Comments on Aug 3 working group

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Enabling prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments is crucial for ensuring efficient and reliable electricity market operations. It highlights the importance of effective scarcity pricing mechanisms, which are instrumental in signaling scarcity conditions to market participants and incentivizing them to take actions that enhance grid reliability. By adjusting scarcity pricing to reflect real-time system conditions and the potential consequences of demand curtailments, electricity markets can create a stronger incentive for load-serving entities to schedule their load and secure supply accurately. This approach aligns market participants' economic interests with the imperatives of reliable system operations during tight supply conditions.

Various ISO/RTO under FERC jurisdiction have market rules during scarcity events. Implementing dynamic demand curves and penalty mechanisms ensures energy prices rise gradually as the system approaches scarcity conditions. The market signals encourage consumers and suppliers to respond proactively by reducing consumption or increasing supply, thus avoiding involuntary demand curtailments.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

 See response to question 2.

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Based on the current market timeline for CAISO BAA with its WECC neighbors, most hourly transactions occur almost 60 minutes before the trading hour. CAISO should consider applying a scarcity pricing mechanism in HASP consistent with the basic fundamental of operating reserve demand curves used in other ISOs. Careful consideration is warranted to align HASP, FMM, and RTD ORDC rules. Furthermore, EIM rules could be refined to manage.

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

There is a need for more context around this statement. CAISO market and the West either have a Resource Adequacy program or will soon. In the CAISO markets, there are existing RA rules to ensure resource availability under Resource Adequacy Availability Incentive Mechanism.

If the question pertains to the storage resource to deliver its day-ahead award in real-time, CAISO, in its storage initiative, has extended the Minimum state of charge constraint to manage grid reliability during tight supply conditions. From the perspective of storage resources maintaining its state of charge to deliver its day-ahead awards, implementing ORDC will provide additional incentives for storage to deliver its day-ahead award. However, storage resources also suffer from loss of revenue in some circumstances due to the impacts of changing market conditions in real-time optimization, known as the impact of Multi Interval Optimization MIO.

We recommend CAISO re-evaluating Bid-Cost Recovery (BCR) rules for limited energy duration resources due to implementing ORDC and MIO. Due to limitations in stored energy, we have to ensure rules in day-ahead, real-time, ORDC, and BCR provide the right incentives for storage to participate in all markets and support grid reliability.

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

 No comments.

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

As CAISO reviews price formation rules, there is an opportunity to review all aspects of the existing market. We recommend CAISO consider its existing rules for procuring the ancillary service market in day-ahead and only incremental in real-time. These rules were designed under a different set of supply mixes. As more storage comes online, there is an opportunity to consider re-optimization for ancillary services in real-time with provision for financial buyback. We also recommend CAISO review rules for Bid cost recovery for storage resources to address the concerns with bid-cost recovery.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

 No comments.

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

 No comments.

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

 No comments.

10. 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.

 No comments.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Support.  Scarcity pricing functions best as a deterrent to ensure proper planning and procurement of supply before reliability is endangered.  The deterrent will be most effective if it approximates the cost of failing to attract supply.  Though it is admittedly difficult to quantify involuntary demand curtailments, attempting to do so is an appropriate step to take.  BPA agrees with the overwhelming majority of working group participants who indicated support for this principle. 

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Refinement.  As the first principle acts as a deterrent, this principle appears to address prevention of supply scarcity, which BPA fully supports.  Details in the wording regarding dwindling reserves and operator costs may be too prescriptive and may benefit from refinement because they indicate reliance on out-of-market actions rather than market signals.  However, the general theme of taking steps to prevent scarcity before it occurs is one BPA supports. 

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Refinement.  Use of the work “equitable” seems inappropriate.  The goal of this principle is to ensure CAISO competes with other load/markets on equal footing.  The principle should be refined to emphasize fair competition, not equity. 

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Opposition.  We suggest considerable stakeholder discussion before including this principle.  The risk of over-mitigation reduces supply’s willingness to transact in CAISO, contributing to potential scarcity.  If interplay between exercised market power and scarcity pricing provisions exists, it should be dealt with, but that should not be a principle to address scarcity. 

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

Any new market power mitigation, especially BAA-level mitigation, should only be pursued once evidence exists to prove it is necessary.  Over-mitigation discourages supply participation, creating less competitive market conditions. 

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

See response to #7 above.  

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

See response to #7 above.  

10. 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.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

NCPA does not support this guiding principle. NCPA believes that market prices should continue to accurately reflect the marginal cost of operations for resources that are actually serving load in the CAISO BAA, including during times of scarcity. Such is consistent with the fundamental objective and design of the CAISO market. Allowing market prices to “reflect the willingness of market participants to avoid involuntary demand curtailments” is speculative at best, and will enable suppliers to exert market power and unnecessarily increase costs for California rate payers. The CAISO market already includes mechanisms to enable suppliers to seek additional compensation in the event their actual costs are greater than established price caps. In the event the CAISO determines that it is necessary to procure additional energy and/or capacity from other BAAs during tight system conditions, NCPA believes it is more appropriate for such procurement to be conducted bilaterally to enable CAISO to base such procurement on any unique operating conditions that may exist at the time.  A majority of demand in the CAISO BAA is inelastic in nature, so allowing prices to simply clear at levels that are greater than the current market price caps will only result in increased costs for California rate payers, with limited to no benefit to system reliability.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

NCPA believes the current tools that are available to enable CAISO to procure additional operating reserves in response to current market conditions are appropriate, and should not be modified.

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

NCPA does not support this guiding principle.  Please see NCPA’s response to question 1.    

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

NCPA believes the current CAISO market price caps already provide sufficient incentive for market participants to offer additional energy and capacity into the market during tight market conditions.  Increasing the existing CAISO market price caps will only result in additional cost for California rate payers, with limited to no benefit to system reliability.  

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

NCPA believes current scarcity pricing and market power mitigation measures are sufficient. 

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

Prices should accurately reflect the marginal cost of operations for the resources serving the CAISO BAA during all market conditions.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

No comment.  

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

No comment.  

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

No comment.  

10. 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.

None at this time.  

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

PacifiCorp supports this guiding principle.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

PacifiCorp supports this guiding principle with the assumption that it also includes EDAM and WEIM balancing authority areas. 

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Based on discussions at the first workshop on August 3^rd, PacifiCorp agrees with the sentiment of this guiding principle but believes it to be too vague. Specifically, the term ‘equitable manner’ is not very clear and seemed to cause some confusion.

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

At this time, PacifiCorp questions the effectiveness of this guiding principle. PacifiCorp would like there to be more discussion, and ideally some analysis to identify the issue that needs to be addressed.  For example:

• Does the CAISO observe non-performance during tight system conditions?
• Is the observed non-performance due to inadequate price signals?

The Summer Market Performance Report for September 2022[1] has a lot of good analysis on how market participants behaved during tight system conditions, and PacifiCorp believes the CAISO could use some of this analysis to better explain why this guiding principle is needed. Specifically, PacifiCorp would like to highlight Section 9.10 – Resource Bidding in the report. The analysis showed that a small proportion of supply bids submitted were greater than the soft-offer cap of $1000/MWh when the cap was raised to $2000/MWh and a portion of non-RA imports did submit bids above $1000/MWh. Based on the behavior shown in the report, it appears that raising the offer-cap did not incent supply that had costs above $1000/MWh. Upon reviewing this data, PacifiCorp questions whether that supply exists and, if it does, if there are stronger incentives needed than a $2000/MWh offer cap for that supply to deliver in the CAISO markets.

PacifiCorp would also like to highlight section 9.7 – Resource Performance. Figures 137-140 show that most resource types had actual production that was expected when compared to capacity that was available in the Real-Time Dispatch (RTD). However, more analysis may be needed to help determine if the differences between actual production and what was available for RTD, specifically for gas and hydro resources, was due to resources holding ancillary services or non-performance. For other resource types, the figures show the actual production of resources is very close to the RTD for supply. If there was widespread non-performance, PacifiCorp would expect to see significant differences between resource performance and RTD supply. A more concerning analysis can be seen in Figure 136, which shows that there was a significant amount of capacity, particularly from gas resources, on outage or de-rated for September 5^th – 8^th. It seems that there was more capacity on outage than what was not performing during the September heatwave, which is unlikely to be fixed by stronger incentives.

[1] SummerMarketPerformanceReportforSeptember2022.pdf (caiso.com)

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

PacifiCorp supports this guiding principle.

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

PacifiCorp does not have any suggestions for new guiding principles.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

In general, PacifiCorp is supportive of using market power mitigation measures when there is a clear need.  However, before this question can be answered the issues that need to be solved should be clearly identified. It is unclear to PacifiCorp whether EDAM would significantly alter the competitiveness of the day-ahead market, and so questions if BAA-level market power mitigation is needed in EDAM at go-live.

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

See response to #7

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

See response to #7.

10. 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.

PacifiCorp appreciated the use of live polling in the working group session #1 and believes it should be used in the future as it will help lead the workshops in a direction that is more representative of the views of the stakeholder community.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

This principle is not entirely clear on what it is supposed to mean. Does this imply that Operating Reserve Demand Curves should closely match out of market prices during scarcity conditions, or that a market participant’s ability to engage in bi-lateral transactions under scarcity conditions should not be hampered in any way? PSE suggests refining the principle to put a greater emphasis on establishing and setting precise values that are reflective of system stress levels and provide robust incentives to offer energy into the market.

This revised language could look like: “Ensure CAISO’s scarcity pricing mechanisms accurately reflect the stress levels present on the system during scarcity conditions and encourage market participation.”

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Perform and deliver are somewhat synonymous in this context. PSE suggests refining this principle’s language: “Provide stronger incentives for market participants to supply energy and perform under scarcity conditions.”

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

While scarcity pricing protocols shouldn’t be triggered under the exercise of market power, the CAISO should also endeavor to mitigate inappropriate triggering of scarcity pricing for other reasons in addition to instances of market power. PSE believes this principle could be rephrased to capture the importance of developing a durable scarcity pricing design that is resilient to triggering at inappropriate times.

PSE suggests making the language more generally applicable: “Protect from scarcity pricing provisions triggered at inappropriate times outside of scarcity conditions, such as through exercise of market power or market manipulation.”

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

BAA-level MPM may serve an important role under the EDAM design as a means of ensuring competitive market prices though the assessment of all constraints that are impacted by a resource, not just those internal to the BAA. PSE believes more information would help illustrate BAA-level MPM’s impacts in EDAM. PSE would appreciate the CAISO performing an analysis and creating some examples to highlight the potential benefits and risks associated with using (or without using) this construct to inform future discussions.

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

Market design decisions should be uniform with provisions for exceptional circumstances. As such, PSE believes it would be preferable to start with uniform implementation of BAA-level MPM which includes the CAISO BAA. The CAISO can document the benefits and drawbacks of this approach for further assessment.

10. 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.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

PGP supports inclusion of this principle in the Price Formation Enhancements initiative.

While this aligns with the PGP's organized market principles (see attached), it is important to highlight the linkage to resource adequacy (RA). Scarcity pricing and/or RA/RSE non-compliance enforcement measures should not become a discretionary economic alternative to compliance with RA or RS upstream. Furthermore, consistency and alignment of RA to a regional standard, and consistency of the RS test application should be a foundational premise that enables scarcity pricing to function effectively in a regional market. If RA penalties occur outside of the market, scarcity pricing should be less punitive but incentivize performance and coordination.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

PGP supports inclusion of this principle in the Price Formation Enhancements initiative. 

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

 PGP recommends refinement of this principle as follows:

“Ensure CAISO’s  scarcity pricing mechanisms result in commensurate prices compared to transactions during scarcity conditions in the broader Western Interconnection in order to attract Western supply and provides adequate compensation for the attributes and/or products required to meet reliability.”

We believe this modification recognizes that we are seeking a durable design that sends correct signals while the bilateral market is still functioning as it does today, but also works if there are two markets in the West in the future and can support seams management.

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

 PGP recommends refinement of this principle to focus on resources, and supports one commenter’s recommendation to use “signals” because signals cover both incentive and penalties.

PGP’s similar principle for consideration is the following: “Market rules send signals that incentivize all resources to follow dispatch instructions.” We believe this could also encompass the intent of the principle introduced by the CAISO.

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

PGP would like to see further analysis of this topic including the interplay with the RSE, CA unique concepts relating to the RA resources, and natural mitigation features such as the RSE transfer trading platform before supporting inclusion of this principle.

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

 PGP recommends the addition of the following principle to help guide the BAA-level Market Power Mitigation framework. We believe further work could be done to demonstrate this issue indicating the need for BAA-level MPM, including examples of where non-competitive pricing has occurred.

“Market power mitigation should result in energy prices that approximate prices that would occur in a competitive market and should only be applied where the opportunity to exercise market power exists . “

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

PGP would like to see further documentation of the frequency of non-competitive conditions or MPM in the WEIM, analysis of how that may change under the EDAM, and exploration of whether a conduct and impact test may be more appropriate in this context before BAA MPM is further refined or adopted for the EDAM.  

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

 PGP agrees with the comments raised by WPTF in the first working group session, that the issue paper needs to more clearly articulate why this is an issue, frequency of occurrence, and broader alternatives such as the conduct and impact framework before diving into more detailed versions of an extension of the existing framework.

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

PGP would like further analysis of this issue before including this in the scope of the initiative.

10. 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.

 PGP really appreciates the efforts of CAISO staff to be more engaged with stakeholders and to try a new approach to the working group process. The live polling followed by a stakeholder comment window strikes a good balance between airing concerns/feedback early, stimulating dialogue and thought, and enabling contemplation and internal discussion before final feedback is issued. We look forward to continuing to participate in the process.

While we appreciate that this is a stakeholder-driven process and the request for stakeholder presentations on issues, there are aspects of the scope that the CAISO is best suited to review and present on, notably places where the ISO MO role and the ISO BA role can be better differentiated, and also the appropriate price signals and documentation of issues during the use of load conformance, emergency DR, or strategic reserve deployments. This topic relates to ensuring equity across market participants, as well as the market power, and it is appropriate that this issue is within the scope of this initiative. 

Other topics that arose in the discussion last week that warrant further dialogue include the interplay between scarcity and the RSE, and the stop-loss measure for when the scarcity signal is no longer meaningful. These are not represented directly in the principles, but should be retained as important design objectives for this process.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

The Six Cities oppose this principle, which seems to presume that prices should be set based on avoided threats of load shed.  This is not an appropriate framing of the issues for this initiative, particularly given that it is not limited to any particular market conditions that are reasonably reflective of scarcity.  It is also untethered to any notion of assuring just and reasonable rates for consumers, does not address or consider conditions in which the pricing of supply should reflect the cost to provide that supply, and is vague with respect to the concept of valuing avoided demand curtailment.  On this latter point, for example, who determines the value of such avoided curtailment—is the intent to reflect the value of avoided curtailment as determined by end-users?  Demand response?  Load serving entities?  The CAISO?  As discussed below, before developing principles to guide possible solutions in this initiative, it would be useful to discuss the problems that this initiative is attempting to address, which may lend itself to development of a principle that is focused on alignment of pricing with graduated scarcity conditions and containing protections to assure just and reasonable rates, which may be what this principle is focused on. 

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

At this time, the Six Cities do not oppose this principle. 

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

The Six Cities support this principle, subject to further discussion.

In general, the Six Cities concur in the concept that they understand to be reflected in this principle, which is that the CAISO’s pricing mechanisms should not serve as a disincentive for resources across the West to participate in CAISO markets relative to engaging in non-market transactions.  The Six Cities request confirmation of their understanding of this principle, and may propose further refinements as the working group process advances.  To assist in evaluating potential refinements, the Six Cities would like to understand the concerns underlying this principle and, from a pricing perspective, the reasons that transacting outside of the CAISO would be more attractive to market participants relative to the CAISO markets during times of scarcity (or more generally).  For proponents of this principle, are there “inequities” in CAISO pricing relative to other market opportunities? 

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

The Six Cities oppose this principle in its current formulation, pending further discussion in the working group process.

The Six Cities agree that performance and delivery by resources during tight system conditions is of critical importance.  However, the Six Cities question whether “stronger incentives” in the form of scarcity pricing, as this principle appears to presume, is the right approach to ensuring performance and delivery or whether other market rules could more appropriately address this.  Is there currently a basis for concluding that price formation in the CAISO is an impediment to resource performance during tight conditions?  What data exist to support this claim?

In the event that this principle is retained, the Six Cities support incorporating the concept of guardrails, so that if scarcity pricing measures are not working to ensure performance and delivery of resources in tight conditions, consumers do not face continued exposure to elevated prices.  This was raised during the August 3^rd working group meeting in the context of a “stop loss” measure that would prevent or mitigate severe pricing distortions that do not cause additional supply to enter the market, such as those observed in Texas markets during winter storm Uri.

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

The Six Cities support this principle. 

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

The Six Cities support either a separate principle addressing the following concepts or, alternatively incorporating these concepts into the above-stated principles:

• Scarcity pricing measures should be appropriately calibrated so that they are applicable in circumstances that reflect ongoing or impending scarcity conditions, but are not applied (or are applied in a graduated way) when scarcity conditions do not exist or in conditions that represent the exercise of market power. 
• The design of price formation enhancements should result in rates that are just and reasonable for consumers, should allow resources a reasonable opportunity to recover their costs, and should be calibrated to reflect actual or anticipated conditions of scarcity.  Scarcity pricing should not apply when scarcity is not present, or at least imminent, in the market.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

The Six Cities support consideration of BAA-level market power mitigation for the EDAM, but believe that stakeholders would benefit from a more robust discussion about the benefits and costs of BAA-level market power mitigation as compared with the current structure and alternatives that are applied in other markets.  Is there data or information that would help stakeholders evaluate the need for and possible design of market power mitigation within the EDAM?  The Six Cities encourage the CAISO to develop a white paper or other document discussing the merits of various approaches to inform further stakeholder discussions and refinement of the principles and problem statements for this topic, if such an analysis is not already available. 

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

The Six Cities support exploration of enhancements to the methodology for BAA-level market power mitigation.  As with question no. 7, additional data and analysis would help stakeholders consider any enhancements that might be appropriate. 

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

Consistent with their responses to question nos. 7 and 8, the Six Cities support consideration of including the CAISO BAA in any BAA-level market power mitigation process that is applied in the EDAM and EIM, but would like more information about possible policy approaches to the structure and design of market power mitigation to help inform stakeholder discussions and the identification of guiding principles and problem statements.    

10. 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.

In general, the articulation of the principles seems to imply that scarcity pricing enhancements have been determined to be necessary, but, for the purpose of this initiative, it is not clear where this determination was made and by whom.  While the Six Cities support development of principles to guide possible solutions in this initiative, the Six Cities are concerned that the CAISO and stakeholders have not necessarily articulated, much less agreed, on the set of problems that we are collectively attempting to solve.  It would be preferable to spend some working group time on defining and achieving consensus on the specific problems that need to be addressed through scarcity pricing and expanded market power mitigation rules before turning to principles.  Such analysis should include evaluation of the anticipated impacts of market design changes to be proposed in the EDAM and DAME initiatives that have not yet been implemented.  Developing general principles for price formation without an understanding of the underlying issues to be addressed may result in principles that are overly abstract or, like principle 1 and principle 4, seem to presume particular solutions are necessary. 

The Six Cities note that this initiative remains at an early stage and, as such, the Six Cities may revise or expand upon the principles and positions discussed above as this initiative progresses. 

Finally, the Six Cities request that the CAISO provide consider and provide clarification regarding the intended timing for implementation of any market design changes that might result from this initiative.  The Six Cities note that the CAISO will be implementing extensive revisions to its market rules as a result of the Day Ahead Market Enhancements and Extended Day Ahead Market initiatives.  It would be constructive to consider how DAME and EDAM implementation might interact the policies under this initiative, and whether it would be prudent and advisable to gain some experience under DAME and EDAM before putting in place new price formation rules.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

SCE is concerned that the Guiding Principle identified above could result in an outcome that does not adhere to the foundational principle of just and reasonable rates.  Specifically, SCE strongly opposes the idea that willingness-to-pay is an appropriate metric at which to set scarcity prices. When scarcity exists in markets, especially markets with very inelastic demand like electricity, it becomes extremely hard to determine what is an appropriate market scarcity price and what may be an excessively high price. CAISO’s first line of defense against unreasonably high prices are the bid caps, must offer requirements, and market power mitigation. Care must be taken not to modify these existing protections. A willingness-to-pay scarcity pricing mechanism could provide incentives for suppliers to bid above marginal cost resulting in rates that would not meet the test of just and reasonable.  Rather, SCE encourages the working group to consider scarcity price mechanisms that rely on an administratively set price or pricing regime that still encourages suppliers to bid marginal cost, even when there is a chance or expectation of scarcity.  

Simply put – any ideas to “increase the current bid case” should not be considered, at all, as part of this process.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

SCE agrees that prices should rise when scarcity is eminent, and that this should continue even when the CAISO uses out-of-market tools to relieve some of the pressure. Care must be taken, however, in the development of the administrative pricing regime to ensure that all resources continue to have incentives to bid into the market at marginal costs and not withhold their resources, or significantly increase their bids, in the hope of forcing the market into scarcity pricing.  

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

SCE has concerns with this principle because of the disparate market structures between the CAISO markets and the bilateral market of the West. For example, Resource Adequacy resources in the CAISO market have accepted a capacity payment in exchange for agreeing to a Must Offer Obligation and accepting the CAISO’s market power mitigation and bid caps. Other resources in the West have not accepted these rules, and other markets don’t have the protections that the CAISO market offers. Thus, CAISO resources, or at least RA resources, should not expect to transact in the same manner as non-CAISO resources in non-CAISO markets. Further, allowing non-CAISO entities to have access to CAISO resources which have prices limited and MOOs, while not applying those same limits to those entities’ non-CAISO resources, creates an unlevel playing field. This may be true not only in the bilateral market, but also in EIM and EDAM. The CAISO co-optimizes ancillary services with energy for the CAISO market and relies on the MOO for RA resources to ensure that resources are bidding in both ancillary services and energy markets. EIM and EDAM may allow other entities access to the CAISO energy markets and competitive prices for energy resources while not requiring their resources to provide ancillary services. Scarcity could drive up energy prices but would only increase ancillary service prices for the CAISO which could provide a significant benefit to the non-CAISO entities.

Any scarcity pricing regime must be designed with these differences in mind.

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

SCE agrees with other stakeholders’ concern that additional analysis is necessary to demonstrate the need for stronger incentives.  Additionally, SCE suggests that “incentives” be changed to “signals” to reflect that suppliers’ adequate performance and delivery in tight systems may require both incentives and penalties.

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

This is a key and foundational principle.  As demonstrated in SCE’s other responses in this document, great care must be taken to ensure that scarcity prices aren’t driven by exercising market power. Prices must reflect scarcity but must also remain just and reasonable.

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

The following key principle should be added:

Scarcity pricing should be designed such that suppliers continue to have incentives to offer supply at prices reflecting the marginal cost of production under all system conditions.

Any design should eliminate arguments from suppliers that “I have to bid high in order for prices to go high (to reflect scarcity).”  

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

SCE agrees that there should be the application of BAA-level market power mitigation (MPM) in EDAM; however, the approach currently used in the WEIM may not be sufficiently thorough and effective for use in the EDAM as the evaluation of constraints is limited to within each separate BAA.   A more comprehensive approach would be to group all BAAs and perform the dynamic competitive path assessment (DCPA) to evaluate market power.

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

SCE believes the grouping approach should be pursued where all BAAs are grouped when performing dynamic competitive path assessment (DCPA).  The sequence of grouping the BAAs when performing DCPA should be a topic of discussion in future stakeholder meetings.   

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

CAISO should be included in BAA-level market power mitigation if the grouping approach is adopted.   The CAISO BAA should be grouped with other BAAs when performing the DCPA. 

10. 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.

SCE has no further comments.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

10. 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.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

No comment.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

This principle should include enabling energy and ancillary service prices to indicate that either or both ancillary service reserves or energy capability is nearing or at shortage conditions in a steadily increasing manner. See response to #5 for details on this principle.

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

We believe this principle is getting at ensuring that the CAISO market price signals allow it to effectively compete for economy energy purchases through its intertie markets in the day-ahead and real-time. We agree with this principle.

An additional principle that ensures rational market results across the entire Western Energy Imbalance Market, and an Extended Day-Ahead Market, that appropriately values energy and ancillary service scarcity.

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Vistra supports this principle. 

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

Vistra requests clarification on what this principle means to the CAISO. Appropriate market power mitigation rules should always be in effect. Scarcity pricing is a different, and unrelated concept. When scarcity pricing is appropriate in a market design it reduces any incentive to exert market power, because there is confidence that the value of power supply will be fairly compensated.

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

None at this time.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

CAISO should provide analysis to support whether there is a need or not.

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

See response to #7.

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

See response to #7.

10. 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).[1] 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”[2] 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.[3] 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.

[1] See ERCOT Protocols, Section 6.5.7.3.1, available at: https://www.ercot.com/files/docs/2023/03/31/06-080123_Nodal.docx.

[2] 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.

1. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to accurately reflect the willingness of market participants to avoid involuntary demand curtailments. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

2. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Enable prices to indicate that reserves are dwindling and approaching NERC-required minimum levels, and to reflect costs that operators may be incurring to maintain those reserves. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

WPTF recommends this principle be edited to more clearly capture the following concepts, which we believe is the intent of this principle:

• The scarcity pricing design should enable energy prices to start to rise above the marginal resource as conditions begin to tighten and near scarcity conditions, and the energy prices should continue to rise as the probability of loss of load increases.
• Energy and ancillary service prices should both indicate when energy capability and/or ancillary service capability are nearing or are in shortage conditions, as appropriate.
• Actions taken by operators to help prevent scarcity conditions from occurring should not have a price suppressing effect but rather still result in scarcity pricing signals.

We would like to take this opportunity to also note that it will be important to keep in mind as we discuss potential scarcity pricing designs/principles that it will apply to a broader footprint than just the CAISO BAA. Thus, whatever solution is reached needs to be effective for all BAAs, as appropriate. For example, ancillary services are only procured in the CAISO BAA, not in non-CAISO WEIM/EDAM BAAs, thus using ancillary service scarcity to also trigger energy pricing scarcity won't be an effective design by itself for all BAAs.

3. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Ensure CAISO’s scarcity pricing mechanisms allow market participants to transact in an equitable manner compared to non-market transactions in the broader Western interconnection. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

4. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Provide stronger incentives for market participants to perform and deliver in tight system conditions. . If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

WPTF believes it would be useful to also include within this principle, or the principle referenced in #3 above, that scarcity pricing should also provide stronger incentives for voluntary supply to be offered into the CAISO market. 

5. Please provide feedback (support, refinement, opposition) on the following Guiding Principle for the Price Formation Enhancements Initiative : Protect from scarcity pricing provisions triggered through the exercise of market power. If your organization’s believes the Guiding Principle needs refinement, please provide your proposed changes.

WPTF believes this principle could use additional clarification. It’s our understanding that what the CAISO is trying to capture in this principle is the idea that the exercise of market power should not, by itself, trigger scarcity pricing provisions. We believe additional discussion may be warranted that considers whether or not this is more appropriate for a market power mitigation principle rather than a scarcity pricing principle.

6. Please provide suggestions for new Guiding Principle not captured above, to be discussed and vetted with the community in future Working Group Sessions.

7. Please provide your feedback on whether your organization believes there should be the application of BAA-level market power mitigation, as done in the WEIM today, to the EDAM.

WPTF is encouraged by the way the CAISO addressed the scarcity pricing discussions and encourages staff to take the same approach for BAA-level market power mitigation. WPTF believes the way the CAISO initiated the discussions related to scarcity pricing by first identifying the issues and articulating the problem statements scarcity pricing is intended to address will facilitate a robust stakeholder process, leading to an efficient market design that addresses the issues. WPTF greatly appreciates that during the Aug 3 workshop the CAISO staff acknowledged that that step was missed with regards to BAA-level market power mitigation. The BAA-level market power mitigation questions as currently framed seem to jump to “what changes can be made?” rather than “what issues are we trying to address?”. It is our understanding the CAISO will come back to the stakeholders with articulated issues and problem statements that BAA-level market power mitigation should be addressing, and we are looking forward to that discussion.

In addition to having articulated issues and problem statements related to BAA-level market power mitigation, WPTF respectfully requests that the CAISO provide analysis that supports the issues. As a first step, the CAISO could leverage the work done by the DMM in the 2022 Annual Report that shows the instances of uncompetitive conditions in the day-ahead time frame.

8. Please provide your feedback on the potential of exploring enhancements to CAISO’s methodology for applying BAA-level market power mitigation.

See response to #7 above. Prior to providing any feedback as to changes/enhancements, the stakeholder community should first discuss what issues and problem statements the market design is attempting to address. 

9. Please provide your feedback on whether the CAISO BAA should be included in BAA-level market power mitigation that applies to the EDAM, WEIM, or both.

See response to #8 above. 

10. 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.