will result in excessive payments to resources that are paid separately for capacity either through capacity products or through bilateral arrangements. 

In addition, the CAISO currently is in the process of evaluating potential changes to market rules and structure that are likely to dramatically alter market interactions (e.g., Day-Ahead Market Enhancements and Extended Day-Ahead Market) and is planning to implement other significant market revisions (e.g., Flexible Ramping Product Enhancements) in the near future.  The Six Cities encourage the CAISO to defer consideration of price formation revisions other than ones necessary to support cost recovery until other market design changes have been implemented successfully.  At a minimum, there must be careful analysis of the consequences of adopting any measure to impose price increases beyond those necessary to recover costs in the context of other market design modifications.  There should be a compelling demonstration of market benefits before implementing any modifications that will drive prices higher than necessary to cover short-run marginal costs.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

As noted in the Issue Paper, the CAISO’s existing market design includes multiple scarcity pricing measures for energy and ancillary services.  Although the Issue Paper at pages 11-12 describes concerns with incentives that arise when Day-Ahead energy prices clear near the bid cap, it is not clear to the Six Cities that adopting measures to allow prices generally to increase to higher levels would be the best way to address the incentives considered undesirable.  As an initial matter, if the energy bid caps for the Day-Ahead Market and Real-Time Markets were increased but remained aligned at a higher level, there is every reason to expect that the undesirable incentives would persist.  Instead of increasing bid caps, the CAISO should consider measures to address the undesired incentives more directly.  For example, deviation surcharges (perhaps triggered when Day-Ahead prices exceed a specific threshold and scaled by volume) could deter both load under-scheduling and failure of resources scheduled in the Day-Ahead Market to meet their schedules in real-time.  Similarly, if convergence bidding results do not produce intended benefits when Day-Ahead prices are approaching the bid cap, then suspending convergence bidding at a specified trigger point would appear to make more sense than simply increasing the bid cap.

With regard to potential incentives for investment in additional supply resources, scarcity pricing is at best a blunt instrument.  There has been no presentation of empirical evidence to support a conclusion that simply allowing energy prices to increase to levels higher than the existing energy bid caps on a short-term, episodic basis is the best way to encourage development of the types of resources needed to meet operational needs and policy objectives.  To the contrary, funding for development of capacity resources often relies upon entry into long-term Power Purchase Agreements.  The purported benefits of scarcity pricing are theoretical and largely long-term in nature, but the burdens imposed on customers are concrete and immediate.  The CAISO should prioritize consideration of market design enhancements more likely to achieve demonstrable and targeted benefits.  

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

The Six Cities oppose implementation of fast-start pricing as described in the Powerex presentation.  As the Six Cities understand the Powerex proposal, it would establish market-clearing prices based on commitment costs of inflexible resources (treating such resources for pricing purposes as having operational capabilities that they do not possess in fact) and thereby undermine other elements of the CAISO market design that seek to encourage utilization of resources that have operating flexibility. 

Fast-start pricing is not necessary to ensure compensation for commitment costs for non-flexible resources needed to maintain reliability.  Such resources receive compensation for commitment costs not covered by market revenues through Bid Cost Recovery payments.  And resources that have fast-start capability and operating flexibility should be able to recover their operating costs through market bids.   

The apparent impact of fast-start pricing would be to raise prices generally, providing higher revenues to sellers without regard to operating attributes of resources.  There is no reason to assume that widespread increases in seller profits necessarily would encourage development of flexible resources.  To the contrary, as the CAISO previously advised the FERC in comments (available at 20170228-5309_Fast-Start CAISO Comments FINAL (1).PDF) and supplemental comments (available at 20170818-5154.PDF) submitted in Docket No. RM17-3-000, by pricing inflexible resources as if they were flexible, fast-start pricing could interfere with optimal dispatch of resources that are capable of flexible operation, reducing the effectiveness of CAISO’s efforts to incentivize flexible resource development in a targeted manner and impairing CAISO’s ability to address over-supply conditions.  The Six Cities recommend that the CAISO defer potential consideration of fast-start pricing (at least as envisioned by Powerex) until after implementation and review of the effectiveness of other market design changes targeted to encourage flexibility.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

The Six Cities support further evaluation of the concerns described at pages 16-19 of the Issue Paper regarding the effects of multi-interval optimization on storage resources and potentially other use-limited resources.  These issues appear to fall into the category of market design modifications that may be necessary to ensure recovery of identifiable costs.  Storage resources are relatively new to the CAISO’s markets.  They appear capable of providing much needed flexibility, but the interactions between the charging and discharging functions seem complex.  It is reasonable to anticipate that revisions to market rules may be necessary to ensure cost recovery for storage resources and to optimize their participation in the markets.  To the extent that multi-interval optimization impedes the ability of other use-limited resources to recover identifiable costs, the CAISO should evaluate the appropriateness of applying modifications to enhance cost recovery for those resources as well.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

Further exploration of a grouping methodology for evaluation of market power seems reasonable in seeking to minimize either under-mitigation or over-mitigation of resource bids.  The Six Cities request clarification with respect to the scope of mitigation the CAISO would propose to apply in an area that appears non-competitive.  The description at pages 19-20 of the Straw Proposal appears to indicate that the CAISO’s current practice is to mitigate all supplier bids within a constrained area by replacing supplier bids with CAISO generated default energy bids (“DEBs”) on a resource-by-resource basis.  Similarly, the Issue Paper states at page 21 that if a group of balancing areas failed the competitiveness assessment, “all resources within that balancing authority area group would be subject to local market power mitigation measures.”  However, page 22 of the Issue Paper states that “only resource bids of pivotal suppliers in the uncompetitive balancing authority are groups receive mitigated bids at the default energy bids.”  The Six Cities request that the CAISO clarify its proposed scope of DEB insertion and explain the advantages and disadvantages of the alternative approaches to scope of mitigation.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

The Six Cities have no additional comments at this time. 

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

See attachment

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

See attachment

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

See attachment

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

See attachment

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

See attachment

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

See attachment

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

Salt River Project Agricultural Improvement and Power District (SRP) appreciates the opportunity to comment on the Price Formation Enhancements initiative. SRP encourages the CAISO to identify issues that contribute the greatest benefits to the market design and prioritize the issues accordingly. SRP supports the CAISO’s prioritization of fast-start pricing as it pursues a regional market. As this initiative advances, SRP encourages the CAISO to facilitate stakeholder discussion on how accurate price formation, including scarcity pricing and fast-start pricing, may benefit load serving entities, despite, at some times, accurate prices being higher than prices under current market design.

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

SRP agrees with the CAISO’s position that accurate pricing during tight conditions is important to maintaining system reliability and appreciates the CAISO’s efforts to examine prices during load shed events. SRP supports continued discussion of this topic.

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

SRP appreciates the CAISO’s consideration of fast-start pricing and efforts to ensure prices that more accurately reflect system marginal costs in a regional market context. SRP seeks more clarity on how the flexible ramping product (FRP) impacts the ability of the CAISO to incorporate fast start pricing in the market. SRP also requests clarification of why the constrained output generator (COG) model is not currently leveraged to ensure prices accurately reflect system marginal costs.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

SRP supports further discussions on this topic; however, SRP does not currently participate in the market with energy storage resources.

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

SRP requests clarification on the similarities and differences between the System Market Power Mitigation and the proposed Market Power Mitigation grouping methodology.

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below:

No additional comments at this time.

1. Please provide a summary of your organization’s general comments on the issue paper, including how the CAISO should prioritize the proposed issues in scope.

WPTF appreciates the CAISO opening this initiative and how the CAISO framed the general scope of the initiative on the call. We agree that the price formation scoping items are not how to increase or decrease prices, but instead intended to make the market optimization yield more accurate price signals.

WPTF believes that prior to jumping to the scope items, it is important that the CAISO accurately identify the issues in the market it is trying to solve. This lack of upfront analysis and evaluation frequently leads to longer initiative times and less than ideal final policy outcomes. We can see hints of poor outcomes already within this initiative due lack of exploration into the issues themselves. The issue paper is arranged by scope item and has very different levels of descriptions of the issues the scope item is supposed to solve. For scarcity pricing, many, but not all of the market issues are clearly laid out; for fast start pricing and market power mitigation, no pricing issues are identified or discussed at all. WPTF asks the CAISO in the straw proposal to very clearly outline the issue that needs solving, prior to jumping into a description of the solution.

Becasue the issue paper lacks a description of the full issue list it is trying solve within this initiative, it is entirely unclear how the CAISO expects stakeholders to prioritize the proposed “issues in scope". If WPTF steps back and looks at pricing issues holistically, we believe the CAISO should investigate the following issues further:

• Higher day-ahead prices than real-time prices outside of scarcity or near-scarcity conditions. This may be a natural consequence of the EIM whereby additional economic optimization occurs solely in the real-time, but it may be a consequence of other market features as well. For example, the CAISO’s dependence on units committed in the RUC process could also be contributing to the lower real-time prices. When units are committed in the RUC process, they oftentimes are generating at minimum operating points in real time which not only pushes out the supply curve but the start up and minimum load costs are not reflected in the energy prices. When day-ahead prices are higher than real-time it encourages load to not bid in their full forecast and to wait until real-time and for resources to want to preform to their day-ahead schedule rather than real-time price signals of need. These poor pricing incentives lead to a less robust market. Certainly, as the CAISO transitions to EDAM, this issue should be evaluated more fully. Lastly, WPTF also wonders if the cost of Bid Cost Recovery that is allocated to convergence bidders is also impeding the ability for prices to converge to the extent convergence bidders are pricing in the risk of that cost allocation in virtual offers. Convergence bidding may be able to help converge prices more effectively to the extent BCR costs are minimized, which could be improved through more accurate price signals especially during scarcity conditions.
• Persistent differences in advisory and binding prices. While WPTF would expect some differences in advisory and binding prices, we observe there are significant differences that could be a result of several factors, such as load conformance and forecast differences.  At this point it is unclear to WPTF the main driver(s) of the differences, thus we ask that the CAISO analyze the contribution of load conformance and forecast differences to the persistent differences between binding and advisory prices. Continual load conformance (bias) by ISO operators is not a sign of a well-functioning market and is also leading to challenges with real-time storage optimization. Scott Harvey at the MSC presented[1] on load conformance adjustments and DMM has presented similar data in their Annual Report on Market Issues and Performance. The majority of the adjustments are in HASP and RTPD and lead to multiple pricing issues. This was not described anywhere in the issue paper, but has been a long observed and discussed problem by the CAISO and stakeholders. Additionally, differences in forecasts may also be contributing to persistence differences between binding and advisory prices. This includes differences between load forecasts, VER forecasts, and generation deviations, all of which ideally would be included in the analysis.
• Competitiveness of CAISO as a system. Again, the CAISO has proposed a system market power mechanism without any evidence that uncompetitive conditions exist at the system level. We ask that the CAISO provide the issue that market power mitigation is trying to solve prior to jumping to a proposal. As the state is adding thousands of MWs to the grid over time it is hard to understand why the CAISO believes the market is getting less competitive.

We have articulated on numerous occasions the conditions in which market power is a concern – uncompetitive periods must be persistent, predictable, and profitable. This is because in order for a scheduling coordinator or group of scheduling coordinators to exert market power they must be able to predict when uncompetitive conditions exist (or they bid themselves out of the market and lose money), see that they exist over time to develop a bid strategy around them, and then have enough confidence that they can exert market power without being noticed by anyone so they can make a profit. At this point, however, it is unclear that the most basic condition of being able to exert system market power exists – uncompetitive conditions at the system level at any time outside of scarcity periods.

Regarding scarcity pricing, WPTF appreciates the CAISO prioritizing this scope item but strongly urges the CAISO to consider a holistic review and consideration of comprehensive solutions to scarcity pricing. Prices for all products (energy, ancillary services, etc) in all markets (day-ahead, 15-minute, and 5-minute) should be able to reflect scarcity conditions not only once shortages occur but as the market starts to near scarcity conditions. Thus, while we appreciate the CAISO providing some potential options for enhancing the current scarcity pricing mechanism, absent other scarcity pricing enhancements, they fall short of achieving the appropriate price formation goals of this effort as the system begins to enter, and once in, scarcity conditions.

[1] http://www.caiso.com/Documents/LoadConformanceandResourceSufficiencyTests-Presentation-Aug27_2021.pdf

2. Please provide your organization’s comments to the issues raised on scarcity pricing enhancements and feedback the CAISO should consider in preparation for the straw proposal.

WPTF appreciates and supports the prioritization of this aspect of the proposal. As we presented at the June 9 workshop, the market should allow energy prices to increase above offers as the market starts to near, and potentially reach, shortage conditions; it should not be a signal only once shortage conditions have occurred. Allowing prices to start signaling the need for additional supply before shortage conditions occur can, on its own, mitigate the shortage conditions from materializing as scarcity prices would incentivize incremental supply to be made available prior to load shed events.

Prices should also reflect scarcity signals when operators take out of market actions to prevent emergency conditions from occurring and during emergency conditions. We believe the CAISO and stakeholders should discuss in this effort how operator actions that are intended to prevent or mitigate emergency conditions should be reflected in price formation such that the prices are allowed to send appropriate and accurate signals not only once operator actions are initiated but also as they continue to progress during an event. Operator actions tend to have the affect of suppressing energy prices; thus rather than energy prices starting to rise as conditions tighten, operator actions to mitigate emergency conditions put downward pressure on prices. This results in energy prices not signaling to the market the need for additional supply, especially during the periods leading up to emergency conditions. If prices are able to reflect the need when such actions are initiated, it could incentivize additional supply to show up in time to avoid shortages and load shed events. However, current price formation in the market results in suppressed prices when operators take out of market actions to mitigate and prevent emergency conditions. To be clear, WPTF is not advocating that operator should not be taking actions to mitigate and prevent shortage conditions- reliable operations of the grid is of utmost importance - we are simply advocating that when actions are taken during such conditions the prices are able to reflect the fact that the system is nearing scarcity conditions such that out of market actions have been initiated.

Scarcity signals should also be reflected in all product types as the market starts to near scarcity, and potentially reach scarcity, conditions. This enables the prices to start sending incremental signals to incentivize mitigating scarcity conditions before they occur, not just once they occur. As WPTF presented during the workshop, one of the major issues we believe should be prioritized in this effort is the disconnect between energy prices when the market is short ancillary services. The ancillary service prices will reflect shortage conditions but (1) only under certain conditions will the 15-minute market energy prices also reflect shortage conditions and (2) the 5-minute market energy prices do not reflect shortage conditions because energy is not co-optimized with ancillary services in the 5-minute market.  

While we appreciate the CAISO providing a potential option to enhance scarcity pricing without re-optimizing ancillary services, we note that this would still fall short of enabling prices to start reflecting scarcity conditions as the market nears shortage conditions – it will only be an enhancement once scarcity conditions are realized. Additionally, it will only enhance price signals in 5-minute market when FRP is scarce; in other words, the market still could be short ancillary services and energy prices in the 5-minute market still do not signal scarcity,

Additionally, enhancing the demand curve for the flexible ramping product is not a substitute or enhancement for improving scarcity pricing signals. The FRP demand curve, as intended, is used to allow the market to make economic decisions between dispatching a resource now or holding it back to preserve ramping capability. It has nothing to do with system scarcity conditions but rather transient need for additional ramping capability, which is not the same as providing an economic signal for tight supply conditions system wide.  

3. Please provide your organization’s comments to the issues raised on fast-start pricing and feedback the CAISO should consider in preparation for the straw proposal.

As noted above, this is an area of the Issue Paper WPTF would appreciate additional discussion regarding the pricing issue being addressed and assessment of the magnitude of the issue. We see the impact including fast start pricing in the energy prices can have from a price formation perspective, i.e., improve pricing accuracy. However, we would appreciate it if the CAISO could first conduct an analysis that would quantify the magnitude of the current issue under an EDAM and non-EDAM paradigm. This will enable stakeholders to better assess the issue being addressed and evaluate the impact fast start pricing can have on the overall market efficiency. Here again, WPTF agrees that this effort is not about finding ways to simply increase prices but rather finding ways to improve pricing accuracy. To the extent prices today are inaccurate because fast start resources are not able to be reflected in the resulting energy prices, this could be an opportunity to improve price formation that WPTF would like to continue exploring.

4. Please provide your organization’s comments to the issues raised on the real-time market’s multi-interval optimization, focusing on interaction with energy storage resources, and related changes to real-time bid cost recovery, and feedback the CAISO should consider in preparation for the straw proposal.

See above. 

5. Please provide your organization’s comments to the issues raised on the market power mitigation grouping methodology and feedback the CAISO should consider in preparation for the straw proposal.

It is WPTF’s understanding that the CAISO is considering two major changes to how market power mitigation is done today. First, the CAISO is proposing to expand the current BAA level mitigation applied in WEIM to the day-ahead market and include the CAISO BAA. Currently the CAISO BAA is considered competitive, thus not subject to BAA level mitigation in WEIM. Second, the CAISO is considering testing the BAAs for un-competitiveness as groups that are import constrained together rather than each individual BAA. While WPTF can see the reasoning for evaluating groups of BAAs together, the following comments focus first on whether there is even the need to consider BAA level mitigation not only in the day-ahead market but now questioning the continued need in WEIM. We also ask for additional detail to be provided in the next iteration of the proposal regarding (1) how the current mitigation works in WEIM, (2) how it would change under the grouping of BAAs and in a day-ahead time frame, and (3) current WEIM mitigation metrics.

CAISO needs to do an assessment of EDAM and EIM structural competitiveness prior to spending additional time and resources on the BAA level market power mitigation design. As WPTF noted above, this is one of the areas in the Issue Paper that could benefit from analysis and further explanation prior to spending any additional resources on the system level market power mitigation design, also being referred to as BAA level market power mitigation. First, WPTF is not convinced that the CAISO is no longer competitive on a BAA level basis that would warrant an additional mitigation measure. Today, the CAISO BAA does not have BAA level mitigation applied because it is assumed to be competitive; given the influx of capacity coming onto the system over the next few years it is hard for WPTF to understand how that would then create uncompetitive conditions. Second, it is our understanding that FERC required the CAISO to conduct analysis evaluating if EIM BAAs are structurally uncompetitive at the BAA level prior to approving the BAA-level market power mitigation measures currently in place in the WEIM. We are unsure why it should be any different here. 

Analysis should be used to support and inform any policy effort, and its no different in this case. Thus, we respectfully request that the CAISO assess the structural competitiveness of the CAISO footprint (under an EDAM and non-EDAM paradigm) to evaluate how frequently uncompetitive conditions may exist; ideally this would be done taking into consideration the expected influx of capacity due to additional procurement for CAISO and the expanded footprint under an EDAM paradigm. As a starting point, the 2021 Annual Report noted a decrease in an already small subset of hours flagged as potentially uncompetitive due to the increase in storage resources since 2020. The capacity on the system is only going to increase over the next several years, driving down the already low hours of uncompetitive conditions.

Furthermore, the DMM continued to conduct the WEIM structural competitive analysis for two years following initial implementation and found that with each additional BAA that joined the EIM, the uncompetitive conditions decreased – the latest study only included four BAAs. Given the expansion of WEIM since the study was last conducted, WPTF requests the CAISO also include in the analysis 

an assessment of WEIM uncompetitive conditions to evaluate if BAA level market power mitigation is (1) still warranted in WEIM, and (2) should now be applied to CAISO BAA. 

WPTF would appreciate, in addition to the data analysis requested above, the following information be included in the next iteration of the proposal:

• More discussion, including numerical examples, on how the BAA level mitigation in WEIM works today[1]
• More discussion, including numerical examples and changes in formulations from WEIM, on how the BAA level mitigation would be applied in the day-ahead market[2]
• How frequently the BAA level mitigation is triggered in WEIM today, which would exclude mitigation resulting from local market power mitigation
• If and how the competitive LMP would be determined and used for setting the mitigated offer price when resources have their bids mitigated due to BAA level mitigation in the day-ahead market given the EDAM proposals related to how the SMECs will be formulated

[1] Ideally this would include the formulation along with examples on how the demand and supply are calculated as well as if/how the competitive LMP is determined and used when mitigating due to BAA level mitigation

[2] For example, WPTF would like to better understand how the demand and supply in the DCPA test would be calculated.

Jun19_2014_OrderConditionallyAcceptingEIMTariffRevisions_ER14-1386.pdf (caiso.com)

6. Provide any additional comments on the issue paper, or any additional scope items your organization feels should be included for this initiative. You may upload examples and data using the “attachments” field below: