Comments on Revised Straw Proposal for BAA-Level Market Power Mitigation and Scarcity Pricing for stakeholder discussions from July 13-14, 2026

1. Please summarize your organization’s overall position on the revised straw proposal.

The California Community Choice Association (CalCCA) is extremely concerned with the California Independent System Operator’s (CAISO) change in direction regarding the CAISO’s inclusion in the Balancing Authority Area (BAA)-level Market Power Mitigation (MPM) test. Throughout this stakeholder initiative, CalCCA has supported the CAISO’s proposal to treat the CAISO BAA like any other BAA by including the CAISO in the BAA-level MPM test. In the Revised Straw Proposal, the CAISO reverses its position on this issue, proposing to continue to exclude the CAISO from BAA-level MPM tests, effectively assuming the CAISO BAA is always competitive at a system level.

CalCCA does not support this change, because it would leave CAISO ratepayers exposed to excessively high prices if system market power materializes. This reversal is especially concerning because, on February 19, 2026, the Federal Energy Regulatory Commission (FERC) removed the Western Electric Coordinating Council (WECC) soft price cap and associated cost justification requirement, effective July 18, 2025.[1] The CAISO’s proposal to treat the CAISO BAA differently than all other BAAs, coupled with FERC’s order, leaves CAISO ratepayers exposed to system-level market power if it materializes in the CAISO BAA.

If the potential exists for the CAISO BAA to be structurally uncompetitive in some hours, the CAISO should have a mechanism in place to mitigate against the exercise of market power to protect ratepayers against excessively high costs. If the CAISO always passes the MPM test, then no MPM will be applied and there will be no impact on suppliers’ bids. MPM only mitigates uncompetitive hours, not every hour, and it only mitigates bids that are above the resources’ default energy bids (DEBs) or the competitive locational marginal price (LMP) ensuring resources, if mitigated, still recover their costs at a minimum.[2]

While CalCCA supports pursuing only targeted modifications to scarcity pricing and pausing discussion of a comprehensive redesign at this time, CalCCA is concerned that continuing to assume default competitive status for the CAISO BAA will unnecessarily expose California ratepayers to excessive costs. CalCCA is also concerned that the CAISO’s proposed scarcity pricing changes, like its proposed BAA-level MPM changes, do not apply comparably to the CAISO BAA and other BAAs. Accurate price signals are important for attracting supply and ensuring generator performance, but scarcity pricing should not incentivize resources to bid above marginal costs or bid in a manner that triggers scarcity pricing. Any proposed scarcity pricing changes should maintain incentives for resources to bid marginal costs and be accompanied by a “circuit breaker” mechanism and CAISO-BAA-level market power tests to protect California ratepayers.

CalCCA recommends, in summary, that the CAISO:

• Adopt BAA-level MPM for the CAISO BAA, rather than continuing to assume its default competitive status;
• Only advance changes to scarcity pricing: (1) where firm load shedding occurs (i.e., EEA 3); (2) with “circuit breaker” mechanisms to limit systemic financial risk; and (3) in tandem with changes to incorporate the CAISO into the BAA-level MPM test; and  
• Defer consideration of comprehensive scarcity pricing redesign, as proposed.

[1]            194 FERC ¶ 61,123, Order on Section 206 Proceeding, Western Electricity Coordinating Council, Docket No. EL10-56-000 (Feb. 19, 2026).
[2]            It is more likely that all resources continue to earn rents since inframarginal resources will still receive the market clearing price above their bid and the marginal resources default energy bid includes a buffer of 10 percent for the variable cost option. It is reasonable to assume that a resource would not select the negotiated rate or the LMP options if they routinely are below the variable cost option which includes the 10 percent buffer.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

As described in Section 1, above, CalCCA opposes retaining the CAISO BAA default competitive status, because it would leave CAISO ratepayers exposed to excessively high prices if system market power materializes. It is not necessary to demonstrate whether CAISO is uncompetitive above a certain number of hours to justify the CAISO’s inclusion in the BAA-level MPM test. If the potential exists for the CAISO BAA to be structurally uncompetitive in some hours, the CAISO should have a mechanism to mitigate against the exercise of market power to protect ratepayers against excessively high costs. If the CAISO is always competitive, there will be no impact on suppliers’ bids. MPM only mitigates uncompetitive hours, not every hour, and it only mitigates bids that are above the resources’ DEBs or the competitive LMP, ensuring resources, if mitigated, still recover their costs at a minimum. 

The CAISO bases its proposal to delay removal of the CAISO’s default competitive status on the need to properly account for imports in the test. This is insufficient justification for continued delay. The CAISO market has always allowed economic import participation, and the CAISO has been contemplating CAISO-BAA level MPM for years. Import bids can be included in the bid stack used to evaluate market competitiveness. The CAISO has not communicated adequate reasoning to continue to exclude the CAISO BAA from the test rather than update the methodology to take into account economic import offers into the CAISO.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

Throughout this stakeholder initiative, CalCCA has generally supported the proposal to transition away from an individual BAA assessment to a grouping approach for BAA-level market power mitigation. This is because including available supply from other BAAs in the test for a BAA’s competitiveness will better reflect actual market conditions and competitive dynamics. However, CalCCA’s primary interest in this proposal is focused on the inclusion of the CAISO BAA in the BAA-level MPM test so that CCA customers are protected from costs associated with suppliers exercising system market power. The CAISO should therefore modify its proposal to include the CAISO BAA in the BAA-level system MPM test.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

Throughout this stakeholder initiative, CalCCA has generally supported the exclusion of net buyers from the pivotal supplier designation. This is because net buyers have little incentive to exercise market power, because any attempt to increase market prices through the exercise of market power would disproportionately increase the cost of their purchases relative to the benefit of their sales. However, CalCCA’s primary interest in this proposal is focused on the inclusion of the CAISO BAA in the BAA-level MPM test so that CCA customers are protected from costs associated with suppliers exercising system market power. The CAISO should therefore modify its proposal to include the CAISO BAA in the BAA-level system MPM test.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

Throughout this initiative, CalCCA has generally supported targeting mitigation to pivotal suppliers. However, CalCCA’s primary interest in this proposal is focused on the inclusion of the CAISO BAA in the BAA-level MPM test so that CCA customers are protected from costs associated with suppliers exercising system market power. The CAISO should therefore modify its proposal to include the CAISO BAA in the BAA-level system MPM test.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

As described in Section 1, CalCCA generally supports the CAISO focusing its proposal only on conditions where firm load shedding occurs (i.e., EEA 3) and adopting a “circuit breaker” mechanism to limit systemic financial risk. However, the CAISO’s proposal to assume default competitive status for the CAISO BAA introduces the potential for California ratepayers to be exposed to unnecessary excessive costs and treats the CAISO BAA differently than others in a manner that could harm California customers. The CAISO should therefore advance changes to scarcity pricing in tandem with changes to incorporate the CAISO into the BAA-level MPM test.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

As discussed in the July 14, 2026, stakeholder meeting, in past times of system stress, the CAISO has armed load, continued to wheel non-priority resources, and ultimately curtailed firm load in the CAISO BAA. While CalCCA understands that operators must have options available to reliably operate the grid, the CAISO must have a priority system in place that does not disproportionately disadvantage any BAA. Other BAAs use the Extended Day-Ahead Market (EDAM) and WEIM voluntarily and can serve their load needs in manners other than the market. California LSEs have only one option: use the CAISO market to get generation to their load. A system that has optionality and BAA level MPM for non-CAISO BAAs coupled with no optionality and a lack of MPM for CAISO BAA LSEs is fundamentally flawed and inherently disproportionately disadvantages those LSEs most reliant on the CAISO market. The CAISO should therefore modify its proposal to include the CAISO BAA in the BAA-level system MPM test. 

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

As described in Section 1 and 2 above, CalCCA does not support the deferral of the application of BAA-level MPM to the CAISO BAA. Instead, the CAISO should include the CAISO BAA in the test and account for economic import offers into the CAISO as available supply in the test.

CalCCA supports the CAISO’s proposal to delay comprehensive scarcity pricing design. The CAISO market has recently undergone significant reform through the implementation of the EDAM and the Day-Ahead Market Enhancements policies. The impacts of these changes must first be understood before stakeholders can opine on if and how a comprehensive scarcity pricing redesign should be structured. In addition, issues related to the flexible ramping product and ancillary service procurement should be resolved before discussing comprehensive changes to the CAISO’s scarcity pricing mechanisms. While accurate price signals are important for attracting supply and ensuring generator performance, the CAISO’s existing scarcity pricing mechanisms and the targeted changes proposed in the Revised Straw Proposal adequately provide those signals without unnecessarily increasing costs to California ratepayers.

1. Please summarize your organization’s overall position on the revised straw proposal.

The California Energy Storage Alliance (CESA) appreciates the opportunity to comment on the revised straw proposal for BAA-level market power mitigation and scarcity pricing. 

BAA-level MPM and grouping methodology

CESA agrees that the current BAA-level MPM is leading to excess mitigation within the WEIM footprint outside of the CAISO BAA. The proposed BAA grouping methodology will more appropriately test for competitiveness. As the MSC highlighted, CAISO has not provided empirical evidence of system market power in the CAISO BAA. As previously recommended, CESA supports including the CAISO BAA in the BAA grouping methodology, but any BAA group which includes CAISO should be deemed competitive and not trigger BAA-level MPM.

Scarcity pricing design

A lack of robust scarcity pricing has been a shortcoming of the CAISO energy markets for over 17 years, since MRTU go-live in 2009. A robust scarcity pricing design would see energy prices gradually increase above the marginal cost resource as the amount of unloaded supply reduces and then remains at administrative pricing levels when in actual scarcity.

CESA is deeply concerned that CAISO continues to defer development of comprehensive scarcity pricing, this time deferring it until after the design elements in this revised straw proposal are brought to the WEM Governing Body, currently planned for October 2026. CESA urges CAISO to commit to a firm scope and timeline for this work as deferral. CESA cannot support further deferral of this work.

In the meantime, the changes proposed in the revised straw proposal are very narrow: they aim only to ensure that energy prices do not collapse during reliability events, only when the CAISO BAA is already in scarcity conditions. CESA recommends the use of an energy supply margin to implement the narrow changes to avoid the significant shortcomings of CAISO’s proposed implementation which include: (1) clearing the market with an inaccurate load forecast which system operators must be allowed to turn off if additional reliability issues are created, (2) intentional increases in the real-time imbalance energy offset the costs of which will be allocated to load serving entities, and (3) inconsistent price formation across the EDAM footprint which would prioritize CAISO transfers over another EDAM/EIM BAAs facing similar system conditions.

CESA supports addressing this narrow issue; however, CAISO should develop a requirement which can be relaxed at the same price across all BAAs in the EDAM/EIM footprint that have entered similar scarcity conditions.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

CAISO has not demonstrated that the CAISO BAA is structurally uncompetitive. 

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

If multiple BAAs are import constrained, the group should be tested for competitiveness versus the current design which assumes any BAA with binding transfer limits is uncompetitive. 

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

This appropriately tests the supply that a vertically integrated utility could use to exert market power.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

This further prevents over-mitigation. 

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

The proposed implementation has significant reliability and economic efficiency downsides. CESA recommends that a requirement be included in the market optimization that can be relaxed at a penalty price to ensure that a lower load forecast does not cause energy prices to drop. The same requirement can be used to address armed-reserve pricing.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

Price formation across the market footprint must follow the same rules. A universal approach to relaxation of the requirement should be developed and applied for all BAAs that are in scarcity conditions. 

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

CESA is deeply concerned that CAISO continues to defer development of comprehensive scarcity pricing.  This has been a shortcoming of the CAISO energy markets for over 17 years, since MRTU go-live in 2009. Comprehensive scarcity pricing would address the need for administrative pricing for other emergency actions. CESA understands that CAISO still plans to work on developing a comprehensive scarcity pricing design and urges CAISO to commit to a firm scope and timeline for this work.

BAA-level market power mitigation for the CAISO BAA should be removed from the CAISO policy roadmap and catalog rather than being “deferred.” If, in the future, the CAISO can empirically demonstrate that the CAISO BAA and WECC are structurally uncompetitive, then those concerns should be raised with FERC. This issue cannot be addressed solely through a CAISO stakeholder initiative and should be addressed through FERC.

1. Please summarize your organization’s overall position on the revised straw proposal.

Comments on Price Formation Enhancements Revised Straw Proposal

Department of Market Monitoring

July 28, 2026

Summary

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the ISO’s Price Formation Enhancements Revised Straw Proposal and subsequent working group sessions held on July 13-14, 2026.[1]

DMM continues to support grouping connected balancing authority areas (BAAs) to test for regional competitiveness, rather than testing all BAAs individually. DMM also continues to support the proposal to account for load-serving obligations in tests of competitiveness. However, DMM notes that there may be implementation challenges in doing this accurately. In addition, because the proposed grouping algorithm evaluates competitiveness at the group level, errors in the net supply calculation for a supplier in one BAA could affect competitiveness assessments across other BAAs in the group. DMM recommends the ISO provide additional details and analysis on both the proposed methodology of estimating load-serving obligations and the proposed mitigation algorithm.

DMM continues to recommend the ISO treat the CAISO BAA consistently with the other BAAs by including it in the BAA-level market power mitigation (MPM) framework rather than continuing to assume it is always competitive. While DMM acknowledges that the residual supply index (RSI) calculation may require adjustments to appropriately account for imports into the CAISO BAA, DMM does not agree that RSI failures during peak hours indicate flaws in a system-level competitiveness test. Rather, these are the hours when supply conditions are tightest and the potential for system-wide market power is greatest. Further, DMM does not agree that evidence of harm from system market power should be required prior to extending BAA-level mitigation to the CAISO BAA, as such a standard has not been applied to any other BAA that is subject to competitiveness testing.

In addition to BAA-level MPM changes, the ISO also proposed two incremental scarcity pricing mechanisms. DMM supports the interim proposal to implement an in-market scarcity pricing mechanism during load shed events, but recommends that the ISO provide additional information or analysis to better inform the evaluation of the proposed implementation options. Further, DMM recommends that the ISO consider the potential implications of a scarcity pricing design that is asymmetric across BAAs for both EDAM and WEIM. DMM supports the concept of pricing armed reserves in RTD using a single reserve slack penalty price, which is consistent with DMM’s previous recommendations.

The ISO proposes to defer broader scarcity pricing redesign efforts to a longer-term track, while focusing on near-term scarcity pricing enhancements. DMM continues to recommend that the ISO place a high priority on developing an uncertainty product with a longer time horizon that would allow prices to rise more gradually as scarcity conditions approach.

Comments

BAA-Level MPM

DMM continues to support grouping connected BAAs to test for regional competitiveness

DMM continues to support a grouping approach to assess BAA competitiveness rather than testing all BAAs individually.[2] DMM agrees that grouping BAAs based on their marginal energy costs (MECs) and transfer capability is a sensible approach. Testing groups of connected BAAs together, rather than individually, may reveal that the group as a whole is competitive even when an individual BAA is not competitive. This could avoid unnecessarily subjecting individually non-competitive BAAs to mitigation when unconstrained transfer capability exists between BAAs in the group.

In previous comments, DMM raised concern regarding the potential for BAAs that are competitive on their own to be found non-competitive if first tested in a group with larger non-competitive BAAs.[3] DMM supports the proposed refinement to the grouping methodology that addresses this concern.

DMM continues to recommend treating CAISO similar to all other BAAs in BAA-level MPM testing

DMM continues to recommend treating the CAISO BAA consistently with other BAAs by testing the CAISO BAA in the new grouping approach, as opposed to assuming the CAISO BAA is competitive by default. DMM acknowledges that the current residual supply index (RSI) calculation may not fully account for economic imports into the CAISO. However, DMM notes that this issue is likely more significant in the day-ahead market than in real-time. Most imports are only hourly dispatchable, and uncleared imports that are not dispatchable in the 15-minute or 5-minute market should not be considered as available supply in the 15-minute and 5-minute RSI calculations.[4] DMM recommends the ISO consider refinements to the RSI calculation that better accounts for economic bidding on the interties, but notes the real-time RSI calculation may be minimally affected by the small amount of 15-minute dispatchable imports.

DMM also does not support the argument that evidence of system market power harm should be required prior to subjecting the CAISO BAA to BAA-level market power mitigation. DMM believes the CAISO should be held to the same standard as other BAAs in the Western Energy Imbalance Market (WEIM). While adjustments to the RSI calculation may be warranted to more accurately account for intertie imports, such considerations do not justify establishing a higher threshold for applying BAA-level mitigation to the CAISO BAA than is applied elsewhere. DMM recommends the CAISO refrain from relying on either the frequency of peak-hour competitiveness test failures or the absence of demonstrated system market power harm as a basis for excluding the CAISO BAA from BAA-level mitigation.

CAISO BAA test failures are not indicative of a flawed test

DMM strongly disagrees with the assertion that competitiveness test failures of the CAISO BAA, or a group including the CAISO BAA, in hours-ending 19 through 21 is an indication that the competitiveness test is inaccurate. These hours typically coincide with peak demand conditions and declining solar production and thus are the hours when supply conditions in California and throughout the West are often most constrained. As a result, these are precisely the hours when the potential for system-wide market power is greatest. Rather than viewing these outcomes as evidence of a flawed test, DMM recommends the ISO continue refining the calculation of load-serving obligations to ensure the competitiveness assessment accurately identifies intervals in which the CAISO BAA, or groups including the CAISO BAA, may be non-competitive. 

DMM suggests the ISO provide further details and analysis on proposals to only mitigate pivotal suppliers

The ISO is proposing to no longer apply mitigation to all suppliers in a non-competitive BAA, and instead only subject a subset of potentially pivotal suppliers to BAA-level MPM. DMM appreciates the ISO’s clarification that it is not only pivotal suppliers that may have the ability to raise prices uncompetitively. The Revised Straw Proposal proposes a specific algorithm of how to determine which suppliers in a BAA or group of BAAs will be subject to mitigation when they are found to be non-competitive. DMM recommends the ISO provide more detail and analysis on this proposed algorithm.

DMM requests clarification regarding the interaction between the proposed mitigation algorithm and the grouping methodology. For example, if a group of BAAs tests as non-competitive and then is subsequently combined with another BAA (or set of BAAs) that also tests as non-competitive, it is unclear whether the algorithm to determine pivotal suppliers subject to mitigation would be applied at each stage of the grouping process, and how it would account for suppliers that may be identified for mitigation under one grouping configuration but not the other. DMM recommends the ISO provide additional details regarding this interaction.

DMM further recommends the ISO provide empirical analysis of the proposed mitigation algorithm. In January, the ISO presented hypothetical results from the proposed BAA-level MPM framework using data from 2025. DMM recommends that the ISO consider expanding this analysis by calculating the proportion of supply within each BAA that would have been subject to mitigation during intervals in which the BAA was subject to mitigation. Such analysis would provide stakeholders with a clearer understanding of the practical effects of the proposed algorithm and the extent to which mitigation outcomes may differ.

DMM agrees with stakeholders that it would be beneficial to see illustrative examples demonstrating how the proposed mitigation process would apply to suppliers that are and are not selected for mitigation under the algorithm. DMM also requests that the ISO provide additional details regarding the interaction between BAA-level MPM and local market power mitigation (LMPM). DMM recommends that the ISO clearly explain how the two mitigation frameworks interact, including any implementation challenges associated with applying different eligibility criteria within a single mitigation process.

DMM supports consideration of net supply position in BAA-level MPM testing but notes challenges in accurately estimating load-serving obligations

The ISO proposes to incorporate net supply position into the BAA-level MPM framework by excluding an entity’s load-serving obligations from the calculation of withholdable capacity. The ISO argues that it would be economically irrational for affiliates to withhold supply up to their load-serving obligations, because they would then have to buy energy at that inflated price. While this may hold for suppliers under certain regulatory regimes, DMM notes that load-serving obligations may not fully capture all incentives relevant to the exercise of market power. Some suppliers may have incentives associated with longer-term contractual positions that could outweigh short-term cost impacts.[5] Nevertheless, DMM continues to support consideration of net supply position when calculating the withholdable capacity for purposes of BAA-level MPM testing. However, DMM notes that there may be significant challenges in doing this accurately and the consequences of any inaccuracies may be more widespread when combined with the proposed grouping methodology.

DMM continues to note that the net supply position of many entities may vary significantly from hour to hour and day to day, and that complete information regarding actual available supply (taking into account bilateral physical and financial positions) may not be available until just prior to day-ahead and real-time markets. The ISO is proposing to calculate an entity’s load-serving obligation in real-time by utilizing the real-time demand forecast. For single-affiliate BAAs, the entire real-time demand forecast will count towards that affiliate’s load-serving obligation. For multiple-affiliate BAAs, the real-time demand forecast is multiplied by an estimate of each affiliate’s historical share of total BAA load. DMM recommends the ISO calculate the historical load share on an hourly and either monthly or quarterly basis to account for different load profiles across entities and any seasonal variations in load patterns.

While calculating historical load shares on an hourly and monthly or quarterly basis may improve the accuracy of the estimates, there will still be discrepancies between the ISO’s estimate and the entity’s actual load obligation in a given interval. DMM recommends the ISO provide analysis comparing estimated load obligations under the proposal with actual metered load. Such analysis would allow the ISO and stakeholders to better understand the magnitude of these discrepancies and whether the proposed estimate yields systematic inaccuracies.

DMM further recommends the ISO build on the analysis presented in January by rerunning the grouping algorithm using the proposed estimate of load-serving obligations and comparing the results with the original analysis that used metered load. This would allow stakeholders to observe how accurately this estimate correctly identified BAAs as competitive or non-competitive. While this issue may have limited implications in the current extended day-ahead market (EDAM) and WEIM footprint, which has limited multiple-affiliate BAAs, it could become more significant as new entities join these markets, as BAA structures evolve, or if the CAISO is eventually included in BAA-level mitigation. It is important that the market design remain robust to future changes in market participants and BAA composition.  

DMM notes that inaccuracies in estimating a supplier’s load-serving obligations may have more widespread consequences when combined with the proposed grouping framework. Because competitiveness is assessed across groups of interconnected BAAs, incorrectly classifying some amount of capacity as withholdable or non-withholdable for a supplier in one BAA could affect the competitiveness determination for not only that BAA but also for other BAAs within the group. As a result, errors in estimates of load obligations could propagate through the grouping algorithm and potentially lead to multiple BAAs being incorrectly designated as competitive or non-competitive.   

Implementing MPM rules that implicitly rely on state regulations and regulatory agencies to prevent non-competitive behavior may warrant further consideration

DMM acknowledges that many load serving utilities subject to state regulations have limited incentives to withhold available capacity to raise prices. However, relying on assumptions regarding regulatory incentives when determining the need for mitigation incorporates aspects of state regulatory oversight into the MPM framework that do not currently exist and may warrant further consideration.

In some cases, regulatory requirements and oversight may serve as a backstop for inaccuracies in estimating the net supply position of regulated entities. However, DMM notes that regulatory requirements vary across states, and therefore incentives faced by regulated entities may not be uniform throughout the market footprint. For instance, DMM has encountered cases where regulated load serving entities (LSEs) have indicated they have state regulatory requirements to ensure that any excess capacity they make available for market sales must provide net revenues for their ratepayers, who pay the fixed costs for these resources. Some LSEs appear to interpret this regulatory requirement to mean that they must ensure that any market sales are clearly profitable during every interval or commitment cycle. Some LSEs appear to be more concerned about potential regulatory scrutiny of this profitability requirement than on any sales that may raise market prices. In such cases, LSEs may err on the side of offering any excess capacity at relatively high prices in order to essentially guarantee that these sales are significantly profitable under all scenarios.

Scarcity Pricing

DMM supports near-term scarcity pricing enhancements, but continues to recommend the ISO prioritize creation of an hour-ahead uncertainty product

The ISO proposes implementing near-term scarcity pricing enhancements that impact pricing during extreme conditions and suggests postponing more comprehensive scarcity pricing enhancements to a longer-term track. DMM supports the proposed near-term enhancements, but DMM continues to recommend that the ISO place a high priority on developing a new hour-ahead uncertainty product that would allow the real-time market to better reflect tightening real-time supply conditions and provide earlier price signals prior to a scarcity event.[6] An uncertainty product with a time horizon longer than one interval would allow prices to rise gradually and reflect upcoming scarcity in more distant advisory intervals.

DMM believes the development of such a product should be a very high priority from the perspective of price formation, as well as from the perspective of overall market design. For example, this type of real-time uncertainty product could increase the likelihood that imbalance reserve up (IRU) capacity procured in the EDAM is available in the real-time market when needed. In addition, such a product appears to be the only viable mechanism to reduce grid operators’ reliance on load biasing to create the capacity needed to manage real-time uncertainty and flexibility. Thus, a real-time uncertainty product would address a variety of the most important market design issues that remain following EDAM implementation.

DMM continues to support in-market scarcity pricing during load shed events, but recommends that the ISO provide analysis of different implementation options

The ISO proposes a new mechanism to trigger in-market scarcity pricing during load shed events. The proposed in-market pricing mechanism would modify the market optimization so that the demand input continues to treat curtailed load as unserved demand in the market, ensuring that prices continue to reflect real-time scarcity and attract additional supply to serve the curtailed load. The ISO proposes implementing this mechanism either by adding the quantity of firm load shed back into the demand input or by switching to a standard weather forecast (instead of persistence forecast) during load shed events.

At a high level, DMM supports the proposed market design of modifying the demand input to account for curtailed firm load as unserved demand. However, it is unclear which implementation option is preferable without additional information regarding how the standard weather forecast may differ from the persistence forecast. Specifically, DMM is concerned that elements of demand captured by the persistence forecast could be missed by a standard weather forecast. For example, if actual load was consistently exceeding the real-time weather-based load forecast throughout the day, the persistence forecast might estimate load to be much higher leading up to the load shed event than a standard weather forecast. Using the weather-based forecast as a market input during load shed would therefore be an inaccurate correction for the amount of the load shed. DMM recommends that the ISO provide analysis or historical data quantifying the differences between these forecasting approaches across a range of peak days and peak hours.

If a standard weather forecast produces a materially different estimate of system load, DMM supports the option of adding verified firm load shed back to the persistence forecast. This option would hold all other inputs to the persistence forecast constant while only modifying the demand input. To inform the quantity of firm load shed added back to the forecast, DMM suggests that the ISO provide analysis or historical data quantifying the difference between operator instructions and verified load disconnection.

DMM supports in-market scarcity pricing in both RTPD and RTD markets

The ISO proposes to include the in-market scarcity pricing during load shedding events in both the 15-minute (RTPD) and 5-minute (RTD) markets. In previous comments, DMM indicated that applying this pricing mechanism only in RTD would reasonably reflect physical market conditions and actual scarcity.[7] Additionally, prices would likely reflect power balance constraint (PBC) violations prior to a load shed event, meaning RTPD prices would not be entirely unaffected by tight supply and potential scarcity conditions.

While RTPD prices may already be impacted by tight supply conditions, DMM supports the ISO’s proposal to implement scarcity pricing during load shed events in both RTPD and RTD. DMM recognizes the potential for asymmetrical scarcity pricing between RTPD and RTD. For example, a BAA may be actively shedding load or anticipating shedding load in a given interval at the time of the RTPD market run, while load shedding conditions may be resolved by the time of the RTD market run. However, considering the expected frequency and duration of load shedding events, the potential for this type of scarcity pricing asymmetry is relatively limited. Incorporating scarcity pricing in RTPD may allow the market optimization to clear additional supply needed to alleviate scarce conditions prior to RTD. This is similar to the pricing asymmetry that can occur between RTPD and RTD for PBC violations, when PBC violations in RTPD can be resolved before RTD. Additionally, the expectation of potential scarcity pricing in RTPD can influence day-ahead prices on days expected to have tight system conditions.[8] This can result in additional supply clearing in the day-ahead timeframe that may be otherwise unavailable in real-time. This additional supply cleared in the day-ahead market can prevent some scarcity events and increase real-time reliability on days with stressed system conditions.

DMM supports the operational and settlement safeguards proposed for in-market scarcity pricing, but continues to recommend additional analysis to determine the potential magnitude of these issues

The ISO recognizes that the proposed in-market pricing mechanism may create operational and settlement challenges associated with supply over-dispatch, management of area control error (ACE), and increases in real-time imbalance energy offset (RTIEO). To help mitigate these risks, the ISO proposes safeguards that would allow operators to suspend or reduce the pricing mechanism if necessary and monitor the impact of the mechanism on RTIEO.

DMM supports the operational and settlement safeguards proposed by the ISO. However, it remains unclear how significant the operational and settlement risks may be given the relative infrequency, duration, and magnitude of historical load shedding events. DMM continues to recommend that the ISO consult market operations regarding the likelihood of supply over-dispatch in order to better assess the potential reliability and settlement risks associated with this proposal.

DMM continues to recommend further discussion of the scarcity price “circuit breaker” concept

To mitigate financial risk to market participants, the ISO proposed a “circuit breaker” under which the scarcity pricing mechanism would be deactivated after four hours. DMM recognizes the potential risk of credit and default risk from prolonged exposure to extreme prices. However, load shed events are exceedingly rare, and the few recent instances have been short in duration. In the unlikely event that a load shed event were to exceed four hours, it may still be appropriate for market prices to remain at or above the market bid cap for the duration of the load shed event, rather than administratively removing the scarcity price signal. Conversely, because the circumstances under which the circuit breaker would be triggered are likely to be infrequent, there may be limited downside to including such a feature for the reasons described in the straw proposal. DMM recommends continued discussion on this issue and further consideration of why a four-hour timeframe would be appropriate if a scarcity pricing circuit breaker is implemented.

DMM supports using a single reserve slack penalty price when load is armed to meet reserves, but recommends further consideration of asymmetric price implications of an armed-reserve scarcity pricing mechanism

The ISO proposes an additional scarcity pricing mechanism intended to reflect the scarcity value of ancillary services (AS) in RTD when operators arm load. Under this approach, energy from previously awarded AS capacity could be economically dispatched based on the opportunity cost of reserve shortages being met through armed load. This opportunity cost would be represented through a single reserve slack penalty price on the Scarcity Reserve Demand Curve (SRDC). The ISO states that this approach would allow real-time prices to reflect the marginal cost of serving energy demand and reserve scarcity without requiring full AS re-procurement in RTD.

DMM supports the ISO’s proposal to use a single-tier reserve slack penalty price for the armed-reserve scarcity pricing mechanism. A single-tier penalty price is consistent with DMM’s previous recommendation that the ISO consider a single price to reduce implementation complexity and avoid unnecessary precision for a near-term scarcity pricing enhancement.[9]

While DMM supports the conceptual framework of pricing armed reserves as a scarcity pricing mechanism, DMM notes there are potential implications of a scarcity pricing design that is asymmetric across BAAs for both the EDAM and WEIM. Because the EDAM and WEIM do not procure or deploy ancillary services for BAAs outside of the ISO, this pricing mechanism would only impact prices in CAISO. This asymmetry across BAAs could increase real-time prices and day-ahead price expectations that result in higher prices in CAISO compared to other BAAs, which has potential implications for transfers in both the EDAM and the WEIM. DMM suggests that the ISO weigh the interim benefit of implementing this near-term scarcity pricing mechanism against the potential implications this asymmetric design may have in the EDAM and the WEIM.

[1]  Price Formation Enhancements Revised Straw Proposal, California ISO, July 2, 2026: https://stakeholdercenter.caiso.com/InitiativeDocuments/Revised-Straw-Proposal-Price-Formation-Enhancements-BAA-MPM-Scarcity-Pricing-2026-07-02.pdf

[2]  Comments on Price Formation Enhancements Balancing Authority Area-level Market Power Mitigation Working Group: Discussions on November 6 and 20, 2024, Department of Market Monitoring, December 13, 2024: https://www.caiso.com/documents/dmm-comments-on-price-formation-enhancements-baa-level-market-power-mitigation-working-group-nov-06-and-20-2024-dec-13-2024.pdf

[3]  Comments on Price Formation Enhancements Straw Proposal, Department of Market Monitoring, September 19, 2025: https://www.caiso.com/documents/comments-on-price-formation-enhancements-straw-proposal-sep-19-2025.pdf

[4]  Comments on System Market Power Mitigation Revised Straw Proposal, Department of Market Monitoring, May 4, 2020: https://stakeholdercenter.caiso.com/InitiativeDocuments/DMMComments-SystemMarketPowerMitigation-RevisedStrawProposal.pdf

[5]  Comments on System Market Power Mitigation Revised Straw Proposal, Department of Market Monitoring, May 4, 2020: https://stakeholdercenter.caiso.com/InitiativeDocuments/DMMComments-SystemMarketPowerMitigation-RevisedStrawProposal.pdf

[6]  2024 Annual Report on Market Issues and Performance, Department of Market Monitoring, August 2025, pp 27-28: https://www.caiso.com/documents/2024-annual-report-on-market-issues-and-performance-aug-07-2025.pdf

[7]  Comments on Price Formation Enhancements Straw Proposal, Department of Market Monitoring, September 19, 2025: https://www.caiso.com/documents/comments-on-price-formation-enhancements-straw-proposal-sep-19-2025.pdf  

[8]  Virtual bids, day-ahead intertie bids, and other day-ahead bids will generally reflect 15-minute prices in expectation. Therefore, the expected value of scarcity pricing intervals in the 15-minute market will influence day-ahead bids and day-ahead prices on days when market participants expect scarcity pricing conditions may occur.

[9]  Comments on Price Formation Enhancements Straw Proposal, Department of Market Monitoring, September 19, 2025: https://www.caiso.com/documents/comments-on-price-formation-enhancements-straw-proposal-sep-19-2025.pdf

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

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. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

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.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

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.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

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.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

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.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

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.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

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.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

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. Please summarize your organization’s overall position on the revised straw proposal.

The Public Advocates Office at the California Public Utilities Commission (Cal Advocates) is the independent ratepayer advocate at the California Public Utilities Commission (CPUC).  Our goal is to ensure that California ratepayers have affordable, safe, and reliable utility services while advancing the state’s environmental goals.

In the comments below, Cal Advocates provides the following responses to the California Independent System Operator Corporation (CAISO):

• Exemption of the CAISO balancing authority area (BAA) from the BAA-level Market Power Mitigation (MPM) test is not appropriate and exposes ratepayers to high costs.
• The BAA-level MPM test should not exempt non-pivotal suppliers from mitigation.
• The CAISO should proceed with its proposal to inform fifteen-minute market and real-time dispatch with scarcity pricing during a load shed event but should specify when this mechanism would come to an end during such an event.
• Any future comprehensive scarcity price discussions and proposals should be informed by an estimate of how much supply may be attracted by such a mechanism.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

Cal Advocates opposes this proposal, with caveats.

The CAISO proposes to assume the CAISO BAA is always competitive and thus to not evaluate the CAISO BAA in the BAA-level MPM test.[1]  The CAISO argues that the CAISO BAA allows economic intertie import offers that could discipline CAISO prices and are not accounted for in the test, while other BAAs “generally” rely on self-scheduled intertie transactions and intra-market transfers.[2] 

The exemption of the CAISO BAA from an MPM test applied to the rest of the extended day-ahead market (EDAM) and western energy imbalance market (WEIM) is not equitable; ratepayers in the CAISO BAA should enjoy the same protections against market power and uncompetitive conditions afforded other BAAs participating in the CAISO markets.  The import issue is relevant, but the CAISO has not articulated if EDAM and WEIM members all or partially, rather than “generally,” avoid this issue today.    

It is also unclear if it is appropriate for the CAISO to assume that all intertie bids are competitive given a lack of checks for uncompetitive offers or market power exercise.  In fact, the Federal Energy Regulatory Commission (FERC) rescinded the soft cap on bids for western wholesale electricity in February 2026.[3]  FERC’s weakening of ratepayer protections against market power and uncompetitive bids should motivate the CAISO to ensure the BAA-level MPM test is robust, as well as call into question if intertie bids are in fact competitive.  The CAISO should explore its competitive assumptions of interties in this initiative.

[1] CAISO, Price Formation Enhancements BAA-Level MPM and Scarcity Pricing Revised Straw Proposal, July 2, 2026 (Revised Straw Proposal) at 6-8.  Available at: https://stakeholdercenter.caiso.com/InitiativeDocuments/Revised-Straw-Proposal-Price-Formation-Enhancements-BAA-MPM-Scarcity-Pricing-2026-07-02.pdf.

[2] Revised Straw Proposal at 7.

[3] 194 FERC ¶ 61,123 Docket No. EL10-563, February 19, 2026 at paragraph 1.  Available at: https://ferc.gov/media/e-2-el10-56-000.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

Cal Advocates does not have a position on this subject at this time.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

Cal Advocates does not have a position on this subject at this time.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

Cal Advocates opposes this proposal.

Currently, when the CAISO determines a BAA is not competitive, it applies MPM to all bids from suppliers in that BAA.[1]  The CAISO proposes to change this practice to mitigate only the bids of suppliers that the CAISO determines are pivotal in the BAA MPM process.[2]  The CAISO acknowledges that non-pivotal suppliers “can sometimes set prices above competitive levels.”[3]  However, the CAISO states that it prefers to tolerate the risk of such uncompetitive behavior in order to avoid unnecessary mitigation of other suppliers, and on the basis that the pivotal supplier test is not able to detect all types of market power.[4]

Cal Advocates opposes the CAISO’s decision to mitigate only pivotal suppliers.  Doing so would fail to apply a BAA-wide mitigation event to resources that could create uncompetitive price conditions.  The DMM has also discussed the fact that non-pivotal supply may have more incentive to exercise market power if they are not subject to mitigation.[5] 

The Revised Straw Proposal discusses balancing Type I errors (mitigating a supplier who would not have exercised market power) and Type II errors (failing to mitigate a supplier that exercises market power).  However, these two types of error cause different levels of harm.  A Type I error means the resource still gets paid at least their costs (as estimated by the default energy bid), while a Type II error means ratepayers must pay the higher wholesale costs paid to all cleared supply.  The CAISO should not just balance Type I and II errors but should balance the consequences of making these errors.

[1] Department of Market Monitoring (DMM), Comments on Price Formation Enhancements Straw Proposal, September 19, 2025 (DMM Comments) at Section 1.  Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/e56eba92-28eb-4fe6-9f75-b160eae155b8#org-d4f2a762-0244-44d8-8241-ccc97ed6683b.

[2] Revised Straw Proposal at 12-13.

[3] Revised Straw Proposal at 13.

[4] Revised Straw Proposal at 13.

[5] DMM Comments at Section 1. 

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

Cal Advocates supports this proposal, with caveats.

The CAISO’s proposal to stabilize market pricing during load shed events is a reasonable approach to ensure sufficient supply is attracted to the CAISO market with reasonable compensation.[1]  The CAISO presents implementation options for this design: to use verified firm load shed, to use a weather-based forecast of demand, or some combination of the two.[2]  The CAISO should conduct and present simulations of these approaches to compare the accuracy of each.  The CAISO should also describe any implementation challenges for either option, such as the availability of accurate data to inform either option.

Additionally, the CAISO should modify its proposal to clarify when a scarcity price event would conclude.[3]  The Revised Straw Proposal broadly notes that scarcity pricing would exist during load shed events and cease when the event ends.[4]  It is unclear what conditions or procedures would represent when a load shed event ends for the purposes of scarcity pricing.  The CAISO should end the scarcity price condition when the CAISO directs transmission operators to cease load shedding, not when transmission operators complete load shed operations.  Historically, transmission operators have exhibited significant variation in how quickly they end their load shedding.[5]

[1] Revised Straw Proposal at 49-50. 

[2] Revised Straw Proposal at 50.

[3] Cal Advocates raised this issue in prior initiative comments.  Cal Advocates, Comments on Straw Proposal for BAA-level Market power mitigation and Scarcity pricing on Sep 03 & Sep 04, September 19, 2025 at Section 3.  Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/e56eba92-28eb-4fe6-9f75-b160eae155b8#org-5eba2b55-a5d9-4307-8600-5f09b909d1cb.

[4] Revised Straw Proposal at 52-53.

[5] For instance, during August 2020 load shed events, transmission operators had very different times when load shed ceased.  The CAISO noted:

The duration of rotating outages experienced by [Pacific Gas and Electric Company] customers on both days significantly exceeds the load shed duration called by the CAISO.  

CAISO, CPUC, and California Energy Commission, Final Root Cause Analysis Mid-August 2020 Extreme Heat Wave, January 13, 2021 at 35.  Available at: https://www.caiso.com/Documents/Final-Root-Cause-Analysis-Mid-August-2020-Extreme-Heat-Wave.pdf.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

Cal Advocates does not have a position on this subject at this time.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

The CAISO should continue to defer comprehensive scarcity pricing until EDAM matures and its design and market results are better understood by the CAISO and stakeholders.  New EDAM products, especially imbalance reserves, impact wholesale energy prices and the volume of energy available for emergency conditions.  A comprehensive scarcity pricing design, if one is needed at all, must be built upon experience and data of the new products and other new designs of EDAM and how those interact with market conditions at both EDAM and WEIM.

Additionally, past discussions of comprehensive scarcity pricing designs, such as an operating reserve demand curve (ORDC) informed by the value of lost load (VOLL), have not yet been informed by potential benefits.  A VOLL-informed ORDC may create significant ratepayer costs since such a structure would artificially push market prices to very high levels.[1]  The CPUC’s Energy Division estimated that a VOLL-informed ORDC could result in costs to load of $45 million to $157 million per hour during scarcity events with such a design.[2]  Depending on the design, comprehensive scarcity pricing could apply price uplift to a large number of hours, even on days with minimal risk of supply shortage.  Such a design could be cumulatively costly for ratepayers, even if the per-hour price is less extreme. 

Comprehensive scarcity pricing may affect two related but distinct goals: changing the total capacity provided to the market (e.g., net imports of non-resource-adequacy (RA) capacity) and changing the positioning and preparation of resources that are already obligated to the market (e.g., long-start RA resources).  If the CAISO develops any comprehensive scarcity pricing proposal, it should also produce a study to estimate how much additional supply could be attracted by scarcity pricing, how existing capacity would be better positioned, and the cost of these changes.  The study should not assume that scarcity pricing leads to increased offers from capacity that already has a must-offer obligation to the market.  If that capacity is failing to meet its must-offer obligation, RA policy design is the issue, not scarcity pricing.  In addition, the study should estimate the levels of non-RA supply that resources made available to the CAISO during previous emergency alert conditions (that is, prior to implementation of a comprehensive scarcity pricing mechanism).  Market participants have demonstrated that this level of non-RA capacity can be made available without modifications to price formation.  The study should also consider the demands of neighboring grids and markets during regional heatwave conditions and what limits on supply are created by regional RA programs like obligations under the Western Resource Adequacy Program.  It is important that the CAISO conducts this study; stakeholders that submit comprehensive scarcity pricing proposals may be able to conduct their own analysis, but that could be limited by market data availability.  The CAISO does not face the same limitations.  In order to justify potential solutions that carry high ratepayer costs, such as a VOLL-informed ORDC,[3] the CAISO should estimate what volume of generation may be attracted by a scarcity price mechanism.

[1] In previous discussions, the CAISO has referred to the Mid-Continent Independent System Operator’s (MISO) VOLL-informed ORDC that would enable MISO market prices to reach up to $35,000/megawatt hour (CAISO, Price Formation Enhancements BAA-Level MPM and Scarcity Pricing Straw Proposal, August 22, 2025 at 33.  Available at: https://stakeholdercenter.caiso.com/InitiativeDocuments/StrawProposal-Price-Formation-Enhancements-BAA-Level-MPM-Scarcity-Pricing.pdf.).  That price is more than seventeen times higher than the highest real-time dispatch price reached during the September 2022 heatwave when the CAISO reached its record load while avoiding load shedding.  (CAISO, Summer Market Performance Report Sept 2022, November 2, 2022 at 56.  Available at: https://www.caiso.com/Documents/SummerMarketPerformanceReportforSeptember2022.pdf.)

[2] CPUC, Comments of the CPUC on Nov 10 & Nov 20 Scarcity Pricing Discussions, December 16, 2025 at Section 1.  Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/39475c41-a007-4969-9cbd-fb58bf97630a#org-acfa8f7f-20a5-477c-bdb5-d2f7ebfd5dcd.

[3] A VOLL-informed ORDC is one of a number of potential solutions for comprehensive scarcity pricing already discussed in this initiative.

1. Please summarize your organization’s overall position on the revised straw proposal.

Calpine appreciates CAISO's efforts to refine both BAA-level market power mitigation (BAA-MPM) and scarcity pricing. We support several of the proposed BAA-MPM reforms, including retaining the CAISO BAA's default competitive status, incorporating load-serving obligations into the pivotal supplier assessment, and focusing mitigation on suppliers identified as pivotal.

However, we remain concerned that CAISO continues to defer development of a comprehensive scarcity pricing framework. Scarcity pricing has been a longstanding gap in CAISO market design since MRTU implementation. While the targeted reforms proposed here are improvements, they largely address pricing during emergency conditions rather than providing forward-looking price signals as supply conditions tighten.

As Western markets become increasingly interconnected and competitive, accurate scarcity pricing will become even more important to attract available supply and support reliability. Calpine supports moving forward with the near-term reforms while establishing a clear path and timeline for comprehensive scarcity pricing.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

Calpine supports CAISO's proposal to retain the CAISO BAA's default competitive status under the BAA-level market power mitigation framework. CAISO appropriately recognizes that the existing three-pivotal-supplier framework does not adequately account for the competitive discipline provided by economic import offers into the CAISO BAA. Applying the proposed framework to the CAISO BAA without properly accounting for available import competition could lead to over-mitigation and artificially suppress prices during tight system conditions.

Calpine continues to believe that any future consideration of BAA-level mitigation within the CAISO BAA should occur in conjunction with broader scarcity pricing reforms.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

Calpine supports the proposed BAA grouping methodology. The current framework can overstate market power by evaluating BAAs in isolation and failing to recognize competitive supply available from interconnected neighboring BAAs. The grouping approach better reflects actual market conditions and should reduce unnecessary mitigation. CAISO should continue monitoring the framework following EDAM implementation to ensure transfer capability and import competition are appropriately reflected in the analysis.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

Calpine supports replacing the quarterly net-buyer exclusion with an interval-specific load-serving obligation adjustment. The proposal more accurately reflects supplier incentives and recognizes that load-serving entities generally lack an economic incentive to withhold capacity needed to serve their own load. It is a more precise and transparent approach than the current net-buyer construct.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

Calpine supports limiting mitigation to suppliers identified as pivotal. Mitigating all suppliers within a non-competitive BAA can result in unnecessary over-mitigation and suppress legitimate market outcomes. The proposed approach better targets mitigation to suppliers most likely to contribute to the identified market power concern. While longer-term enhancements may warrant consideration, this proposal represents a meaningful improvement over the current design.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

Calpine understands the proposal for treating firm load shed as unserved demand in both the Fifteen-Minute Market and Real-Time Dispatch.

Firm load shedding represents the most severe form of scarcity and prices should appropriately reflect those conditions. This proposal improves scarcity signals during emergency events and better aligns prices with reliability conditions. However, this is not a substitute for comprehensive scarcity pricing. Calpine strongly reiterates our prior feedback, prices should begin responding before load shedding occurs, not only after emergency conditions have already developed.

Calpine also believes that future scarcity pricing reforms should strive for consistent treatment across the broader EDAM and WEIM footprint so that similar reliability conditions produce similar scarcity signals regardless of BAA boundaries.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

Calpine generally supports reflecting the opportunity cost of dispatched contingency reserves in real-time pricing after operators arm firm load. The proposal better reflects the reliability value of reserve capacity released during emergency operations and improves consistency between RTPD and RTD pricing.

As with load-shed pricing, this should be viewed as an interim enhancement. Future scarcity pricing reforms should seek consistent price formation principles across the broader market footprint.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

Calpine is disappointed that CAISO continues to defer development of comprehensive scarcity pricing. Scarcity pricing remains a longstanding shortcoming in CAISO market design. The targeted reforms in this proposal address conditions during emergencies but do not address the fundamental issue that prices generally fail to rise as supply margins tighten and reliability risks increase.

Multiple stakeholders, including Calpine, WPTF, CESA, TEA, and the MSC, have consistently highlighted the need for more proactive scarcity pricing. The August 2020 reliability events demonstrated the serious consequences of waiting until emergency conditions emerge before scarcity is reflected in market prices.

Calpine recommends that CAISO prioritize comprehensive scarcity pricing immediately following this initiative and establish a clear stakeholder timeline. Future work should focus on:

• Scarcity pricing that responds to tightening conditions before emergencies occur.
• Consistent scarcity pricing principles across the EDAM and WEIM footprint.
• Appropriate treatment of deliverable supply and transmission constraints.
• Accurate price signals that help CAISO compete for available supply across the Western Interconnection.
• Coordination of future scarcity pricing reforms with any future consideration of BAA-level mitigation within the CAISO BAA.

Robust scarcity pricing remains critical to reliability, efficient price formation, and ensuring CAISO markets remain competitive as additional organized markets emerge across the West.

1. Please summarize your organization’s overall position on the revised straw proposal.

Energy Division staff (ED staff or staff) of the California Public Utilities Commission (CPUC) develops and administers energy policy and programs to serve the public interest, advises the CPUC, and ensures compliance with CPUC decisions and statutory mandates. ED staff provides objective and expert analyses that promote reliable, safe, and environmentally sound energy services at just and reasonable rates for the people of California.

ED staff appreciates the opportunity to submit comments on CAISO’s revised straw proposal regarding price formation, issued on July 2, 2026 and further discussed at the stakeholder meetings held on July 13 and 14, 2026. ED staff opposes moving forward with this proposal at this time, given the substantial changes that were made from the initial straw proposal issued nearly a year ago. At a high level, ED staff recommends that CAISO reconsider the exclusion of the CAISO BAA from system market power mitigation and ensure that low priority exports are able to be cut before CAISO implements scarcity pricing in the real-time market. 

• Regarding CAISO’s market power mitigation proposal, ED staff does not support the exclusion of the CAISO BAA from market power mitigation and, for this and other reasons, does not support moving forward with this proposal at this time.
• In addition, ED staff has numerous questions regarding the implementation and operation of the grouping approach, the method to assess pivotal suppliers, and the application of mitigation proposed by CAISO in this draft. CAISO has substantially revised its proposal from the one it released last year, and because of these fairly substantial changes, many questions remain and there is not sufficient time to understand how CAISO’s revised proposal will work in practice.  As a result, ED staff recommends that CAISO not move forward with its current market power mitigation proposal at this time and reconsider its exclusion of the CAISO BAA.  ED staff is concerned about the disparate treatment of the CAISO BAA from the other EDAM BAAs and believes that these new rules should be uniformly applied and that this should be the focus before moving forward with this proposal.
• Regarding CAISO’s scarcity pricing proposal, ED staff recommends that CAISO focus on the root causes of scarcity in the real-time market, before moving forward with this or any other comprehensive scarcity pricing proposal. As discussed by the Market Surveillance Committee, one of the reasons for scarcity in the real-time market is that EIM entities include low priority exports in their base schedules even though the low priority exports have not yet cleared the HASP (the hour ahead scheduling process). In addition, the HASP market clears low priority exports based on expectations of EIM transfers, which can fail to materialize. Another issue is that e-tags are approved on submission, and if a low priority export is cut in HASP, it is ED staff’s understanding that both parties need to agree on the cut at that point in time. ED staff believes that the reasons for potential scarcity (especially scarcity driven by market implementation circumstances, e.g. e-tag approval timing) in the real-time should be addressed before implementing scarcity pricing. Solutions to potential scarcity include: only approve e-tags after they have cleared HASP, or do not allow uncleared low priority exports to be included in base schedules.  Either of these rule changes should be evaluated as to their ability to reduce scarcity and enhance reliability without impacting affordability. These known reliability issues should be addressed before moving forward with any scarcity pricing proposal.
• ED staff recommends that CAISO clarify the order of operations to be followed by grid operators before implementing scarcity pricing in the real-time market since such pricing could have significant new costs to ratepayers. CAISO should clarify whether CAISO operators will cut low priority exports post-HASP before shedding load or arming load, especially if such exports are causing the tight system conditions. It does not seem to make sense for the CAISO BAA to drop load and arm load to support low priority exports and to do so at extraordinarily high prices that can threaten affordability.
• Finally, CAISO should clarify that if it implements this proposal to use scarcity pricing in the manner that it is proposing, whether customers of the load serving entities will be compensated at these scarcity pricing values for shedding load and arming load for reserves. This issue of compensation would be especially important if CAISO BAA load is being shed or armed to support low priority exports. At the very least, in the interest of transparency, CAISO should be required to identify the magnitude of low priority exports that are supported when the CAISO BAA sheds or arms load.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

Oppose with caveats. ED staff opposes moving forward with the revised proposal, which excludes the CAISO BAA from system market power mitigation. ED staff believes that market power mitigation should be uniformly applied. Further, while CAISO has indicated that it will consider system market power mitigation of the CAISO BAA in the next phase of this initiative, ED staff is concerned that this incremental proposal will become the final proposal, since many parties and particularly generators and net sellers do not generally support market power mitigation for the CAISO BAA.  As a result, ED staff recommends that CAISO pause this phase of the initiative and consider inclusion of the CAISO BAA in system market power mitigation before moving forward with this proposal.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

 Oppose with caveats for the reasons discussed above.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

Oppose with caveats for the reasons discussed above. In addition, ED staff is concerned that this proposal makes it nearly impossible to find any market power under any circumstances, meaning that there will be no assurance that customers will receive the promised benefits of EDAM efficiency, which rests on marginal cost bidding.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

Oppose with caveats for the reasons discussed above. In addition, ED staff is concerned with CAISO’s proposal to mitigate only pivotal suppliers. Under the previous rules, if an area was determined to be uncompetitive, CAISO would mitigate the resources to the default energy bid (which is the marginal cost of energy, with adders to address uncertainty). Under the revised proposal, only pivotal suppliers would be mitigated, but non-pivotal suppliers could be bidding uneconomically and could still raise prices above marginal cost – that is, there is no guarantee that this would not occur. The promise of EDAM, and centralized markets more generally, rests on the assumption of marginal cost pricing; thus, deviations are likely to reduce the efficiency of the markets – for this reason, ED staff opposes this aspect of the proposal.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

Oppose with caveats for the reasons discussed above. 

In addition, ED staff’s comments from September 2025, are included below:

CAISO does not necessarily need to adopt a proposal to ensure market prices reflect scarcity pricing during load-shedding events, unless "scarcity”, i.e. high prices have a potential to induce additional supply to mitigate a load-shedding situation. For example, if there is a physical outage constraint on the grid, no amount of supply at any price will induce supply, and so load should not automatically seek to pay additional rent to generation above non-scarcity prices if it will not change grid operations. Scarcity pricing should only be used sparingly and only if it has a potential to induce / increase supply. The question above presumes that scarcity pricing is de facto warranted at all times.  

First, as other parties have also previously requested in comments and stakeholder calls, CAISO should clearly define pre-scarcity, scarcity, shortage, and Energy Emergency Alert Stage 2 (“EEA2”) and Stage 3 (“EEA3”), watches, and related terms to help transparently define these parameters and clarify the problems CAISO is trying to address with high (scarcity) prices. This would help ensure that solutions are well tailored to addressing defined problems.   

Second, ED Staff request that CAISO clarify the specific conditions in which CAISO would determine that there is inadequate supply and would deem that appropriate countermeasures such as a scarcity pricing would be useful at inducing supply to address the supply constraint. In this regard, CAISO should ensure that the CAISO BAA does not experience scarcity conditions due to a prioritization of exports. ED Staff are concerned that WEIM transfers and scarcity pricing mechanisms in CAISO could distort prices and potentially lead to the activation of CAISO BAA reserves - which had been procured for the support of CAISO BAA reliability - in order to support energy transfers to other BAAs. If the dip into those reserves also triggered scarcity prices, then CAISO BAA load would pay high rents merely to support exports. Therefore, ED Staff request that CAISO clearly explain to stakeholders the order of operations for emergency conditions and activation of load shedding (possibly pointing to the CAISO BAA BPM for system emergencies, and noting how it is different from RC West operating procedures, if at all). Would CAISO cut low priority exports post-HASP before arming load and triggering scarcity pricing? ED Staff suggest CAISO clarify how it will ensure that reserves are activated for the intended procurement purpose, and not to support energy exports in scarcity conditions. 

Third, CAISO’s straw proposal states that if firm load shedding covers only part of the market interval, then scarcity prices would apply to the entire interval. However, this could prove problematic: if the scarcity event is of short duration, such as less than two hours - which they historically have been - but scarcity pricing applies over a longer interval, then the market could face higher prices for a longer period than necessary and warranted.  

Similarly, CAISO’s proposal includes a circuit breaker, in which the market would deactivate any scarcity pricing mechanisms that are in effect after four hours. CAISO explains that its aim is to find a solution that “must be long enough to provide a strong, sustained price signal to incentivize responses from neighboring BAAs but short enough to prevent undue financial risk.” ED Staff believe a four-hour circuit breaker is too long and economically inefficient. Determining the proper duration for a circuit breaker is challenging, as experience with previous load shedding events illustrates. In earlier comments, the Public Advocates Office clearly demonstrated why load shedding is an inappropriate determinant for any scarcity pricing duration because it is inherently uneven in both capacity and time.” For example, during the August 14, 2020 load shedding events, the CAISO ordered two phases of 500 MW load shedding for a total of one hour. However, PG&E failed to comply with the one-hour load shedding timeline and exposed their customers to outages lasting up to 2.5 hours, and PG&E’s load was not fully restored until 30 minutes after the CAISO canceled the Stage 3 Emergency. If scarcity pricing were tied to load shedding, CAISO ratepayers would have been exposed to excess prices for a full 30 minutes longer than if CAISO had declared a Stage 3 Emergency. The Public Advocates Offices also noted that a similar problem exists if scarcity pricing duration were to be tied to EEA3 events, “because if an EEA3 is initiated under the same conditions as Stage 2 emergencies, scarcity pricing would likely begin prior to load shedding and could end long after load shedding, thereby exposing ratepayers to a longer period of unwarranted higher prices.” Due to such issues, ED Staff request the CAISO conduct additional analysis on the duration of previous scarcity events, the impact on prices and costs to ratepayers, and the appropriate duration of any circuit breaker. 

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

 Oppose with caveats for the reasons discussed above. 

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

As discussed above, ED staff believes that both of the proposals currently under consideration need further examination before moving forward. ED staff recommends that CAISO implement system market power mitigation for the CAISO BAA at the same time it makes changes for the other BAAs. ED staff also recommends that CAISO consider the reasons for scarcity in the real-time market and address those issues before comprehensive scarcity pricing is considered (e.g., inclusion of low priority exports in base schedules before they clear HASP; allowing expected, but not firm EIM transfers to support low priority exports; approval of e-tags before they have cleared HASP).

In addition, it would be helpful if CAISO went through instances in which CAISO has shed firm load or armed load and explain the reasons for the load shedding and arming load and provide the MW of low priority exports that were cut and that were supported throughout the event.

1. Please summarize your organization’s overall position on the revised straw proposal.

PG&E appreciates that CAISO was responsive to stakeholder feedback – specifically to move forward to BAA-Level MPM and incremental Scarcity Pricing improvements and to delay comprehensive Scarcity Pricing reforms. PG&E offers the following comments:

• PG&E supports the BAA-Level MPM proposal but has some concerns about the details.
  • Support: PG&E is fine with CAISO retaining default competitive status for the CAISO Balancing Authority Area (BAA), but would like CAISO to lay out a long-term plan for reevaluating this assumption, including monitoring.
  • Support: PG&E supports changing to the grouping method to reduce the frequency of over-mitigation experienced by WEIM/EDAM BAAs.
  • Neutral: PG&E understands and supports wanting to better represent an EDAM entity’s Residual Supply with the Load Serving Obligation (LSO) adjustment, but PG&E has concerns that the mechanism could create adverse incentives to inflate the LSO value.
  • Neutral: PG&E supports the proposal to only mitigate pivotal suppliers as this is the minimum requirement, but PG&E believes it would be better still to subject all supply to mitigation, for 4 reasons:
    • The new grouping method should eliminate much of the over-mitigating case.
    • Subjecting supply to mitigation is not the same as mitigating the bid.
    • Non-pivotal suppliers can still inflate their bids when a BAA is repeatedly uncompetitive.
    • Only mitigating the pivotal suppliers reduces transparency to participants.

• PG&E supports incremental Scarcity Pricing reforms that will prevent prices from falling during scarcity conditions during operator actions
  • Support with caveats: PG&E supports this incremental scarcity price improvement, but seeks clarification if shed load amount will also be added to the scheduling run, and also how the additional load will be removed from the market.
  • Support with caveats: PG&E supports the goal of Armed Reserve Pricing (ARP) to improve how prices move as the market enters scarce conditions, but would like CAISO to 1) explain the basis for the penalty price, 2) explain how prices are monotonically increasing as the market moves from Resource Sufficiency Evaluation (RSE) failure, to ARP, to arming load, to load shed, and back out again, and 3) consider potential adverse impacts to EDAM.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

PG&E is fine with CAISO retaining default competitive status for the CAISO Balancing Authority Area (BAA), but would like CAISO to lay out a long-term plan for reevaluating this assumption, including monitoring. PG&E understands that changing the default competitive assumption could catch a few uncompetitive hours a year (~23 hours in 2025) but comes with its own set of trade-offs and complexities with the intertie bids and how to incorporate the ‘least-cost dispatch’ obligation into the test.

PG&E encourages CAISO to continue to work on this issue with stakeholders. First, CAISO should monitor this issue closely and could even implement and report results from a parallel test that does not presume CAISO as competitive.  Secondly, we’d like CAISO to continue to identify a workable test. In an ideal world, CAISO would be treated the same as any other EDAM BAA. PG&E agrees that changing this assumption may not be feasible or worthwhile in this round of changes (for now) but requests CAISO to explain under what conditions CAISO would reconsider the assumption.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

PG&E supports changing to the grouping method in order to reduce the frequency of this over-mitigation experienced by WEIM/EDAM BAAs. Specifically, the grouping method should reduce over-mitigation in cases where an individual BAA might appear to be uncompetitive but in reality there is additional supply available through WEIM/EDAM transfers.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

PG&E understands and supports wanting to better represent an EDAM entity’s Residual Supply with the Load Serving Obligation (LSO) adjustment, but PG&E has concerns that the mechanism could create adverse incentives to inflate the LSO value. PG&E encourages CAISO to think more carefully about what load bids should count in the LSO adjustment.

The standard Residual Supply Index (RSI) can overstate a supplier's ability to exercise market power when they have an obligation to serve load. The standard RSI implicitly assumes this supplier could strategically withhold all of its generation from the market. This is not true in EDAM or WEIM due to the Resource Sufficiency Evaluation (RSE) and is unlikely to be a realistic assumption given the LSE’s obligation to serve load and the cost implications of withholding capacity during scarce conditions. The LSO adjustment is a more realistic approach to the RSI under the assumption that the quantity of that obligation can be accurately estimated. The current proposal uses the sum quantity of the LSE’s load bids as this estimate.

PG&E supports the LSO adjustment to the BAA-Level MPM methods but is concerned that using an LSE’s load bids to determine the LSO adjustment might introduce an incentive to submit additional load bids to avoid market power mitigation. Submitting low priced load bids (ones that wouldn’t clear under normal conditions), an LSE could inflate its LSO adjustment and therefore appear to have little to no residual supply. This would allow them to avoid mitigation in the case that they are pivotal. CAISO should think about ways to eliminate load bids from the LSO adjustment that do not look real.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

PG&E supports the proposal to only mitigate pivotal suppliers as this is the minimum requirement, but PG&E believes it would be better still to subject all supply to mitigation, for 4 reasons:

• The new grouping method should eliminate much of the over-mitigating case.
• Subjecting supply to mitigation is not the same as mitigating the bid.
• Non-pivotal suppliers can still inflate their bids when a BAA is repeatedly uncompetitive.
• Only mitigating the pivotal suppliers reduces transparency to participants.

The current proposal is that only pivotal suppliers would be subject to bid mitigation. This is in contrast to the current process where all supply in an uncompetitive BAA is subject to mitigation.  PG&E understands that there are trade-offs with these two approaches. Subjecting all supply to mitigation would potentially “over-mitigate” competitive supply in an uncompetitive BAA. Subjecting only the pivotal suppliers could allow other supply in the BAA to elevate their bids (above what they would have bid in a competitive setting). But it is PG&E’s view that subjecting all supply to mitigation is preferable for 4 reasons:

1. The new grouping method should eliminate much of the over-mitigating case

PG&E understands that one of the goals of these changes is to address issues with over-mitigating WEIM BAAs when there is additional competitive supply available. It is PG&E’s understanding that the grouping method should fix many of these over-mitigation cases.

2. Subjecting supply to mitigation is not the same as mitigating the bid. If the resource is submitting competitive bids then their bid will likely be below the competitive reference price and/or their Default Energy Bid (DEB). So while subject to mitigation, these bids would not change.
3. Non-pivotal suppliers can still inflate their bids when a BAA is repeatedly uncompetitive. Electricity markets are repeated games and game theory shows us that the outcomes of repeated games can be quite different than a one-time game because participants gain information over these repeated rounds. The DMM and others have pointed out that non-pivotal supply can inflate their bids (above what they would have bid in a competitive environment) when they recognize a pattern of uncompetitive conditions. While these suppliers do not have market power, they could still earn unjustified rents if their bid is inflated in this way and they go unmitigated.
4. Only mitigating the pivotal suppliers reduces transparency to participants. For confidentiality reasons CAISO cannot publish the bid stack, so how can generators verify/challenge the results of CAISO’s decision to mitigate them if the participant cannot see the entire bid stack for themselves? Subjecting all generators to mitigation when a BAA is deemed non-competitive would be a more transparent solution.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

PG&E supports this incremental scarcity price improvement, but seeks clarification if shed load amount will also be added to the scheduling run, and also how the additional load will be removed from the market.

Today, CAISO's real-time demand forecast is based on recently observed metered load. When operators disconnect customers during a load-shedding event the metered load drops and the persistence forecast begins forecasting lower demand. The market optimization may interpret the reduced load as lower customer demand rather than unserved demand. This can cause prices to fall even while customers remain involuntarily curtailed.

CAISO proposes to identify the amount of firm load that has been shed and add that amount back into the market's demand input as unserved demand. This allows the optimization and pricing process to recognize that the system still has a shortage. With this change, the scarcity price signal should be maintained because the load forecast now includes the shed amount of load.

PG&E understands adding the shed demand into the pricing run so that prices will reflect scarcity conditions. But it is unclear from CAISO’s proposal if it also plans to add the shed amount of load into the scheduling run. PG&E’s concern is that adding the shed load back into the market scheduling run could create issues with the dispatch schedule. It is not clear to PG&E whether the optimal dispatch in the scheduling run would change with the addition of the shed load and whether this change would be beneficial or harmful given that the shed load isn’t being met by generation. If the shed load is only added into the pricing run, then this would seem to make sense.

Additionally, PG&E would like CAISO to demonstrate that the shed load amount will not affect the market longer than is necessary. PG&E requests CAISO explain the timing of when the load would be added into the market, when the load would be removed from the market, and which market intervals (both Fifteen Minute Market (FMM) and Real-Time Dispatch (RTD) ) it would ultimately affect.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

PG&E supports the goal of Armed Reserve Pricing (ARP) to improve how prices move as the market enters scarce conditions, but would like CAISO to 1) explain the basis for the penalty price, 2) explain how prices are monotonically increasing as the market moves from Resource Sufficiency Evaluation (RSE) failure, to ARP, to arming load, to load shed, and back out again, and 3) consider potential adverse impacts to EDAM.

PG&E understands that the 15-minute Real-Time Pre-Dispatch (RTPD) process can reflect the opportunity cost of holding capacity for ancillary services (AS). However, the 5-minute RTD process is an energy-only dispatch and does not re-optimize ancillary services. As a result, scarcity reflected in RTPD by arming load may disappear in RTD. When operators arm load and subsequently release reserves for energy, the additional energy supply can suppress RTD prices even though system conditions are becoming more severe.

CAISO proposes a solution that will only apply to the CAISO BAA. Their solution is to incorporate  the opportunity cost of dispatched contingency reserves (after operators arm load) into the RTD prices. In other words, when reserves are being used to serve energy rather than being held for contingency purposes, the market price should reflect the value of consuming that reserve margin by using a reserve slack penalty price.

CAISO explains that, when operators arm load and dispatch reserves into the market (aka Armed Reserve Pricing), that the extra supply can cause prices to dip, which is the opposite of the desired result when approaching scarcity. PG&E has three clarifying questions:

1. What is the Basis for the $700/MWh Reserve Slack Penalty Price? As PG&E understands it, under the conditions where this mechanism would be used, the energy price would likely be $2,000/MWh. Additionally, the reserve slack penalty prices is $700/MWh. So the total energy price after this proposal would likely be at or around $2,700/MWh. Is that correct?  Is there a basis for the $700/MWh reserve slack penalty price?

2. Please explain how prices are monotonically increasing as the market moves from Resource Sufficiency Evaluation (RSE) failure, to ARP, to arming load, to load shed, and back out again.

PG&E wants to ensure that all of these different scarcity pricing mechanisms are going to work together in a rational way. Can CAISO confirm or demonstrate that prices will be monotonically increasing as it moves closer to scarcity given the interactions of all the pricing mechanisms:

• Assistance Energy Transfers (AET): occurs after a WEIM BAA fails the RSE.
• Arm load, FMM: if CAISO is still deficient after using up AET, then it would arm load. When arming load, the price would be set at the opportunity cost of holding ancillary services capacity plus the market bid cap, which would be set at either $1,000/MWh or $2,000/MWh, depending on whether:
  • CAISO has received a cost-verified bid above the $1,000/MWh cap, OR
  • The Maximum Import Bid Price (MIPB) exceeds the $1,000/MWh in the relevant trade hour.
• Arm load, RTD (ARP proposal, as laid out in Section 4.2.2 of the Revised Straw Proposal): if CAISO is still deficient after using up AET, then it would move to arm reserves, with a penalty price of either $1,700/MWh or $2,700/MWh in RTD, depending on what the market bid cap is currently set at. Will the RTD price be the same or similar to the RTPD price?
• Load shed pricing (as laid out in Section 4.2.1 of the Revised Straw Proposal): when CAISO operators are forced to shed load, CAISO proposes various different mechanisms to “re-insert” the demand from the shed load back into the market. Is it a guarantee that that additional load would trigger a penalty price? And if so, what penalty price would apply? If CAISO has not received a cost-verified bid above the $1,000/MWh price cap, would the $1,000/MWh price still apply?
• Recovery back to normal operations: after a load shedding event, how would prices behave as CAISO comes out of the load shedding event? As prices increase monotonically as CAISO moves closer to load shed, prices should also decrease as it comes out of such an event.

3. Could WEIM/EDAM BAAs opt into this pricing mechanism?

PG&E understands that WEIM/EDAM BAAs retain responsibility for their ancillary service (AS) requirements and self-schedule their AS in the market. This makes it impractical or infeasible for CAISO to directly apply this to all WEIM/EDAM BAAs. 

However not adopting such a pricing mechanism could cause adverse effects especially when two WEIM/EDAM BAAs are simultaneously in or near scarcity. In such a situation, a BAA that does operator adjustments such as arming load or shedding load would experience a drop in prices in the Real-Time Market and it could start scheduling less transfers to the BAA and instead send that power towards CAISO because this scarcity pricing mechanism is keeping prices high in CAISO.

While the CAISO should not mandate such a mechanism, we would think that some BAAs may appreciate the opportunity to opt in. 

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

PG&E supports CAISO’s decision to defer development of comprehensive scarcity pricing and administrative pricing for other emergency actions.

PG&E supports CAISO deferring application of BAA-Level MPM to the CAISO BAA, as the complexity of the solution seems to create more issues than it would solve (at the moment). PG&E requests CAISO to keep working on potential solutions and explain under what conditions CAISO would reconsider the assumption.

1. Please summarize your organization’s overall position on the revised straw proposal.

The Public Generating Pool (PGP) appreciates the opportunity to submit comments on the revised straw proposal. PGP is a group of 9 consumer-owned utilities in Washington and Oregon who own and operate their own generating resources. PGP supports the proposal overall as a meaningful step in the right direction on both market power mitigation and improved price signals during scarce conditions, but also suggests further work on these complex issues to continue to move toward a scarcity design that captures conditions leading up to shortfall events and additional emergency actions while maintaining compatibity with the unique features of Western Energy Markets.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

PGP appreciates the additional analysis examining the potential impact of deeming the CAISO non-competitive and agrees that this may lead to over-weighting the CAISO conditions in the context of the broader market, and that now is not an appropriate time for such a significant change. Similar to others, PGP does support the concept that a long-term solution should treat other Balancing Authorities (BAs) similarly to CAISO where feasible and reasonable, but this does not by default indicate including the CAISO BAA in the BAA-level testing. Instead, we support ongoing evaluation of CAISO’s competitiveness by the DMM in the standard reports, and a similar periodic evaluation of structural competitiveness for BAs that join EDAM after they reach some initial threshold of participation by non-affiliated entities within the BA. A regional market may provide opportunities for other participating BAs to gain merchant supply and additional competition within their BAs. Over time other BAs with should have the opportunity to determine if they may also be considered structurally competitive by default. Better representation of affiliate entities and their obligations as included in this proposal will be an important step in the data gathering that would be required for such an analysis. 

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

PGP generally supports the concept of grouping BAAs to show a more realistic picture of available competitive supply, however prior examples vs those presented in the most recent stakeholder meeting appeared to show a different methodology, which PGP, like other stakeholders, found to be more intuitive. PGP would like to understand if this was just an over-simplified example adding confusion, or a significant design change requiring further discussion and explanation for why two regions with constrained transmission between them sufficient to separate prices would still be grouped for the purposes of the test. PGP recommends that CAISO clarifies the example used during the stakeholder meeting in any final proposal.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

PGP sees this as a much more accurate approach vs the quarterly evaluation, particularly for entities who may have monthly and annual variations in supply such as hydro-dependent utilities.  

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

PGP appreciates that this aligns with the objective of reducing the risk of mitigating suppliers who do not have market power.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

PGP supports implementing this to make progress on price signals during the most critical times on the system, and recognizes many of the challenges with a “comprehensive scarcity design” discussed at length within this stakeholder process and reiterated in the recent presentation by Market Expert Susan Pope. We would like to see clarification in final proposal of how this works with the emergency assistance program and emergency demand response or reliability reserve deployment. PGP also would still like to see this concept expanded to other emergency actions. While starting with arming load is clear and universal across the footprint, a broader definition would align better with the initial intent of the initiative, which included sending signals leading up to firm load shed and properly incentivizing the availability and performance of resources, responsive loads, and other reliability actions/tools in the market during extreme conditions.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

We appreciate the CAISO’s diligence in moving forward with some progress in both the BAA mitigation and the scarcity design. Sending appropriate market signals and incentivizing performance during critical reliability events are important steps in the right direction as risks and uncertainties on the system increase.

While we support that we have found some middle ground to lock in important progress, PGP continues to believe that adding scarcity price signals for other emergency actions could enhance the proposal and align it better with the original intent, while maintaining like-design and transparency across the broader market footprint. We recommend further work in this area before moving towards comprehensive scarcity design because of all of the complexities highlighted in the process so far. Initial steps could include a broader survey of what emergency tools and actions various BAs use and intend to develop over time.  Given the evolving role of large loads and the increasing opportunity for potential load flexibility, continuing to develop incentive structures for targeted and voluntary response mechanisms during scarce conditions is an important consideration for ongoing market design changes.  PGP would also like to see additional documentation for how the design aligns with the BA Emergency Assistance program in operation today in the EIM to ensure that there are not unintended consequences from having both these mechansims in place.

1. Please summarize your organization’s overall position on the revised straw proposal.

SDG&E supports the overall direction of the revised proposal and appreciates CAISO’s incorporation of stakeholder feedback of items such as applying scarcity pricing changes to both the real-time and 15-minute markets. SDG&E continues to believe that comprehensive scarcity pricing reform is premature at this point and supports the more limited scope of changes in the revised proposal. Additional comments on specific elements of the proposal are described in more detail below.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

Support with caveats.

SDG&E supports CAISO retaining a default competitive status at this time but is not opposed to a future enhancement where all EDAM BAAs are treated consistently should there be additional analysis, incorporating the impact imports in that testing, which clearly identifies non-competitive outcomes in the CAISO market. In principle, SDG&E believes a consistent test applied to all BAAs to determine competitive status should create the most reliable overall mitigation design. If a future test could effectively incorporate the competition of intertie bids, SDG&E would support revisiting if default competitive status for the CAISO BAA.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

Supports with caveats.

SDG&E supports in concept that evaluating the connected supply of interconnected BAAs creates a more realistic analysis of supply conditions but would appreciate further discussion of this topic. SDG&E would be interested to see more examples of how this change would work and any “case study” style examples of diverse system conditions the CAISO has observed that informed the design of this proposal. The grouping design hinges on differences between marginal energy costs (MECs) and export transfer connections between BAAs. Can BAAs be grouped when they have very limited transfer capability, or if paths are heavily constrained? SDG&E would appreciate more complex examples illustrating how more complex topology will impact the grouping and further explanation on whether there should be a minimum transfer threshold in the grouping methodology.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

Support with caveats.

SDG&E supports incorporating load-serving obligations into the market power mitigation framework because it more accurately reflects supplier incentives and addresses concerns that the current methodology may overstate the ability and incentive of load-serving entities to withhold supply. However, SDG&E encourages CAISO to provide additional detail regarding implementation and monitoring to ensure the methodology accurately reflects actual load obligations and does not create unintended opportunities to avoid mitigation by artificially inflating the net virtual demand input in the calculation. Consistent with SDG&E's broader comments, CAISO should support the proposal with sufficient analysis demonstrating that the revised approach improves mitigation accuracy and market outcomes.

SDG&E would also like to see more information on where the data for RSI calculation is sourced and is concerned about the possibility of an incomplete data set or data with regular updates being able to reliably inform a pass/fail test. For example, could CAISO explicitly confirm where the available supply (S_max, S_min) and other data inputs for the calculation are sourced from. Further, while we recognize that it may be appropriate to have different approaches to the LSO calculation for different types of market participants, SDG&E has questions over the impact of some of these implementation details, as they may materially impact mitigation outcomes for grouped BAAs. Finally, how does the non-witholdable minimum output consider RA obligations and sales in the capacity calculation, or non-RA sales? Could an affiliate with little LSO be treated as highly witholdable even if they sell the majority of their supply?

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

Support with caveats.

SDG&E supports CAISO's proposal to target mitigation only to suppliers identified as pivotal through sequential pivotal-supplier tests. The proposal appears to better align mitigation with the suppliers that can materially influence market outcomes, rather than broadly applying mitigation to all suppliers within a constrained BAA group. SDG&E supports efforts to reduce unnecessary mitigation where competitive supply is available, as over-mitigation can suppress legitimate price signals and lead to outcomes that do not accurately reflect market conditions.

SDG&E also appreciates CAISO's efforts to develop a more transparent and structured methodology for identifying pivotal suppliers. The proposed framework appears responsive to stakeholder concerns that the current approach may mitigate suppliers that do not possess market power and may therefore unnecessarily restrict competitive pricing.

While SDG&E generally supports the proposal, CAISO should continue to monitor its performance following implementation and ensure that the revised approach continues to provide adequate protections against the exercise of market power in constrained conditions. SDG&E encourages CAISO to evaluate whether the proposal appropriately balances the objectives of reducing over-mitigation and maintaining robust market power protections as the EDAM footprint expands. Additionally, SDG&E would like to see the impacts of these changes on the EDAM markets and the extent to which mitigation occurred included in the next iteration of the PFE proposal.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

Support.

SDG&E supports CAISO's proposal to treat firm load shed as unserved demand in both the Fifteen-Minute Market and Real-Time Dispatch. During emergency conditions involving firm load shedding, prices should appropriately reflect the severity of system conditions, and SDG&E supports applying a consistent approach across both markets. SDG&E appreciates CAISO's efforts to align scarcity pricing treatment between the Fifteen-Minute Market and Real-Time Dispatch and believes this proposal more accurately reflects system conditions during emergency events.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

Oppose with caveats.

SDG&E would like to see greater justification of CAISO's position that current pricing does not fully reflect the value of reserve energy. While deploying contingency reserves may impose an opportunity cost by reducing the system's reliability cushion, SDG&E requests additional evidence demonstrating that existing market prices are failing to reflect that value and that the proposed scarcity adder would produce measurable reliability or market efficiency benefits. Absent such a showing, the proposal could increase costs without corresponding benefits to reliability.

SDG&E is concerned that armed reserve pricing could unnecessarily increase costs if the proposed reserve price adder is not adequately justified, or if existing scarcity pricing mechanisms already capture the opportunity cost associated with dispatching contingency reserves. SDG&E encourages CAISO to provide additional analysis demonstrating that current market prices, together with the other enhancements proposed in the Revised Straw Proposal, are not already accurately reflecting system conditions during reserve deployment events.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

SDG&E supports deferring these items for the time being and currently does not feel the need to prioritize further development of these items.  As more data becomes available from EDAM/DAME market operations, SDG&E will monitor issues and supports reopening these items if actual market conditions present a need for these changes.  

1. Please summarize your organization’s overall position on the revised straw proposal.

With respect to BAA-level market power mitigation (“MPM”), the Six Cities generally support the proposed transition to a grouping approach for evaluating BAA-level competitiveness and support the proposed load-serving obligation (“LSO”) adjustment to the withholdable capacity calculation. However, the Six Cities oppose (i) the CAISO’s decision to retain the default competitive status for the CAISO balancing authority area (“BAA”); and (ii) the proposal to adopt the narrower pivotal supplier mitigation approach (a variant of Option 2 from the Straw Proposal) rather than the broader mitigation approach (Option 1) that the Six Cities previously supported.

With respect to scarcity pricing, the Six Cities support CAISO’s decision to defer comprehensive scarcity pricing redesign and to decline administrative pricing for emergency actions. The Six Cities do not oppose the adoption of an in-market approach to reflect firm load shedding as unserved demand but identify a number of implementation concerns. The Six Cities also recommend a more conservative circuit breaker design, including a two-hour initial duration and the addition of a price-level trigger.

The Six Cities oppose adoption of the proposed armed reserve pricing mechanism, which would apply only to the CAISO BAA and not to WEIM BAAs, in direct conflict with the fundamental principle—broadly supported among stakeholders—that any scarcity pricing mechanism must apply across the market footprint.

The Six Cities continue to oppose bundling implementation of BAA-level MPM enhancements for the CAISO BAA with adoption of comprehensive scarcity pricing reforms.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

The Six Cities oppose the CAISO’s decision to retain the CAISO BAA’s default competitive status under the revised BAA-level MPM framework. This represents a reversal of the Straw Proposal’s recommendation to remove the CAISO BAA’s default competitive status—a policy the Six Cities expressly supported. See Six Cities’ September 22, 2025 Comments at Question 2 and Six Cities’ December 13, 2024 Comments at Question 1.

CAISO’s stated rationale for the reversal is twofold: (1) the current three pivotal supplier test does not adequately account for competitive pressure from economic intertie import offers to the CAISO BAA; and (2) the empirical record does not yet demonstrate that BAA-level market power in CAISO is causing harm. See Proposal at 7-8. While the Six Cities acknowledge the import competition concern, the Six Cities’ recommendation is for the CAISO to work with stakeholders to develop refinements to the test to account for import supply, rather than continuing to exempt the CAISO BAA from the competitiveness assessment.

The Six Cities note that data included in the Revised Straw Proposal showed that the revised grouping framework, including the LSO adjustment, can reduce mitigation compared with the current approach even when the CAISO BAA is included. See Proposal at 8. This undermines the argument that including the CAISO BAA would necessarily result in excessive mitigation. Market Surveillance Committee member Dr. Scott Harvey’s observation that structural test failures do not by themselves prove systemic market power is an argument for improving the test methodology, not for retaining the CAISO BAA’s special status indefinitely.

Finally, CAISO’s decision to link the inclusion of the CAISO BAA in the MPM framework to adoption of comprehensive scarcity pricing reforms (Id.) is invalid. As noted in Six Cities’ December 13, 2025 Comments at Question 1, the Six Cities do not agree that bundling implementation of MPM revisions with revisions to scarcity pricing mechanisms is either necessary or appropriate.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

The Six Cities conceptually support the proposed transition to a grouping approach for evaluating BAA-level competitiveness. The Six Cities also support the improvement to the grouping algorithm that addresses the path-dependency concern raised by DMM—specifically, the provision to test lower-priced groups individually when a merged group fails the competitiveness test. See Proposal at 8-9.

The Six Cities are concerned, however, that important implementation details remain unspecified and/or untested. For example, the Six Cities request information regarding the specific marginal energy cost (“MEC”) materiality threshold CAISO intends to establish in the Business Practice Manual. See Proposal at 36 n.9. The threshold should be narrow enough to prevent genuine congestion-driven price separation from being obscured.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

The Six Cities conceptually support the proposed replacement of the quarterly net buyer exclusion with an interval-specific LSO adjustment. This approach is more precise than the historical-data method presented in the Straw Proposal because it determines net buyer or net seller status in each market interval based on actual withholdable capacity. See Proposal at 11. As with the grouping methodology generally, however, implementation details regarding the identification of affiliated entities and quantification of load serving obligations remain unspecified and should be evaluated and discussed further. In particular, the Six Cities would like more information about the number of affiliated suppliers in other BAAs and the amount of capacity that each supplier controls relative to the affiliated load serving entities’ typical load service obligations.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

The Six Cities oppose adoption of a variant of Option 2 from the Straw Proposal and continue to support the broader mitigation approach represented by Option 1, which would reduce the risk of under-mitigation. See Six Cities’ September 22, 2025 Comments at Question 2.4. The Six Cities acknowledge that the Option 2 variant in the Revised Straw Proposal may be “less aggressive” in minimizing supply offers subject to mitigation than the original Option 2. See Proposal at 13. Nevertheless, this approach accepts an acknowledged risk of undetected market power by non-pivotal suppliers. The Proposal notes, consistent with DMM’s analysis, that “non-pivotal suppliers can sometimes set prices above competitive levels” and that “a structurally uncompetitive market is thinner, which increases the probability that demand will land in a less competitive portion of the supply stack where a non-pivotal supplier can set the price.” See Id. This risk is greatest precisely in the conditions—when the three pivotal supplier test fails—in which the narrower mitigation is applied.

The CAISO frames the issue as a tradeoff between Type I errors (unnecessary mitigation of non-pivotal suppliers) and Type II errors (failure to mitigate suppliers exercising market power). See Id. The Six Cities consider the costs of under-mitigation as generally more harmful and more difficult to remedy than the costs of over-mitigation. Mitigation to the greater of a competitive price or a cost-based Default Energy Bid allows all suppliers to bid, at minimum, their estimated marginal costs plus a buffer, meaning the downside of broader mitigation is modest.

If CAISO proceeds with the revised Option 2 variant, the Six Cities urge CAISO to commit to enhanced monitoring and reporting on whether non-pivotal suppliers exercise market power in intervals where the MPM test fails, with a commitment to revisit the mitigation scope if monitoring reveals significant instances of unmitigated market power.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

The Six Cities do not oppose the adoption of an in-market approach to reflect firm load shedding as unserved demand. The in-market approach is preferable to an ex-post settlement adjustment, because ex-post adjustments do not provide pricing signals, do not provide an opportunity for the pricing effects of the scarcity conditions to impact dispatch, and serve only to shift money from load to suppliers without affecting the response of either group of market participants to scarcity conditions or enhancing reliability.

The Six Cities however, request further analysis, explanation, and specification regarding implementation details. For example, as noted in the discussion during the July 14, 2026 web conference, how will the CAISO distinguish between load shedding to address local issues and load shedding as a result of system-wide resource insufficiency? Additionally, both of the implementation options described in the Revised Straw Proposal—adding verified firm load shed to market demand or switching to a non-persistence demand forecast—carry the risk of overstating the underlying supply insufficiency, which could trigger prices higher than warranted as well as reliability challenges. The Six Cities agree that operational safeguards described in the Proposal—including operator authority to suspend or reduce application of the adjustment—are essential. See Proposal at 52.

The Six Cities continue to support inclusion of a circuit breaker mechanism (see Proposal at 52-53), but recommend a more conservative initial design in order to provide market participants with experience regarding any new scarcity pricing approaches, help protect against unreasonable outcomes, and allow for reassessment and refinement of the load adjustment mechanism if it is not working as intended or is producing unintended consequences. At this time, the Six Cities continue to recommend a two-hour initial circuit breaker duration (applied on a cumulative basis over 24 hours) rather than the proposed four hours. The Six Cities also recommend that CAISO adopt a price-level trigger operating in tandem with the timing-based trigger.

The Revised Straw Proposal states that scarcity prices from the load-shed mechanism “may also spread to neighboring BAAs through the WEIM and EDAM optimization when transfer paths are uncongested.” See Proposal at 52. This could create significant cost exposure for load-serving entities in BAAs that are not themselves experiencing supply insufficiency. The Six Cities request analysis of the potential cost impact of scarcity price propagation on neighboring BAAs. The Six Cities also request clarification as to whether the circuit breaker applies only to the BAA that is shedding load or whether it also limits price propagation effects on neighboring BAAs.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

The Six Cities’ primary objection to the armed reserve pricing mechanism is that it applies only to the CAISO BAA and does not extend to EDAM Entity and WEIM BAAs. See Proposal at 60. This directly contradicts the fundamental principle, which has been broadly supported among stakeholders, that any scarcity pricing mechanism must apply across the market footprint.

The CAISO acknowledges that the CAISO-only application of this mechanism “creates a potential pricing seam between the CAISO BAA and WEIM BAAs.” See Id. That acknowledgment underscores the problem. The mechanism would elevate Real Time Dispatch prices in the CAISO BAA to as high as $2,700/MWh in the numerical example provided (see Proposal at 59), while WEIM BAAs facing comparable scarcity conditions would not be subject to equivalent pricing.

The interaction of two of the CAISO’s proposals compounds the asymmetry: the CAISO BAA is exempted from BAA-level MPM (allowing prices to remain unmitigated even in potentially noncompetitive intervals) and simultaneously subjected to an additional scarcity pricing adder that does not apply to other BAAs. The combined effect may produce the worst outcome for CAISO BAA ratepayers—elevated prices during tight conditions without adequate market power protections.

In addition, the Six Cities reiterate their prior request (see Six Cities’ September 22, 2025 Comments at Question 3.2) that the CAISO assess the impacts and costs of this proposal having been in place during a prior scarcity event and provide information regarding how frequently this measure would have impacted duration and magnitude of the pricing impacts.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

As stated in Section 3 above, the Six Cities oppose deferring BAA-level MPM for the CAISO BAA and oppose conditioning such MPM on adoption of comprehensive scarcity pricing reforms. The Six Cities urge CAISO to prioritize development of a refined test methodology that better accounts for import competition into the CAISO BAA, so that BAA-level MPM can be applied consistently across all participating BAAs.

The Six Cities support CAISO's decisions to defer comprehensive scarcity pricing design and to decline administrative pricing for other emergency actions at this time. A period of actual DAME/EDAM operating experience is critical before consideration of comprehensive redesign moves forward. The Six Cities note that the Revised Straw Proposal characterizes the firm load-shed pricing mechanism as a “terminal scarcity pricing rule that can later be integrated into an . . . [operating reserve demand curve] or energy supply margin framework.” See Proposal at 54. The Six Cities reiterate their opposition to value of lost load-based penalty pricing and the energy supply margin mechanism for the reasons stated in prior comments. See Six Cities’ February 27, 2025 Comments at Question 3. The deferral of comprehensive scarcity pricing should not be treated as an interim step toward an assumed eventual outcome.

1. Please summarize your organization’s overall position on the revised straw proposal.

SCE thanks the CAISO for its efforts, and for listening to stakeholders. The CAISO BAA is different than the other BAAs in EDAM and WEM, and these differences need to be accounted for. These differences include the co-optimization of energy and ancillary services, the existence of Resource Adequacy (RA) requirements with Must Offer Obligations (MOO), virtual bidding and bidding at the interties. The differences are the reason that the comprehensive scarcity pricing proposal is not ready for implementation, the CAISO BAA should retain its default competitive status, and care needs to be taken to ensure that proposals are not raising prices unnecessarily. Ensuring prices do not decrease during scarcity situations makes sense, but SCE does not believe that prices need to be increased. SCE agrees with grouping BAAs to determine when market power is potentially an issue but has questions about the proposed process and the example that was provided. SCE believes further discussion is needed on the implementation of load serving obligations and limiting mitigation to “pivotal” supplier.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

SCE agrees with the CAISO that it makes sense at this time to retain the CAISO BAA’s default competitive status. The CAISO market has been functioning for over 18 years and the DMM reports generally indicate that the market is competitive.  Further, the results reported by the CAISO about increased instances of identified market power across EDAM when including the CAISO market in BAA groups seem  questionable given the large number of both buyers and sellers in the CAISO market and the CAISO being the only BAA in EDAM that allows bidding at the interties. Until the BAA-level market power mitigation framework is modified to account for intertie bidding, keeping the default competitive status for the CAISO BAA is the best option.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

SCE agrees with the concept of grouping interconnected BAAs for competitiveness assessment but has concerns with the proposed method and particularly with the example provided. SCE understands the methodology but feels that the example provided in which BAA A has a competitive price below that of BAAs B and C potentially raises issues. SCE is not certain whether the proposed prices in the example are correct, or whether the competitive prices in A should be $80 or the competitive prices in the A, B, and C combination should be $60, but believes more discussion and further examples are needed. SCE is not certain if these issues are the results of a contrived example or of are emblematic of a more general problem with the method and suggests further examples and discussions. SCE also has some specific questions and comments:

• The groupings are constructed where an export transfer connection exists between the BAAs. However, while some connection may exist between BAA A and BAA B the price of $100 in BAA A and $80 in BAA B indicates that there is congestion between the two BAAs and the transfer constraint is binding; otherwise, the prices would be equivalent. SCE questions whether it makes sense to test the grouping A, B, and C when it is obvious that there are binding constraints that prevent the group from functioning as a unified market.
• In the example, the top three suppliers in A control 400 MW, and the top three suppliers in B and C control 500 MW, but the top three suppliers in A, B, and C control 900 MW. It seems that the only way this would be possible would be if the three top suppliers in A were also the tree top suppliers in B and C. SCE would also appreciate the CAISO providing data on how many suppliers and Load Serving Entities exist in the various EDAM and WEIM BAAs, and what the affiliate relationships are. On page 45 of the Revised Straw Proposal, it is stated that “Most WEIM BAAs have only one affiliate. However, the ISO recognizes that some WEIM-only BAAs have multiple affiliates.” Further information would be helpful in understanding how relevant various examples are, and in constructing additional examples.
• The linear nature of the connections in the example also seems to be a simplification. Can the CAISO please provide a more realistic example with various BAAs interconnected, or explain how the example relates to the WEIM market structure?

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

The assumption that load serving obligations limit the ability of entities to exert market power and raise prices rests on the belief that the prices impact the combined entity in a unified manner, but that might not always be true. If the generation is in a separate merchant company, that company may only be answerable to the shareholders, while the LSO is with the LSE and subject to regulatory oversight. These two situations may not be equivalent. As discussed in the previous question SCE would appreciate the CAISO providing information on the number of sellers and buyers and the affiliate relationships within each BAA and across the EDAM and WEIM markets.

SCE also suggests that more attention needs to be paid to how to account for the amounts of virtual demand and virtual supply in the MPM calculations. In using the net virtual demand to determine the LSO, does this create an opportunity for entities to avoid being a pivotal supplier by bidding a small amount of virtual demand? Should market power constructs account for virtual supply, either bid in or accepted? SCE believes that discussion of these issues would be helpful.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

SCE understands CAISO’s intent to limit the number of suppliers mitigated, but questions whether the extra effort adds sufficient value. Non-pivotal suppliers are likely to have marginal prices below their DEBs, and if their intent remains to bid marginal cost, allowing bidding without caps while only capping the pivotal suppliers will not produce meaningful change. Prices should be similar whether or not only the pivotal suppliers or all suppliers are restricted to their DEBs. Suppliers in the CAISO markets are generally subject to MOOs and have agreed to the market rules so there doesn’t seem to be any need to exclude them from the mitigation. In emergency situations the prices will automatically rise to either administrative prices or RDRR prices. The situations may differ in non-CAISO BAAs, but this discussion applies only to CAISO BAA.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

SCE agrees with using administrative prices during emergency conditions.  However, this might be simpler and easier to accomplish by recognizing that during emergency conditions the market is not functioning and it may be more simple to apply administrative prices. Electricity markets are different from other markets and shortage conditions impact electric markets differently. In most markets as shortages develop suppliers can offer additional supply and demand will be rationed by the increasing prices. In electric markets, these types of automatic market adjustments are extremely limited. In the real-time markets, demand generally does not see and therefore cannot respond to actual market prices. Likewise, it is unlikely that supply will be able to respond in such a short time and increase availability. Bids are inserted up to 75 minutes before real-time and before 10 am for the day ahead market. If the prices rise during the IFM or within real-time, new supply will not have an opportunity to enter the market. Additionally, exactly because of these market differences in electric markets, the CAISO market has adopted resource adequacy requirements to both ensure sufficient generation is available almost all the time and to provide the generators with sufficient compensation to allow them to operate without market prices rising to provide the “missing money” from limited market prices. The $1000 or $2000 administrative prices in the CAISO have been established with resource adequacy requirements and payments in mind and should be sufficient to  ensure that supply has a strong incentive to show up to deliver when really needed.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

SCE requests that the CAISO and stakeholders consider whether reflecting the opportunity costs of dispatched contingency reserves accomplishes anything other than effectuating a revenue transfer from load to generation; RA generation in the CAISO has already received an RA payment for agreeing to a must offer obligation. Assuming the accuracy of RA modeling, any loss of load, or even arming of load, has already been considered in determining the amount of RA contracted to cover the load and PRM with a LOLE of 0.1. California has made a decision to limit potential price increases and instead to incentivize generation investment with the offer of upfront RA payments, and prospect of penalties for failing to deliver on must offer obligations. SCE understands that prices should not decrease because of emergency conditions; however, it is not necessary to increase prices above the current market administrative bid caps. Doing so will not motivate additional supply because bids must be in place 75 minutes before the operating hour, likely well before any contingency reserves have been dispatched.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

SCE agrees with deferring the development of these items until later phases in this process.

• Comprehensive scarcity pricing since it involves increasing prices for reserves at this time when only the CAISO co-optimizes reserves with energy raises significant issues of fairness and SCE worries that the CAISO BAA as the only BAA which co-optimizes reserves with energy and as the only BAA with an RA program that has must offer obligations may end up providing energy for the entire market due to these two conditions. At a minimum because other BAAs can retain resources outside of the market and keep their reserves outside of the market those BAAs are likely in a different position from the CAISO and this must be addressed.
• SCE agrees with the concept of administrative pricing for emergency actions, but, again, the rules must be universally applicable and not just applicable to the CAISO BAA.
• Before having the discussion of whether the BAA level market power mitigation rules should apply to the CAISO SCE again requests the CAISO too provide information on the number of buyers and sellers in each BAA, including the CAISO, and the amounts of affiliate LSO. DMM studies have generally recognized that the CAISO market has been competitive and will likely remain so. Until the BAA MPM tests take into account the full range of supply available to CAISO markets, including intertie bids, it doesn’t make sense to apply BAA market power mitigation to the CAISO BAA.

1. Please summarize your organization’s overall position on the revised straw proposal.

Terra-Gen appreciates CAISO’s work on advancing scarcity pricing in a measured manner that when implemented will allow for better and more accurate price formation during tight system conditions. Terra-Gen does not take any position at this time on the straw proposal for BAA-level market power mitigation.  

Overall, Terra-Gen is supportive of near-term enhancements ensuring that market prices do not inadvertently decrease during load shed conditions and the inclusion of an opportunity cost adder on top of energy prices when load is armed and reserves are used for energy dispatch. Terra-Gen recommends that CAISO continue to explore comprehensive scarcity price reform including the use of an ORDC. While we understand that CAISO would like to wait until governance changes are approved for the final proposal due in September before picking up on additional policy development, we would recommend that CAISO begin to collect stakeholder ideas and feedback for a comprehensive proposal as part of comments submitted on the draft final proposal. 

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

Terra-Gen supports CAISO’s intent to represent load shed as unserved demand within the market run, ensuring accurate price formation during scarcity conditions. Terra-Gen does not have a strong preference between adding a verified load shed or using a non-persistence forecast to achieve this result. Instead, Terra-Gen provides a list of principles that the implementation option selected should ultimately satisfy: 

1. Market prices should conform to a reasonable counterfactual (i.e., prices should reflect sustained levels at or above prices immediately before load is disconnected). 

2. Market prices should be transparent and verifiable (i.e., after the fact analysis should provide confidence that the persistence forecast or verified load shed maintained appropriate pricing levels). 

3. Implementation should be done efficiently, ensuring that scarcity prices have their intended impact during emergency conditions. A selected option should create scarcity prices during an emergency that send timely market signals. 

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

Terra-Gen supports the proposal to reflect the opportunity cost of dispatched reserves after arming firm load as a substitute contingency. In general, Terra-Gen views this as a complement and lead into a comprehensive scarcity pricing overhaul, ensuring prices rise prior to entering an emergency condition. 

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

With respect to a comprehensive scarcity pricing proposal, Terra-Gen recommends that CAISO solicit specific feedback on ideas or topics to explore during the comment period on the draft final proposal.

1. Please summarize your organization’s overall position on the revised straw proposal.

Absent CAISO developing alternative shortage-pricing or broader price-formation proposals through the efforts The Energy Authority (TEA) suggests below, we support CAISO’s proposed next steps in that part of the Price Formation Enhancements Phase 2 (PFE-2) initiative. TEA also believes CAISO has responded well to stakeholder feedback and analysis regarding the Market Power Mitigation (MPM) aspects of its proposal and supports CAISO's recommendations there.

Given how markets and market fundamentals have evolved, and will continue evolving, in California and the Western Interconnection, TEA is concerned the shortage-pricing aspects of CAISO’s Revised Straw Proposal (RSP) address only a narrow set of market pricing issues that may not be as important to deal with at this time as others that have broader impacts to market outcomes. TEA understands that CAISO arrived at its RSP after going through a lengthy, and purposefully delayed, process of developing an issue paper, hearing stakeholder proposals, and performing analysis - and we appreciate all of the effort that went into that over the past few years. Still, the amount of time it has taken to get to the RSP means that much has shifted in CAISO's markets and it is unlikely that if this initiative were being started in 2026, CAISO and stakeholders would have identified the same issues or prioritized them the same way.

TEA trades actively across all Western markets and is witnessing in real-time how quickly market changes are happening and how disruptive they are becoming to what used to be business as usual for supply and demand interests across the West. We see that there is much work to be done to ensure efficient market outcomes are delivered through accurate and consistent pricing during normal and shortage conditions. At the same time, we are well aware that CAISO and stakeholders have limited bandwidth for developing and implementing market enhancements across 2027-28. Given those realities, we believe it is critical that any policy initiatives prioritized near-term address the highest-impact, most time-sensitive issues challenging CAISO’s markets – and that they do so with a heavier emphasis on expected future market conditions and fundamentals, rather than observations from the past.   

TEA believes it therefore would be prudent for CAISO to briefly pause the PFE-2 initiative to do some form of a SWOT analysis or gap-assessment exercise with stakeholders before moving forward with the price-formation related aspects of its RSP. TEA believes this would allow CAISO and stakeholders to identify where CAISO's existing in-market pricing policies are at greatest risk of falling out of step with the direction its markets are going in and which aspects of those policies are likely to be materially impacted or challenged by current or expected changes to market fundamentals and trading or market operations practices.

Sample questions or topics to explore with stakeholders could include:

• Should CAISO continue to rely on its DA and HASP intertie market as the primary trigger for shortage pricing through the lifting of the soft-offer cap and acceptance of market-based bids to converge demand signals internal and external to CAISO’s markets?
• How will the CPUC’s RA Import “must flow” requirement interact with EDAM and other market changes, and what impacts will it have on price formation in the CAISO or non-CAISO EDAM BAAs?
• What impact does the non-CAISO EDAM BAA intertie self-schedule requirement and lack of convergence bidding functionality have on price formation and price performance in the CAISO BAA?
• How will CAISO’s markets be impacted by the withdrawal of significant WEM transfer capacity and flexible resource offers post 2027?
• How will CAISO’s markets attract uncommitted supply during tight system conditions in a more competitive, multiple-market environment?
• To what extent does CRR settlement volatility in the CAISO BAA and the lack of direct congestion hedging opportunities in the non-CAISO EDAM BAAs impact price formation across EDAM?
• At what point does the penetration of zero marginal cost and energy storage resources on the CAISO-controlled grid trigger a need for alternative market pricing mechanisms during either or both shortage and normal conditions?

TEA expects putting in this effort now and using it to refresh the PFE-2 issue paper if or where appropriate will ensure the most pressing price formation enhancements work is targeted near term, regardless whether it is ultimately completed in PFE-2, diverted to other policy initiatives, or cleared through the BPM Change process. And we believe this workstream could be completed without materially impacting the existing PFE-2 RSP schedule and implementation of CAISO’s current shortage-pricing scope items, should those be the ones pushed forward following the broader price formation issues discussion.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

No additional comments at this time.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

No additional comments at this time.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

No additional comments at this time.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

No additional comments at this time.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

No additional comments at this time.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

No additional comments at this time.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

See summary comments above.

1. Please summarize your organization’s overall position on the revised straw proposal.

TransAlta Energy Marketing U.S. (TEMUS) supports the narrowed scope of the revised straw proposal but strongly recommends that the CAISO plan for a Phase II of the Price Formation Initiative to address more comprehensive scarcity pricing reforms. Stakeholders have raised the need for these reforms to the CAISO repeatedly, either informally or formally through the road map process, and there is a significant risk that if a Phase II is not scheduled the topic will be “deferred to a future effort” indefinitely as it has with intertie bidding in the EIM.

As the CAISO has unveiled how it will operationalize market design elements of EDAM, it has become increasingly clear that a focused effort to reform scarcity pricing is needed to preserve resource adequacy.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

1. Please summarize your organization’s overall position on the revised straw proposal.

Vistra supports CAISO’s effort to improve price formation during emergency conditions and generally supports targeted interim reforms that prevent market prices from collapsing when the system is experiencing scarcity and CAISO must rely on out-of-market actions under Operating Procedure 4420. However, Vistra’s support is conditioned on CAISO expanding the proposed firm-load-shed pricing framework to evaluate emergency pricing before firm load interruptions occur when out-of-market demand response or other load-reduction actions are activated under Operating Procedure 4420.

Scarcity pricing should be triggered when emergency actions materially alter supply-demand conditions, not only when firm load interruptions occur. Vistra’s central concern is that CAISO has not demonstrated that EEA 3 firm load interruption is the first point at which emergency actions can suppress scarcity prices. The same price-formation degradation CAISO seeks to address through firm load-shed pricing may begin earlier in the emergency reliability sequence, including when emergency demand response programs or other load-reduction actions are activated under CAISO Operating Procedure 4420. CAISO should evaluate the actual emergency actions taken under Operating Procedure 4420, including EEA Watch, EEA 1, EEA 2, and EEA 3 actions, rather than relying only on one late-stage EEA 3 firm-load-interruption trigger.

Finally, CAISO should align any circuit breaker with the emergency operating periods assessed or activated under Operating Procedure 4420. In particular, the circuit breaker should be no shorter than the period during which the Demand Response Event Board communicates to CAISO System Operations whether demand response program MW should be activated for the 16:00–21:00 Pacific Time operating window.

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

Vistra supports CAISO’s proposal to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. The record does not establish that the CAISO BAA should be treated as structurally uncompetitive by default, and any future proposal to change that treatment should be supported by a stronger empirical record. Any future consideration of this issue should be coordinated with comprehensive scarcity-pricing reforms rather than pursued in isolation.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

CAISO should report on whether grouping BAAs reduces over-mitigation without masking localized market power between BAAs. CAISO should also provide implementation metrics showing how often the grouping approach changes competitiveness outcomes, which suppliers are mitigated, and whether mitigation is appropriately targeted.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

Vistra is neutral on CAISO’s proposed load-serving-obligation adjustment. We have an academic concern that we would like the CAISO to evaluate after implementation. Vistra recognizes that, as Load Serving Entities’ resource portfolios evolve, some entities that historically operated as net buyers may transition to net sellers, and more LSEs may participate in the expanded market as both buyers and sellers at different times. Moving from a quarterly net-buyer exclusion to an interval-specific adjustment may reduce the risk that an LSE operating as a net seller in a particular interval is excluded from the pivotal-supplier assessment. However, an interval-specific approach also may obscure the broader incentives of entities that are net sellers over a longer period but net buyers in a particular interval. CAISO should ensure the methodology does not inadvertently exclude LSE-owned generation from the pivotal-supplier assessment when those entities’ incentives are aligned with net sellers, even if they are net buyers in a given interval. Vistra requests that CAISO report on the effectiveness of this change once implemented, including the treatment of affiliate load obligations, allocation methodologies, and any interaction with financial positions.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

Vistra agrees conceptually that mitigating every supplier in a failed BAA group is unnecessarily broad without applying a resource test. Vistra is not yet confident that the proposed design appropriately balances Type I and Type II error risks and therefore reserves judgment at this time. CAISO should provide additional examples showing how pivotal suppliers are identified and should report on implementation outcomes, including the frequency, scope, MW impact, and price impact of sequential pivotal-supplier mitigation. Vistra supports DMM’s concern that non-pivotal suppliers may be situated to benefit from market power in some conditions and requests that both CAISO and DMM report on whether implementation appropriately balances Type I and Type II error risks.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

Vistra supports CAISO’s objective of preventing prices from collapsing during emergency conditions. Firm load shed is clear evidence that the system is short, and prices should not decline simply because emergency curtailments reduce visible market demand. The governing principle should be that scarcity pricing is triggered when emergency actions materially alter supply-demand conditions, not only when firm load interruptions occur. Vistra supports treating firm load shed as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch, but only if CAISO also addresses earlier emergency actions that may create the same price-suppression problems.

CAISO should revise the proposal so that emergency pricing is evaluated against actual emergency actions taken under Operating Procedure 4420, including EEA Watch, EEA 1, EEA 2, and EEA 3 actions involving CAISO System Operator, Utility, and Scheduling Coordinators’ emergency demand response or load-reduction measures. CAISO has not demonstrated that EEA 3 firm load interruption is the first point at which emergency actions can suppress scarcity prices. At minimum, CAISO should evaluate EEA Watch Section 3.6.1 CAISO System Operator action #8 and Utilities and Scheduling Coordinators action #2; EEA 1 Section 3.6.2 CAISO System Operator action #6 and Utilities and Scheduling Coordinators action #1; EEA 2 Section 3.6.3 Utilities and Scheduling Coordinators action #2; and EEA 3 Section 3.6.4 CAISO System Operator action #14, initiate firm load interruptions, and Utilities and Scheduling Coordinators action #2.

CAISO and DMM materials from 2020 through 2024 reflect multiple emergency periods involving demand response, emergency operating conditions, and other out-of-market actions, including the September 2022 heat-wave events. CAISO should use those events to test whether prices deteriorated before, during, or after scarcity conditions when demand response or other out-of-market actions were activated. CAISO should also reconsider the proposed four-hour circuit breaker so that it is calibrated to actual emergency operating practices to align with Operating Procedure 4420’s DR event board coordination for DR activations during 1600-2100 Pacific Time.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

Vistra supports CAISO’s proposal to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. CAISO should clarify that the proposal changes the pricing treatment of released reserve capacity but does not guarantee that the RTD energy price will be set at the reserve-related penalty value. CAISO should continue evaluating when ancillary-service scarcity values should flow through energy prices, including in the Fifteen-Minute Market and Real-Time Dispatch, as part of comprehensive scarcity-pricing work.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

CAISO should continue stakeholder work on a broader scarcity-pricing framework that produces price signals before emergency interventions become necessary. Vistra’s support for these interim proposals depends on CAISO expanding the firm-load-shed pricing framework to evaluate other load-reduction actions triggered under Operating Procedure 4420. Without that improvement, Vistra’s support for the interim package would be materially reduced because the proposal would leave unresolved the same price-suppression concern that firm-load-shed pricing is intended to address.

1. Please summarize your organization’s overall position on the revised straw proposal.

WPTF supports the revised straw proposal with caveats. The proposal is a substantial improvement over the prior proposal, most notably because CAISO now proposes to retain the CAISO BAA's default competitive status. That change appropriately recognizes that the current BAA-level test does not fully account for price-sensitive import competition into CAISO and that the record does not establish actual BAA-level market-power harm.

WPTF also supports the direction of the BAA-grouping, interval-specific load-serving-obligation adjustment, pivotal-supplier-only mitigation, firm load-shed pricing, and armed-reserve pricing proposals. Each element moves the market toward more targeted mitigation or more accurate price formation. WPTF recommends implementation safeguards and transparent empirical validation, as described below.

The major unresolved issue remains comprehensive scarcity pricing. WPTF has consistently supported developing BAA-level market power mitigation and robust scarcity pricing together. The targeted load-shed and armed-reserve rules are useful, but they do not provide the gradual, prospective price signal needed as supply conditions tighten.

Accordingly, WPTF can support advancing this revised package because it does not extend BAA-level market power mitigation to the CAISO BAA. CAISO should not interpret that support as agreement to defer comprehensive scarcity pricing indefinitely or as support for applying BAA-level mitigation to CAISO later without a robust scarcity pricing mechanism. The CAISO should continue designing a robust scarcity pricing mechanism as it is a fundamental market design element that is currently missing and thus creates reliability risk. 

2. For each major proposal element below, please select one of the following positions. Please briefly explain the basis for each position. Support — The stakeholder supports the element as proposed. Support with caveats — The stakeholder generally supports the element as proposed but recommends refinements that are not necessary for its support. Oppose with caveats — The stakeholder does not support the element as proposed but would support it if specified changes were made. Oppose — The stakeholder opposes the element and does not believe that specified modifications would resolve its concerns. No position — The stakeholder does not have a position on the element.

No response required in this field.

3. TREATMENT OF THE CAISO BAA: CAISO proposes to retain the CAISO BAA’s default competitive status under the revised BAA-level market power mitigation framework. Please summarize the basis for your position.

WPTF strongly supports retaining the CAISO BAA's default competitive status. This is one of the most important improvements in the revised proposal. CAISO is structurally different from other WEIM and EDAM BAAs because market participants submit price-sensitive economic offers at the CAISO interties. A test that credits only cleared net imports can materially understate the competitive supply available to discipline internal offers.

CAISO also has not demonstrated that structural test failures correspond to actual withholding or harmful noncompetitive outcomes. Applying the test to CAISO based only on an RSI failure would create a substantial risk of false-positive mitigation, particularly in tight evening hours when accurate scarcity and opportunity-cost signals matter most.

Before CAISO considers changing this treatment, it should either develop a test that captures available import competition, including uncleared economic import offers, or establish an empirical record showing actual BAA-level market-power harm after accounting for fuel-price uncertainty, opportunity costs, storage limitations, and other legitimate reasons for high bids. Any future proposal should not be done prior to a robust scarcity pricing design.

4. BAA-GROUPING APPROACH: CAISO proposes to group interconnected BAAs for the competitiveness assessment. Please summarize the basis for your position.

WPTF supports moving from isolated BAA assessments to a grouping approach. When transfer capability allows neighboring suppliers to compete to serve the same demand, testing interconnected BAAs together should better reflect actual regional competitive conditions and reduce unnecessary mitigation. WPTF also supports testing a lower-priced group on its own when a merged group fails, which helps avoid making a competitive BAA noncompetitive solely because it is connected to a higher-priced group.

The grouping improvement does not resolve WPTF's concern with the underlying residual supply index. Using total BAA or group demand as the denominator can identify structural market power even when the binding transfer condition affects only a smaller incremental quantity. WPTF continues to recommend that CAISO evaluate an alternative formulation focused more directly on the supply needed to address constrained imports and the resulting transfer-congestion exposure.

Before implementation, CAISO should publish interval-level testing that compares the current and proposed formulations, identifies the BAAs and suppliers that would be mitigated, quantifies affected MW and price outcomes, and evaluates whether the identified suppliers actually withheld supply. This analysis should explicitly measure false-positive mitigation and test whether supply treated as competitive is deliverable and economically substitutable in the relevant interval.

WPTF asks the CAISO to provide additional detail on two elements of the proposed approach. First, WPTF has asked in the past for CAISO to confirm if it’s possible for BAA MPM to be triggered because imbalance reserves cause the MECs to separate. For example, if the only transfer congestion is from the IR deployment scenarios can this cause MECs to separate and then trigger mitigation of energy offers under the BAA MPM approach? Second, can the CAISO please provide more specific formulations that will be used to calculate the available supply and demand in the RSI calculation? We understand that the CAISO has opted to drop the concept of counterflow in this iteration of the proposal, but we would still like to see the specific formulas that the CAISO plans to use for the RSI to ensure its accurately capturing the values. Additionally, the formulas in the proposal appendix are based on the current approach, thus we would like to see what changes will be made to that formulation under this proposal.

5. LOAD-SERVING-OBLIGATION ADJUSTMENT: CAISO proposes to replace the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment that reduces a supplier’s potentially withholdable capacity by the capacity needed to serve its affiliated load. Please summarize the basis for your position.

WPTF supports replacing the quarterly net-buyer exclusion with an interval-specific load-serving-obligation adjustment. A supplier generally has no economic incentive to withhold the supply it needs to serve affiliated load because it would have to replace that energy at the higher price it helped create. Using current market schedules and demand forecasts should therefore produce a more accurate measure of potentially withholdable capacity than a static historical net-buyer classification.

CAISO should, however, validate several implementation details. In the day-ahead market, CAISO should demonstrate that including net virtual demand does not allow financial positions to shield physical supply from the pivotal-supplier test. For multi-affiliate BAAs, historical allocation factors should be subject to timely prospective adjustments when load migrates or changes materially.

6. TARGETING MITIGATION TO PIVOTAL SUPPLIERS: CAISO proposes to use sequential one-, two-, and three-pivotal-supplier tests after a BAA group fails the initial competitiveness assessment – only suppliers identified as pivotal through this process would be subject to mitigation. Please summarize the basis for your position.

WPTF supports limiting mitigation to suppliers that are identified as pivotal. Once a BAA group fails the initial competitiveness test, mitigating every supplier in the group is an unnecessarily blunt response. The proposed sequential one-, two-, and three-pivotal-supplier tests better align mitigation with the suppliers whose capacity drives the structural failure and reduce the risk of mitigating competitive fringe supply.

CAISO should provide complete numerical examples showing how the cutoff is established and should publish implementation metrics showing how often suppliers are mitigated under each stage of the test. The analysis should include the incremental MW and price impact of each supplier identified as pivotal, not only the number of intervals in which the group fails.

WPTF recognizes DMM's concern that a non-pivotal supplier may sometimes set a price above marginal cost on a thin portion of the supply curve. That concern supports monitoring and, if warranted, development of a separate conduct-and-impact analysis. It does not justify automatically mitigating suppliers that the proposed structural test has determined are not pivotal.

7. FIRM LOAD-SHED PRICING: CAISO proposes to treat firm load shed during qualifying emergency conditions as unserved demand in the Fifteen-Minute Market and Real-Time Dispatch. Please summarize the basis for your position.

WPTF supports treating firm load shed as unserved demand in both the Fifteen-Minute Market and Real-Time Dispatch. Firm load shed is the clearest evidence that the market is physically short, and prices should reflect the applicable scarcity value during those intervals. An in-market approach is preferable because it can affect dispatch, imports, storage behavior, and price-responsive demand in real time rather than changing settlements only after the event.

The proposed four-hour circuit breaker requires additional support. If firm load remains curtailed, automatically ending scarcity-level pricing could again make prices inconsistent with system conditions. CAISO should calibrate the duration using historical events and reliability analysis and should address credit exposure through targeted credit protections rather than allowing the price signal to collapse during an ongoing shortage.

Any operator authority to pause the mechanism should be narrow, based on specified operational conditions, and followed by transparent reporting of the reason, duration, affected intervals, and settlement consequences. Firm load-shed pricing is an essential backstop, but it is not a substitute for a mechanism that raises prices prospectively before load shed occurs.

8. ARMED-RESERVE PRICING: CAISO proposes to reflect the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. Please summarize the basis for your position.

WPTF supports reflecting the opportunity cost of dispatched contingency reserves in Real-Time Dispatch after operators arm firm load. If capacity that was held for contingencies is released and used for energy, the five-minute price should preserve the scarcity value established in the Fifteen-Minute Market. Otherwise, the emergency action can increase apparent supply and cause the price to fall precisely when reliability risk has increased.

CAISO should provide worked examples showing the interaction among the energy price, ancillary service awards, the reserve slack penalty, and settlement of dispatched reserves. The design should avoid double counting, preserve consistency between dispatch and settlement, and ensure that scarcity value flows logically through energy, ancillary services, flexible ramping, and imbalance reserve schedules.

The proposal should also identify the path for applying consistent principles outside the CAISO BAA as regional ancillary-service and reserve designs evolve. This targeted mechanism is appropriate now, but it does not replace comprehensive scarcity pricing that increases prices gradually as available supply tightens.

9. DEFERRED ISSUES: CAISO proposes to defer development of comprehensive scarcity pricing, administrative pricing for other emergency actions, and potential application of BAA-level market power mitigation to the CAISO BAA. Please summarize your position on these issues, and recommend priorities, analyses, or timing for future stakeholder work.

CAISO should continue a dedicated comprehensive scarcity-pricing workstream during the governance and implementation process for the targeted changes. Without a robust scarcity pricing design, there is increased reliability risk during tight supply conditions as there is no market signal to incent additional supply to be made available that can help potentially avoid, or at least mitigate the serverity of, scarcity conditions. This is increasingly important as multiple markets will be operating in the west. There should be no multi-year pause while stakeholders wait for additional EDAM operating experience.

WPTF recommends the following priorities for the next phase:

• Advance an energy supply margin, or latent supply margin, as the leading near-term design option. The market should not create a new reserve product solely to improve price formation unless other options are fully explored. Available supply should begin with capacity that can actually be dispatched in the applicable horizon, using resource upper economic limits adjusted for ancillary-service awards, ramping, energy limitations, and deliverability.

• Develop the scarcity curve and trigger using reliability risk and the value of lost load so prices rise gradually as the available supply margin declines. The analysis should evaluate the curve shape, maximum value, trigger quantities, and sensitivity to uncertainty, rather than waiting until a reserve requirement is violated or firm load is shed.

• Apply the design consistently in the day-ahead and real-time markets. Predictable differences between the markets can distort unit commitment, imports, storage scheduling, virtual bidding, and forward contracting. CAISO should evaluate how the scarcity value flows through energy, ancillary services, flexible ramping, and imbalance reserves in each market.

• Measure scarcity at the BAA level initially. BAA-level pricing aligns with the BAA-specific marginal energy cost under EDAM, while nodal congestion prices already communicate localized transmission limitations. The design should nevertheless account for binding transfer constraints so one BAA does not pay for scarcity that exists only in another area.

• Standardize the accounting for capacity available to manage scarcity, including capacity a BAA has not offered to the market. CAISO should evaluate how unoffered capacity, bilateral commitments, BAA reserve obligations, transmission constraints, and regional resource-sufficiency requirements affect the measured margin and the incentive to make supply visible to the market.

• Evaluate Dr. Pope's proposed 30-minute reserve concept in parallel as a potentially valuable operational product, including whether a product longer than the current flexible ramping horizon would reduce reliance on out-of-market load conformance. That analysis should not delay development of an energy supply margin if the latter can be implemented more simply.

CAISO should also continue evaluating price treatment for emergency actions other than firm load shed. Dr. Pope notes that voltage reduction, export cuts, demand response, and other out-of-market actions may increase supply or reduce load and therefore cause market prices to fall. Rather than adopting one generic administrative price for every action, CAISO should inventory the actions used by each BAA, quantify when each action suppresses prices, and determine whether the comprehensive design or a targeted interim rule best restores an accurate signal.

Finally, any ratepayer analysis should measure net effects, not only gross settlement transfers. Dr. Pope identifies offsetting benefits that include improved reliability, fewer out-of-market actions and inefficient unit starts, increased imports, more efficient storage and flexible-demand behavior, stronger day-ahead bidding incentives, and better incentives for resource availability. The analysis should also evaluate forward contracting and contract provisions that allocate scarcity revenues and risks.

We ask the CAISO to publish a comprehensive scarcity-pricing analysis plan in 2026, continue regular stakeholder workshops, and target a straw proposal in 2027.