Comments on Meeting on 6/18

1. General Comments

Comments on Commitment Cost Bidding Flexibility

Workshop #2 - June 18, 2026

Department of Market Monitoring

July 6, 2026

Summary

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the Commitment Cost Bidding Flexibility Workshop #2, held on June 18, 2026.[1] DMM noted several shortcomings with the commitment cost mitigation policy approved in 2018 as part of the Commitment Cost and Default Energy Bid Enhancements initiative.[2] DMM encourages the ISO to carefully review and thoroughly discuss this initiative with stakeholders prior to implementation.

DMM continues to believe that a robust and well-designed framework for dynamic commitment cost mitigation is necessary before considering an increase to the current 125 percent cap on commitment cost bids. While DMM recognizes there may be instances where the existing cap does not fully reflect a resource’s actual costs, DMM believes many of these cases could be more effectively addressed with other mechanisms aimed at improving accuracy of the resources’ reference levels. For example, DMM continues to recommend that the ISO enhance processes for allowing commitment cost bid caps to be raised in response to actual market conditions at the start of each operating day. 

While the ISO is contemplating approaches to implement dynamic commitment cost mitigation, DMM notes that any approach to doing so will necessarily be different and more complicated than the approach used for energy bids and must consider a wider range of constraints and resources. DMM agrees with stakeholders that it would be useful for the ISO to provide additional detail on any technical limitations that may be relevant to the implementation of any potential approach to dynamic commitment cost mitigation. 

The complexity of the ISO’s basic dynamic mitigation proposal creates significant potential for implementation errors and unexpected performance issues. Consequently, DMM recommends that commitment cost bid caps should be raised on a more gradual basis only after the effectiveness of dynamic mitigation is confirmed based on actual operational experience.

Comments

Additional targeted steps to improve the accuracy of commitment cost bid caps may reduce the need for complex dynamic commitment cost mitigation.

Developing a sufficient design for dynamic commitment cost mitigation will be complex and will likely require significant software changes which can lead to implementation errors and performance issues. DMM recommends the ISO continue focusing on improving resources’ ability to accurately reflect costs—particularly fuel costs—with targeted mechanisms like the default gas price index (GPI) adjustment. In 2025, the ISO took incremental steps through the Gas Resource Management initiative to provide additional gas price flexibility in reference levels, including for commitment costs. However, DMM continues to recommend the ISO provide additional flexibility in the manual reference level change request process, such as extending the 8 a.m. deadline for reference level change requests for the real-time market.[3]

DMM realizes there must be some lag between when requests are made and when they can be implemented in the market. However, DMM has suggested that the ISO allow reference levels for both energy bids and commitment costs to be updated on an ongoing basis in the real-time market. DMM understands that other regional transmission operators offer this type of flexibility, especially under unusual market conditions.[4] This additional flexibility would further decrease the need to raise the commitment cost bid cap above 125 percent in many cases.

The approach to dynamic market power mitigation for commitment costs will necessarily differ from the approach used for energy bids.

DMM agrees that dynamic market power mitigation (MPM) tests for commitment costs should differ from the energy MPM process across several key aspects. For commitment cost mitigation, the MPM test would need to consider a wider set of constraints as it would be necessary to test non-binding constraints. In addition, there may be other constraints and scenarios to consider, such as minimum online constraints and operator actions that affect commitments.[5] DMM also continues to recommend that resources that could have been committed should be considered and mitigated when necessary to prevent participants from withholding more efficient resources from the market.[6]

The ISO should provide additional detail on technical challenges to implementing different dynamic commitment cost mitigation approaches.

During the call, stakeholders requested the ISO provide more detailed information regarding the implementation issues associated with the original policy. DMM agrees that understanding the specific roadblocks would help identify what approaches may or may not be feasible. The ISO has indicated that implementing this policy will require technology trade-offs that increase with solution complexity. DMM recommends the ISO clearly outline these trade-offs so that stakeholders can better understand the practical limitations.

[1] Commitment Cost Bidding Flexibility Workshop 2, California ISO, June 18, 2026: https://stakeholdercenter.caiso.com/InitiativeDocuments/Presentation-Commitment-cost-bidding-flexibility-working-group-Jun-18-2026.pdf

[2] Comments on Revised Draft Final Proposal for Commitment Cost and Default Energy Bid Enhancements, Department of Market Monitoring, February 28, 2018: https://www.caiso.com/documents/dmmcomments-commitmentcostsanddefaultenergybidenhancementsreviseddraftfinalproposal.pdf

[3] Memorandum to Western Energy Markets Governing Body - Comments on proposed changes to gas resource management, Department of Market Monitoring, December 9, 2025: https://www.caiso.com/documents/decision-on-gas-resource-management-and-extended-day-ahead-market-congestion-department-of-market-monitoring-comments-dec-2025.pdf

[4] Ibid.

[5] Comments on Revised Draft Final Proposal for Commitment Cost and Default Energy Bid Enhancements, Department of Market Monitoring, February 28, 2018: https://www.caiso.com/documents/dmmcomments-commitmentcostsanddefaultenergybidenhancementsreviseddraftfinalproposal.pdf

[6] Ibid.

2. Does your organization agree that the conditions identified fairly represent the conditions intended by the policy for a commitment cost specific MPM test? (1) Test a wider set of constraints, (2) account for unloaded transmission capacity in demand for counterflow, (3) consider resources that could have been committed in supply of counterflow, (4) include both net buyers and bet sellers as potentially pivotal.

Please see the PDF attached below the final question for DMM's fully formatted complete set of comments. For the reader's convenience, the complete text of the comments is pasted in response to #1, but there may be some formatting errors.

3. Does your organization agree that the criteria identified for mitigating commitment cost offers fairly represent the criteria intended by the policy? (1) At non-binding constraints use the commitment cost test to identify need for mitigation, (2) at binding constraints identified as uncompetitive by the energy RSI, identify both bid components for mitigation, (3) at binding constraints identified as competitive by the energy RSI, apply the commitment cost test to identify commitment cost offers for mitigation

Please see the PDF attached below the final question for DMM's fully formatted complete set of comments. For the reader's convenience, the complete text of the comments is pasted in response to #1, but there may be some formatting errors.

1. General Comments

Calpine appreciates the opportunity to comment on CAISO's Commitment Cost Bidding Flexibility (CCBF) initiative.

Calpine generally supports allowing market-based commitment cost offers when competitive conditions exist while applying mitigation when market power concerns are present.

We understand the rationale for a dynamic commitment cost mitigation framework. However, we do not believe CAISO has provided enough information for stakeholders to fully evaluate the proposal, e.g., how often mitigation will occur, which resources will be affected frequently, or the potential impacts on resources that are vital for system reliability.

Our primary concern is the effect of the proposal on resources located in Local Capacity Areas (LCAs). The framework assumes that mitigation will occur infrequently. For many resources operating in constrained local areas, however, mitigation is not infrequent. It is a recurring outcome driven by location and reliability needs rather than market conduct.

As a large fleet owner with resources in several critical local areas, Calpine is concerned that the proposal could result in frequent mitigation of resources that are essential to reliability but are not exercising market power. CAISO should evaluate whether the proposal risks under recovery of commitment costs for resources that are routinely mitigated.

We are also not convinced that the existing commitment cost recovery framework is fundamentally broken. Based on our experience, resources generally have opportunities to recover commitment-related costs through existing market mechanisms, including Bid Cost Recovery. Before adopting a new mitigation framework with potentially significant impacts on local resources, CAISO should more clearly demonstrate both the problem it is attempting to solve and the expected benefits of the proposed approach.

At a minimum, Calpine recommends that CAISO:

• Refresh and publish its prior impact analysis;
• Evaluate the expected frequency of commitment cost mitigation by local area and resource type;
• Provide additional transparency into key inputs used in the Residual Supply Index (RSI) calculations, including resource counts, Pmin assumptions, and local market characteristics;
• Assess the impacts on resources located in constrained local areas that may experience frequent mitigation; and
• Preserve the originally contemplated transition framework, including a 200% market-based offer cap and 125% mitigation headroom for an initial implementation period of at least one year before considering movement to the proposed 300% cap and 110% mitigation level.

The proposal also does not adequately address resources that may be repeatedly mitigated due to structural local conditions. Calpine encourages CAISO to evaluate a separate treatment for frequently mitigated resources, including retaining a higher mitigation cap or establishing an intermediate mitigation level. We are less concerned with the exact percentage than with establishing a mechanism that recognizes the difference between occasional and frequent mitigation.

Calpine looks forward to continuing the discussion, but believes additional analysis is needed before the proposal moves forward.

2. Does your organization agree that the conditions identified fairly represent the conditions intended by the policy for a commitment cost specific MPM test? (1) Test a wider set of constraints, (2) account for unloaded transmission capacity in demand for counterflow, (3) consider resources that could have been committed in supply of counterflow, (4) include both net buyers and bet sellers as potentially pivotal.

Calpine generally agrees that the identified conditions are directionally consistent with the objectives of a commitment-cost-specific market power mitigation framework. The proposed conditions generally appear consistent with the intended policy objective.

However, Calpine cannot fully assess whether the framework produces reasonable outcomes without additional analysis of mitigation frequency and local market impacts. CAISO should quantify how often resources in constrained local areas are expected to fail the proposed screens and become subject to mitigation. This information is necessary for stakeholders to evaluate whether the framework appropriately balances market power concerns with commitment cost recovery.

Therefore, while we generally agree with the framework, additional analysis is needed to understand the practical impacts of the proposed testing approach.

3. Does your organization agree that the criteria identified for mitigating commitment cost offers fairly represent the criteria intended by the policy? (1) At non-binding constraints use the commitment cost test to identify need for mitigation, (2) at binding constraints identified as uncompetitive by the energy RSI, identify both bid components for mitigation, (3) at binding constraints identified as competitive by the energy RSI, apply the commitment cost test to identify commitment cost offers for mitigation

Calpine generally agrees that the mitigation framework described by CAISO is consistent with the intended policy structure.

Applying the commitment cost test at non-binding constraints, mitigating both energy and commitment cost components when a binding constraint fails the energy RSI test, and applying the commitment cost test at binding constraints that pass the energy RSI test all appear logically consistent with the overall market power mitigation framework.

Our primary concern is not the mitigation logic itself, but its impact on resources that are likely to experience frequent mitigation due to structural local conditions. The proposed 110% mitigation level may be reasonable if mitigation occurs infrequently. However, for resources that are repeatedly mitigated because of their location and reliability value, the proposal could create a risk of under-recovery.

More importantly, we believe market power mitigation should focus on preventing the exercise of market power rather than simply identifying circumstances where market power could theoretically exist. Throughout the CAISO’s Price Formation Enhancements (PFE) initiative stakeholder process, Calpine consistently supported the use of conduct and impact tests because structural indicators alone do not necessarily demonstrate that market power is being exercised or that consumers have been harmed.

As we argued during the PFE discussions, the mere existence of market power is not the same thing as the exercise of market power. That distinction is especially important for resources in local areas where structural mitigation can occur frequently regardless of a resource's actual behavior.

We believe the same concern exists here. The proposed framework relies heavily on structural screens, including RSI-based measures of supplier capability and concentration. While those screens may identify situations where a resource has the potential ability to influence outcomes, they do not demonstrate that market power has been exercised or that market outcomes have been distorted.

This distinction is particularly important in local areas where resources may frequently fail structural market power tests due to transmission constraints, limited supply alternatives, and reliability requirements. In these circumstances, mitigation may occur not because a resource has been offered uncompetitively, but simply because the resource is needed to maintain reliability. As a result, the proposal risks frequently mitigating resources based on their owner’s overall supply concentration and the resource’s structural importance to the system, rather than any actual exercise of market power.

Consequently, Calpine recommends that CAISO further evaluate how frequently resources are expected to be mitigated under the proposed framework, particularly in constrained local areas, and whether those outcomes reflect actual competitive concerns or simply local reliability requirements. We also encourage CAISO to consider whether additional measures are needed to differentiate frequent structural mitigation from circumstances involving actual market power concerns.

1. General Comments

PG&E supports protecting against artificially elevated commitment cost offers that may encourage economic withholding, inflated bid cost recovery, and unnecessary customer costs. PG&E understands that the fundamental issue is that there is the potential for excessive commitment cost offers to result in economic withholding, inefficient outcomes, and increased bid cost recovery payments borne by customers. Further, this issue could be exacerbated with greater regional participation in the day-ahead market.  So we appreciate the CAISO’s tenacity in exploring market power mitigation tests for commitment costs.

PG&E recognizes the challenges of implementing the ideal dynamic mitigation test for commitment costs.  PG&E understands that CAISO has not been able to implement the ideal market power test, as identified in the CCDEBE initiative (circa 2018). Such a test still does not appear to be feasible in 2026. PG&E appreciates CAISO’s suggestions for simplifications and the candid discussion of their inherent tradeoffs.

PG&E agrees the conditions CAISO identified may be useful for identifying elevated commitment cost offers.  PG&E views the proposed conditions as potentially useful for identifying circumstances where elevated commitment cost bids may increase bid cost recovery. PG&E also requests more details on how CAISO would identify relevant constraints, particularly non-binding constraints, and determine which online and offline resources are sources of counterflow.

PG&E suggestion for next steps: One or two workshops to align on the magnitude and urgency of the problem, the details of the simplified solution, the effort required to implement the simplified solution, and the level of stakeholder support.  PG&E understands that there is very limited bandwidth for CAISO policy staff, for stakeholders, and for implementation of market software. It would be helpful for CAISO and stakeholders to (i) align on the size and priority of this problem; (ii) understand the details of CAISO’s suggested simplified solution; (iii) understand the implementation effort required for the suggested simplified solution; and (iv) alternative solutions (e.g., ex post monitoring). PG&E hopes the result will be consensus on a clear path forward. 

2. Does your organization agree that the conditions identified fairly represent the conditions intended by the policy for a commitment cost specific MPM test? (1) Test a wider set of constraints, (2) account for unloaded transmission capacity in demand for counterflow, (3) consider resources that could have been committed in supply of counterflow, (4) include both net buyers and bet sellers as potentially pivotal.

PG&E agrees that the conditions CAISO identified may be useful for identifying elevated commitment cost offers.

PG&E understands that the ability for a unit to inappropriately inflate their commitment costs may exist under different conditions and have different market outcomes than traditional market power (in energy bids).  Because of this difference, the CAISO is proposing four differences from the traditional market power mitigation test:

1. Test a wider set of constraints,
2. account for unloaded transmission capacity in demand for counterflow,
3. consider resources that could have been committed in supply of counterflow,
4. include both net buyers and bet sellers as potentially pivotal

PG&E understands the CAISO’s rationale and views the identified conditions as potentially useful for identifying circumstances in which market participants may have opportunities to benefit from elevated commitment cost bids and increased bid cost recovery payments.

PG&E has several questions regarding the proposed conditions:

• Implementation of conditions (1), (2), and (3). PG&E recognizes that commitment decisions may face different competitive conditions than incremental energy dispatch and that non-binding constraints do not necessarily imply that commitment decisions are competitive. The CAISO should clarify how it will identify the relevant set of constraints, particularly non-binding constraints, and determine which online and offline resources are sources of counterflow. Given the implementation complexity previously discussed under CCDEBE, additional transparency is needed to evaluate whether the benefits justify that complexity.
• Condition (4) and net-buyers. PG&E understands the conceptual argument that commitment cost bids may affect bid cost recovery outcomes even when a supplier is not a net-seller. PG&E would appreciate a clear example demonstrating how a net-buyer would benefit from exercising commitment cost market power and requests that CAISO to provide examples illustrating the concern this condition is intended to address.

3. Does your organization agree that the criteria identified for mitigating commitment cost offers fairly represent the criteria intended by the policy? (1) At non-binding constraints use the commitment cost test to identify need for mitigation, (2) at binding constraints identified as uncompetitive by the energy RSI, identify both bid components for mitigation, (3) at binding constraints identified as competitive by the energy RSI, apply the commitment cost test to identify commitment cost offers for mitigation

The CAISO has identified three categories of cases and suggested different mitigation practices for each of these cases. These are represented in the table below and boil down to: we always need to test commitment costs and mitigate if needed.  CAISO should clarify the methods if PG&E’s understanding is incorrect.

PG&E also has several comments and questions regarding the proposed framework:

• Interaction with existing energy market power mitigation. Under criterion (2), it appears that both the energy and commitment cost components would be subject to mitigation when a binding constraint is identified as uncompetitive by the Energy RSI. PG&E requests clarification on whether the commitment cost MPM test and energy MPM test would be conducted separately or as part of an integrated process. If the tests are performed separately, it is unclear whether the energy component could effectively be evaluated or mitigated twice. If the processes are integrated, PG&E requests additional explanation regarding the role of the Energy RSI within the overall framework.
• Role of the Energy RSI. More broadly, the proposal appears to indicate that the determination of structural competitiveness for commitment costs ultimately depends on the commitment cost test, regardless of whether the Energy RSI identifies the constraint as competitive or uncompetitive. If so, PG&E requests clarification regarding how the Energy RSI result affects the mitigation outcome and why it remains a necessary component of the proposed design.
• Potential impacts on commitment decisions. PG&E is concerned that modifying commitment cost parameters within the market optimization could unintentionally alter commitment decisions. Commitment decisions are binary and depend on startup costs, minimum load costs, operational constraints, and forward-looking system conditions. Applying mitigation during market clearing could affect commitment outcomes, market efficiency, or reliability.

PG&E would like to understand if there are any alternative approaches that CAISO has considered.  Specifically, whether there are even simpler methods of preventing excessive recovery that might provide comparable customer protections while avoiding the complexity associated with developing and executing an in-market commitment cost MPM process. For example, has the CAISO considered post-market review mechanisms that identify and address excessive recovery after commitment decisions are made, preserving the integrity of the commitment optimization while still discouraging behavior that results in unreasonable costs being borne by customers.

PG&E would like to suggest next steps: One or two workshops to align on the magnitude and urgency of the problem, the details of the simplified solution, the effort required to implement the simplified solution, and the level of stakeholder support. PG&E understands that there is very limited bandwidth for CAISO policy staff, for stakeholders, and for implementation of market software. It would be helpful for CAISO and stakeholders to (i) align on the size and priority of this problem; (ii) understand the details of CAISO’s suggested simplified solution; (iii) understand the implementation effort required for the suggested simplified solution; and (iv) any alternative approaches (e.g., ex post monitoring). PG&E hopes the result of such a workshop(s) will be consensus on a clear path forward.