Please provide any additional comments or feedback on the Price Formation Enhancements Working Group session #1 or for consideration for our next Working Group session.
Vistra’s #1 priority is to better produce energy clearing prices that communicate that the system is approaching or under shortage conditions.
Vistra believes there is a path to propose a more robust price formation design when operators take out-of-market actions through exploring mechanisms such as Reliability Deployment Price Adders (RDPA). A RDPA is a real-time market price adder that is added to the clearing price when out-of-market actions are taken that would suppress the market prices including deploying demand response or calling for firm load shed (EEA3). As an initial matter, Vistra believes that CAISO should make every effort to minimize reliance on out-of-market actions, given their inherently distortive impact on market prices. But, given the increasing reliance on out-of-market state programs such as the Strategic Reliability Reserves or out-of-market demand response programs that are nonetheless anticipated, this effort should prioritize enhancements that incorporate an energy or ancillary service price adder when out-of-market actions are taken that would otherwise result in suppressing either the energy clearing price or ancillary service marginal clearing price.
In combination with exploring a mechanism like RDPA, Vistra believes it is reasonable to discuss whether mechanisms to balance sending rational price signals with considering reasonable protections for load serving entities should also be included. Should the design ensure scarcity pricing sends a rational signal and does not persist over a length of days that indicate the market is no longer functioning appropriately. Other markets have considered incorporating a “stop loss mechanism” that would kick in to strike the balance between ensuring the value of scarcity price signals is reflected in clearing prices and limiting exposure to sustained periods of higher prices that increase buyers’ risks of default. Generally, the concept is that when the sustained prices over time have reached net Cost of New Entry for a reference level unit over the period of time that scarcity pricing occurs that the stop loss mechanism kicks in and the market clearing prices are limited to the offer cap. For example, if the Net Cost of New Entry is ~$96,000/MW-year and scarcity price is at $2,000/MWh then the stop loss would kick in after 48 hours of scarcity pricing. This is the balance. An agreement on a maximum level of scarcity payments annually, while sending rational scarcity signals in the clearing prices
Vistra’s #2 priority is to ensure the energy and ancillary service prices are rationally priced to reflect increasing risks of failure to meet either energy or ancillary service requirements.
We believe energy or ancillary service prices should increase as the market approaches scarcity of either energy or ancillary service and should continue to steadily increase to reflect the probability of lost load as reserves degrade and energy or ancillary service requirements are increasingly at risk. Vistra believes appropriate price formation should result in energy clearing prices that reflect ancillary service shortage conditions at a steadily increasing rate as the ancillary service shortage is nearing and through the shortage. Additional discussions on whether ancillary service prices should also reflect energy shortage conditions are needed in this initiative.
Education Request: CAISO should provide additional education and examples of operator actions taken leading up to or during energy or ancillary service shortage conditions. This should include scenarios where there is only energy shortage risks, only ancillary service shortage risks, and when there is both energy and ancillary service shortage risks.
Vistra’s #3 priority is to improve the real-time market’s efficiency and ability to provide a reliable solution by re-optimizing day-ahead ancillary service awards in real-time.
Allowing buy backs of day-ahead ancillary service positions when a resource is no longer available to meet those awards will greatly improve the reliability and rational outcome of the real-time market. This is an issue that appears to be affecting Limited Energy Storage Resources in a meaningful way. The CAISO real-time market protects the Upper Economic Limit and Lower Economic Limit, which includes the day-ahead ancillary service awards, at a penalty price that makes it unlikely that the market will relax those awards. For storage resources affected by real-time outages, this can result in CAISO Fifteen Minute Market sending energy awards to continue to meet its Day-Ahead ancillary service award. If the charging award continues through the Five Minute Market then this could prematurely discharge storage to “meet” an ancillary service requirement, even if the regulation award being protected is not being deployed at a rate near 100%. Allowing re-optimization of the day-ahead award in real-time would allow the storage resource to buy-back the regulation award it received in day-ahead and allow the market to procure regulation from a resource with the reserves available in a more rational manner.
Vistra’s #4 priority in the short term is to provide additional information to evaluate what larger scale changes to market design are needed to converge advisory to binding results.
Vistra is leery of large-scale changes to the multi-interval optimization (MIO) to address some storage operators concerns. As an operator of both combined cycle gas turbine and storage assets, it is important not to dilute the efficiency that MIO brings to the CAISO market design to address the issues raised by storage.
Information Request: CAISO should begin providing advisory interval data. CAISO should also provide education into its forecasting methods and which elements of forecasting or alternatively other inputs or constraints that have largest impact on advisory interval results diverging from the binding results.
While mixed integer optimization changes should be deferred, Vistra believes phase 1 should prioritize low hanging fruit enhancements to address storage operator concerns. These include:
- Provide an uplift payment to storage resources that makes the storage whole to the settlement payments that would have occurred in the run that led to the binding dispatch to make it whole to the expected net revenue.
- Focus on forecasting or targeted enhancements that would converge advisory to binding interval results.
 See ERCOT Protocols, Section 126.96.36.199.1, available at: https://www.ercot.com/files/docs/2023/03/31/06-080123_Nodal.docx.
 Vistra notes we are referring to this as a stop loss mechanism instead of circuit breaker as referred to by ERCOT and PJM because CAISO has communicated it believes “circuit breaker” refers to its existing design. To avoid confusion we are differentiating between circuit breaker price caps and stop loss circuit breakers that kick in over a sustained period of time.