Comments on Aug 3 workshop

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

AES appreciates CAISO's leadership in tackling this intricate challenge head-on. Your innovative solution to the issue is commendable, but I would like to point out potential similarities to CAISO's initial proposal, the envelope equation solution, and the PGE's proposal. To offer some context:

The observed downward pressure on regulation prices can be attributed to the interconnectedness of storage solutions across multiple periods. When the market optimizes resource awards, and we observe regulation awards at a negative price in afternoon hours and subsequently accessing energy during higher-priced hours, it's due to the limited amount of State of charge. To simplify the explanation, consider SOC like a bucket; if the cost to fill the bucket is lower and you can sell that water at a high price later, it's considered a positive outcome. Most SCs are fine if this happens with energy prices; in other words, we are ok if we charge the storage at a negative energy price. But if we charge the storage with a negative regulation price, we find that solution unacceptable. We observed this scenario in CAISO's market simulation case.

We observe negative prices in the first place because we add regulation management to SOC equations. I'm concerned that any proposal solution might yield a similar outcome, although some proposals may reduce their occurrence.

Suppose the CAISO implements a solution that links the regulation awards in the day-ahead market with State of charge management. In that case, CAISO needs to amend its tariff to reflect the impact of this change on regulation pricing. Or use some post process to eliminate negative pricing because negative pricing for regulation could create unwanted incentives for resources to use no-pay to recoup revenues.

On the other hand, the CAISO should consider other possible solutions to address this issue, like symmetrical regulation awards better to manage SOC, re-optimizing AS in real-time, and assessing its impact on SOC management.

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

 Comments on Energy Storage Enhancements

State of Charge Formula - Workshop Paper

Department of Market Monitoring

August 17, 2023

Summary

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the Energy Storage Enhancements – State of Charge Formula workshop paper.[1]   In the Energy Storage Enhancements stakeholder initiative, the ISO introduced changes to state of charge modeling to reflect the estimated impact of regulation deployment on state of charge.  These changes were intended to improve the deliverability of ancillary services awarded to storage resources, specifically addressing the issue of storage resources receiving several consecutive hours of regulation awards that may become undeliverable in real-time.  While the related software changes were scheduled to be implemented in spring 2023, DMM understands that testing revealed the potential for the proposed approach to produce negative regulation prices, which are incompatible with the CAISO tariff.

DMM supported CAISO’s proposal in the Energy Storage Enhancements initiative to estimate the impact of regulation awards on state of charge, and DMM continues to support the inclusion of constraints on state of charge that reflect the impact of regulation awards.  While DMM also supports market based tools to improve the performance of regulation provided by storage resources, constraints may be necessary to support reliability and ensure feasible market awards.

While DMM understands that negative regulation prices are not allowed under the current CAISO tariff, the ISO should not rule out the possibility of considering tariff revisions that support this outcome.  Negative prices for regulation may be a theoretically compatible outcome for storage resources with intertemporal dependencies that optimize over multiple hours.

Each of the ISO’s proposed alternatives will involve tradeoffs, including the need for tariff revisions, potential unintended interference with other upcoming market changes, or allowing the issue of undeliverable storage ancillary service awards to go unaddressed for an extended period of time.  DMM recommends that the ISO weigh these tradeoffs carefully, and choose a path forward that ensures reliability in the short run, while continuing to evaluate potential interactions with other market design elements and remaining prepared to revise the approach as necessary.

Comments

DMM supports modeling constraints to ensure deliverability of energy storage ancillary service awards

DMM and the ISO have previously noted a number of issues  around the availability of ancillary services procured from energy storage resources.[2]  DMM supported the ISO’s proposal in the Energy Storage Enhancements initiative to model the estimated impact of regulation awards on state of charge, and DMM continues to support the use of a modeling approach or constraint that reflects the expected impacts of providing regulation on state of charge.  

Market based enhancements that would provide stronger incentives for resources to self-manage state of charge to ensure award deliverability would decrease dependence on modeled resource constraints.  In some cases, this approach may also lead to more efficient market outcomes.  However, more complete modeling of all types of market awards supports reliability by ensuring feasible market awards, regardless of market participant bidding behavior.

Storage resources are optimized over many hours or intervals, with intertemporal dependence on market awards and state of charge.  Because regulation awards may impact state of charge and energy schedules in future hours, directly modeling the estimated impact of all types of market awards on state of charge may also support optimization of the state of charge over the operating day.

The ISO should not exclude potential solutions only on the basis that they can produce negative regulation prices

The ISO postponed the modeling enhancements to consider the impact of regulation awards  on state of charge on the basis that that the enhancements can result in negative regulation prices.  Negative regulation prices are not permissible under the current CAISO tariff. 

DMM appreciates the need to delay the proposed enhancements to ensure compliance with the CAISO tariff.  However, the outcome of negative prices when state of charge modeling reflects the estimated impacts of regulation awards may not be theoretically inconsistent.  In the absence of tariff compliance concerns, the ISO should not exclude potential modeling enhancements only on the basis that the approach can produce negative regulation prices.

Regulation prices should reflect the cost associated with providing regulation service.  For a traditional generator, this cost might include opportunity cost of foregone energy revenues when capacity is held as regulation, or the expected real-time settlement cost when the regulation is deployed.  For a storage resource, the same general concepts apply.  However, because of the intertemporal relationship between storage resource awards, it may be cost minimizing for the market when resources pay to provide regulation in certain circumstances. This outcome may also be consistent with the willingness of storage resources to pay for charging energy. 

A regulation award has an expected impact on state of charge that could support market awards in future intervals. The ISO’s proposal in the Energy Storage Enhancements initiative directly models this expected impact.   For example, the expected impact on state of charge associated with a regulation down award could support an energy discharge or additional ancillary service award requiring stored energy in a future interval.  Energy discharged in the later interval will be settled at the LMP in that interval.  In the simplest example with no round trip efficiency losses or variable maintenance costs, the day-ahead market solution would reflect charging of the resource in an earlier interval at a price no greater than that at which it later discharges.  In this simple example, the willingness to pay for charging is determined by the later discharge price.

When a market solution meets all regulation down needs with storage resources that discharge later in the day, negative regulation down prices may result, reflecting the value of the later discharge. From the perspective of the day-ahead market optimization, the use of storage resources to provide regulation down at negative prices may be a cost minimizing solution to meet regulation needs, while also displacing higher cost resources when storage resources discharge in later intervals.

The economics of a regulation award providing the charge needed to support a market award will vary depending on the assumed impact of regulation deployment, as well as energy and ancillary service prices over the day, expected real-time energy settlement impacts, and the costs of production by other resources.  However, because of the inter-hour dependence of storage resource market awards, it does not appear theoretically inconsistent that regulation prices may be negative, especially as increasing volumes of regulation are provided by storage resources prices reflect the value of opportunities later in the operating day.

Each of the ISO’s proposed alternatives will involve tradeoffs

The ISO’s Energy Storage Enhancements workshop paper proposes three potential paths to resolve the issue of modeling the impacts of regulation awards on state of charge.  DMM sees advantages and disadvantages to each of the proposed paths, and encourages the ISO to carefully consider tradeoffs of each.

The original proposal approved in the Energy Storage Enhancements initiative provides the most direct modeling of potential impacts of regulation awards on state of charge.  This approach was demonstrated in ISO testing to produce negative regulation prices at times, and would require tariff changes to allow this outcome. However, with the use of appropriately chosen multipliers, this approach appears to have the advantage of leading to day-ahead ancillary service awards for energy storage resources that are highly likely to be feasible in real-time. 

This approach does also have potential to lead to day-ahead energy awards that may be infeasible when regulation is not deployed in real-time as assumed in the day-ahead multipliers.  However, newly developed exceptional dispatch tools for storage resources may help to ensure deliverability of day-ahead energy schedules where needed for more extreme system conditions. 

The ISO proposes that as an alternative to the original Energy Storage Enhancements proposal, the envelope equations developed in the Day-Ahead Market Enhancements (DAME) initiative could be used constrain state of charge to reflect the impacts of regulation awards. This approach is a less direct approach that does not explicitly include the impact of regulation awards in state of charge modeling, but bounds state of charge to a range that reflects the potential impacts of regulation awards.  Because the feasibility of future market awards is determined by this constrained state of charge, the approach still indirectly models the impacts of regulation awards on state of charge and future market awards. This approach also appears likely to result in feasible ancillary service awards to storage resources.    

The envelope equations appear to provide an alternative that would be a less direct constraint on state of charge that may also be less likely to result in negative regulation prices.  However, the possibility of negative regulation prices may not be completely eliminated and therefore use of this alternative may still require tariff changes.  Further, the envelope equations developed in DAME as an alternative to direct state of charge modeling prevent the estimated impacts of imbalance reserve (IR) awards in opposite directions from offsetting in the day-ahead market.  This was an important feature for modeling the state of charge impacts of imbalance reserve awards, but this may not be an appropriate outcome for regulation awards in opposite directions. Finally, the introduction of regulation into the envelope constraints may cause unintended interactions with imbalance reserves market outcomes in the DAME context.

The final option proposed by the ISO is to further delay the implementation of any constraint or modeling that considers the impacts of regulation awards on state of charge.  This would allow additional time for stakeholder consideration of a path forward, and to more completely consider all market interactions.  This approach has merit in allowing the potential for a more thorough vetting of any proposed solution.  However, the additional delay comes at the expense of an ongoing risk that ancillary services may be awarded by the market in a manner that is infeasible and has the potential to contribute to real-time reliability challenges.  Support for this approach would likely need to be established by the ISO first quantifying the ongoing magnitude of reliability risks created by infeasible ancillary services awards. 

[1] Energy Storage Enhancements – State of Charge Formula, California ISO, July 27, 2023: http://www.caiso.com/InitiativeDocuments/Energy-Storage-Enhancements-Workshop-Paper-Jul-31-2023.pdf

[2] http://www.caiso.com/Documents/DMM-Comments-Energy-Storage-Enhancements-Final-Proposal-2022-11-15.pdf

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?

Please see DMM comments above, or in the PDF file attached to this comment template. 

Comments will also be available at the following location, under Comments on policy initiatives > 2023 comments on policy initiatives:

http://www.caiso.com/market/Pages/MarketMonitoring/MarketMonitoringReportsPresentations/Default.aspx#comments

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

The August 3 workshop demonstrated that the revision of the energy storage state of charge (SOC) equation is complex, and changes to the equation may result in unintended consequences which introduce, rather than mitigate, market inefficiencies. 

The California Independent System Operator’s (CAISO’s) original SOC revision in the ESE Final Proposal of October 27, 2022, included a regulation energy term in the SOC equation that was intended to more accurately model SOC in the day-ahead (DA) and real-time (RT) markets.[1]  However, CAISO’s subsequent market simulations showed that negative ancillary service marginal prices (ASMP) may occur when that SOC equation is used.  A negative ASMP would result in resources paying to provide regulation, with no guarantee that the assumed level of regulation energy dispatch and SOC in RT would be sufficient to cover both the DA energy award and called-upon regulation energy.  Such an outcome would result in resources paying to provide regulation capacity that ultimately cannot be supported by the realized SOC in RT.  The resources would incur additional penalties in RT, and CAISO would still need to procure real-time replacement regulation at additional cost.  Implementation of the original proposed revision will likely introduce unintended market inefficiencies, and ultimately may not ensure that resources can more effectively deliver charging or discharging energy from regulation awards.  CAISO should not pursue its proposal to implement the original SOC revision and to modify its Tariff to allow for negative ASMPs.

Alternatively, CAISO proposes to implement a set of “envelope” equations to set hypothetical upper and lower bounds on the SOC within the physical limits of the resource.  The envelope equations would constrain energy and regulation awards to ensure that resources can deliver DA energy and regulation awards in RT.[2]   CAISO indicates that the equations could be implemented as soon as Q4 2023 and would not require changes to the CAISO Tariff. 

The envelop equations are based upon a similar set of equations proposed in the Day-Ahead Market Enhancements (DAME) initiative for modeling SOC as a function of Imbalance Reserves (IR).[3]   While CAISO’s proposal for IR under DAME was approved by the CAISO Board on May 17, 2023, the Tariff language has not yet been submitted to FERC, and IR envelop equations will not be implemented until the Extended Day-Ahead Market (EDAM) goes into operation in 2025.  As such, the CAISO has no experience operationalizing envelop-type equations.  Moreover, as with the original SOC equation proposal, the regulation terms in the envelope equations must be properly parameterized to efficiently and effectively yield energy and regulation awards that have a high likelihood of being realized in RT.  As with the original proposed SOC equation, failing to properly parameterize the equations could result in either over or under procurement of energy and regulation, leading to market inefficiencies and higher costs.  It is crucial that the CAISO facilitate a robust stakeholder review process and conduct market simulation studies before any alternative solution is implemented.

During the August 3 workshop, stakeholders raised a range of issues and proposed solutions that warrant further consideration.  This includes PG&E’s alternative SOC equation formulation, changes to bidding parameters, SOC dependent (or “sliding”) SOC bids, the matching of regulation up and regulation down awards and dispatch on a resource-by-resource basis, and the consideration of how energy and ancillary service must-offer obligations limit the ability of resource owners to manage SOC in RT. 

Since the Spring 2023 target for implementation has passed, CAISO has additional time to continue the stakeholder review process to ensure that any final solution is robust, effective, and efficient, and to implement the solution before Summer 2024.  Cal Advocates recommends that the Energy Storage Enhancements Initiative be extended to fully consider stakeholders’ alternative proposals and to develop a final SOC equation revision proposal.  CAISO should concurrently conduct market simulation studies on the proposed alternative solutions, including the envelop equations and PG&E’s proposed re-formulation of CAISO’s original SOC equation for consideration in the extended ESE stakeholder process.

[1] Energy Storage Enhancements State of Charge Formula, July 27, 2023 at 4-6.  Available at: http://www.caiso.com/InitiativeDocuments/Energy-Storage-Enhancements-Workshop-Paper-Jul-31-2023.pdf

[2] Energy Storage Enhancements State of Charge Formula, July 27, 2023 at 6-8.

[3] Day-Ahead Market Enhancements Revised Final Proposal, May 1, 2023 at 58-64.  Available at: http://www.caiso.com/InitiativeDocuments/RevisedFinalProposal-Day-AheadMarketEnhancements.pdf

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?

Cal Advocates has no additional comments or questions at this time.

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

The California Energy Storage Alliance (CESA) appreciates the opportunity to provide comments on the August 3, 2023 Energy Storage Enhancements (ESE) workshop.  During market simulation, CAISO observed instances of negative regulation down prices from including anticipated regulation energy in the state of charge (SOC) when a resource is awarded regulation in the day-ahead or real-time market.  CAISO correctly chose not to release this aspect of the software in the Spring 2023 release to allow additional discussion with stakeholders.

The CAISO did implement a requirement setting minimum levels of charging and discharging bids in the real-time market when providing regulation.  The 50% rule was also implemented in the day-ahead market to prevent day-ahead regulation awards that would be unable to meet the real-time bidding requirements.  By implementing in the day-ahead market, the rule has the effect of reducing the regulation awards a storage resource could receive.  By reducing the day-ahead regulation awards, this should give storage operators additional headroom to manage SOC with energy bids in the real-time market to improve regulation availability. 

The CAISO should not rush to find a solution to be implemented by the Fall 2023 release for including anticipated regulation energy in the market optimization.  As demonstrated by the original ESE proposal, there are complicated interactions with including anticipated regulation energy in the market optimization.  The inclusion of anticipated regulation energy in the market optimization effectively modifies the regulation bid price from a capacity cost to a capacity cost plus energy settlement.  CESA understands that the original ESE proposal, the PG&E proposal, and the DAME envelope proposal can all result in situations with potential negative regulation down prices because in each approach the impact of anticipated regulation energy is included in the SOC calculation. Thus, there always is a pricing trade-off between an energy award and regulation down award since anticipated regulation energy is “free” to the market optimization to increase a storage resources SOC. To avoid a similar situation as occurred this Spring, the CAISO should develop solvers to enable various approaches to be fully evaluated by stakeholders.

CAISO should also consider changes to its AGC algorithm.  CESA’s understanding is that the current algorithm seeks to return conventional resources to their set point to maintain the maximum available regulating capability.  CAISO should consider potential modifications to the AGC signal to return storage resources to the initial SOC in a given interval.  Returning a conventional resource to its original set point maximizes future regulating capability, returning storage resources’ SOC to its starting point would maximize the future regulating capability of storage resources.

The 50% rule in the day-ahead market limits the quantity of regulation awards below the certified capacity of storage resources.  Since storage resources are fast ramping, the current AS certification rules based on the ability to ramp within 10 minutes, result in AS certification equal to the full charge or discharge capability.  The CAISO should report in the Market Performance and Planning Forum, the effectiveness of the 50% rule in addressing CAISO concerns regarding unavailable regulation.  If there are remaining CAISO concerns, then additional measures could be considered that limit regulation awards in the day-ahead market to levels that can be efficiently managed by storage operators’ real-time market bidding strategies. 

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?

The Opinion on Energy Storage Enhancements Proposal of the Market Surveillance Committee (MSC) included with the December 14, 2022 Board material noted that the proposal does not address the core problem.

“A core issue with the current regulation design is that the consequence of failing to deliver day-ahead procured regulation in real-time is simply “no pay,” rather than requiring that the resource buy back its day-ahead market schedule at the real-time price for regulation. The proposal’s changes are just addressing one manifestation of the underlying problem. If the ISO does not address this core problem, we may see a variety of other types of inefficient behavior. If regulation providers faced efficient pricing for their failure to perform, they would be incented to manage their resources so as to maintain the required state-of-charge; or would increase price offers for regulation to reflect the risks of imbalances; or would not provide regulation in the first place.”  Page 4

While the MSC’s opinion focused on regulation, the lack of imbalance settlement applies to all ancillary services (AS).  In the Price Formation Enhancements initiative, Phase 3 includes preparing for nodal AS.  It is CESA’s understanding that currently, the CAISO does not fully re-optimize AS procurement in the real-time market and only procures incremental needs.  This is because day-ahead AS awards are not assured to be deliverable by the market optimization.  AS can be procured zonally to distribute awards across the CAISO system, but operators rely on studying AS awards after the day-ahead market is completed to block those awards to resources that are not deliverable due to transmission constraints.  If the AS awards were re-optimized in the real-time market, the market optimization could undermine the actions operators took to ensure AS deliverability.  If the market optimization included sufficient transmission constraints that apply to AS, similar to the flexible ramping product deployment scenarios, this would provide the confidence operators need in order to support the full re-optimization of AS in the 15-minute market and 5-minute real-time dispatch.     

Phase 1 of the Price Formation Enhancements initiative includes scarcity pricing.  A key element of scarcity pricing is the implementation of an operating reserve demand curve.  The operating reserve demand curve enables energy prices to gradually rise above the marginal energy cost prior to relaxing the operating reserves (spinning and non-spinning) requirement or some other reserve type product such as replacement reserves.  This requires the market optimization co-optimize in the real-time market to affect the desired price formation when approaching scarcity conditions.  Thus, it may be beneficial for nodal AS to be considered as part of Phase 1.

With the introduction of imbalance settlement for AS, storage resources will need to have sufficient bidding capability to manage real-time SOC to avoid exposure to imbalance settlement for unavailable AS.  The necessary bidding enhancements should be the focus of the Storage Modeling Enhancements initiative planned to begin the start of 2024 according to the latest policy initiatives roadmap.  The bidding enhancements should be implemented simultaneously with the introduction of imbalance settlement for AS.  It should be noted that Phase 3 of the Price Formation Enhancements initiative includes review of the multi-interval optimization and storage.  Phase 3 could be duplicative to the bidding enhancements to be discussed in the separate Storage Modeling Enhancements initiative.

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

PG&E’s comments can be summarized as follows: 

1. PG&E disagrees with the envelope equations proposed by the CASIO, since they represent a departure from the initial intent of the Energy Storage Enhancements (ESE) implementation and add additional complexity to the challenges faced by storage resources. 

2. The CAISO should consider the various proposals (e.g., the original ESE proposal, the envelope equations, and PG&E’s proposal) both from a Tariff compliance perspective and an ease of implementation perspective. 

3. PG&E recommends that the proposal selected be implemented exclusively in the Day-Ahead (DA) market, at least until the effect(s) of the proposal are observed and analyzed. 

4. PG&E requests the CAISO assess whether there is a coding/software solution to the negative Ancillary Service Marginal Price (ASMP) issue which could obviate the need for additional time-intensive implementation measures.  

Opposition to the Envelope Equations:

Throughout the policy phase of ESE, the intent of the attenuation factors was to limit DA regulation awards based on expected hourly regulation energy take percentages. These attenuation factors were designed to be configurable and based on actual market operations data. The CAISO’s envelope equations, on the other hand, focus on limiting the upper and lower state of charge (SOC) for storage resources using multipliers. These multipliers are also configurable but no longer based on average conversion of regulation to energy.  

While the envelope equations achieve the desired outcome of limiting DA regulation awards, they do so in a way that is further removed from actual operational data and the original intent of the ESE policy. Rather than being estimates of regulation energy take (as the attenuation factors do), the multipliers used in the envelope equations are essentially risk tolerance factors in modelling the DA state of charge. Thus, the awards for a storage resource will potentially be restricted beyond what is supported by data, and even further once Imbalance Reserves (IR) are introduced as a part of the Day Ahead Market Enhancements (DAME).  

Another concerning issue related to the envelope equations is a potential strategic use of the Initial SOC bidding parameter. Scheduling Coordinators can provide the CAISO with an estimate of their SOC at 0h00 of the DA trading day. Since this value is used in the DA market optimization, it would also be an input to the envelope equations if the CAISO’s proposal is adopted. PG&E is concerned that this combination of factors could incentivize market participants to misrepresent their estimated Initial SOC to achieve beneficial market results. The CAISO should investigate whether this gaming opportunity exists and provide their conclusions to the broader stakeholder community before any adoption of the envelope equations.  

Proposal Selection Process:

PG&E considers the implementation of ESE Track 1 incomplete and encourages the CAISO to finish rolling out these important enhancements. Thus, PG&E recommends that the CAISO opt for a simpler solution to the issue which (a) aligns with the Tariff and the original intent of the policy and (b) can be implemented in a timely manner. A “simpler solution” refers to an approach which contains few changes to the existing DA SOC formulas and/or market optimization processes; the functionality of this approach should also be easily verifiable by stakeholders in a market simulation setting.  PG&E’s objective is a solution which allows implementation this year and which remedies tariff concerns.  Such a solution would be preferred to proposals requiring additional stakeholder process and software changes (requiring significant testing in a market simulation environment).  PG&E’s proposal was presented as such a solution; alternatively, a solution that would eliminate negative AS pricing in settlements but otherwise keep the currently implemented ESE solution would also meet this objective. 

Implementation in the DA Market Only:

As stated earlier, the intent of the attenuation factors is to limit DA regulation awards based on expected hourly regulation energy take percentages. In its ESE SOC formula paper, the CAISO proposed implementing envelope equations in both the DA and real-time (RT) markets. This approach concerns PG&E for two reasons: (1) it goes beyond the original intent of the policy and (2) it makes it impossible to determine whether DA implementation alone is sufficient towards meeting the desired objectives. The second reason also applies to any alternative proposal, including PG&E’s. Thus, for whichever proposal is adopted, PG&E recommends staggering the implementation to first apply to the DA market exclusively. Only after the effects of the DA implementation have been observed and analyzed should the CAISO consider implementing any changes to the RT market. 

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?

Although the original ESE proposal was not implemented as planned, PG&E considers the ESE Market Simulation a success since it exposed issues with the Ancillary Service Marginal Price (ASMP) calculation. This discovery has led to further engagement between the CAISO and stakeholders, which is beneficial for all parties. After working with the CAISO to further understand the drivers of the negative ASMPs, PG&E asks whether there is a software/coding solution to this issue that the CAISO could pursue as an alternative to the three current proposals. Specifically, PG&E asks whether the forgone opportunity cost of energy for a storage resource providing regulation down should be greater than or equal to $0, rather than the current formulation which allows for it to be a negative value. 

To explain this idea further, consider the ASMP calculation for non-NGRs such as thermal resources. PG&E interprets the ASMP to be equal to the regulation up bid price plus the forgone opportunity cost of energy, so long as that cost is above $0 as described in Tariff section 27.1.2.2. Here the ASMP only includes the in-hour opportunity cost of energy. NGRs, however, are different in that they can provide regulation down, which can lead to an increased SOC. The CAISO has demonstrated that in the case of non-zero attenuation factors, the ASMP allows a regulation down bid price in one hour to be offset against an energy LMP in a different hour. PG&E understands that this intertemporal arbitrage only exists with NGRs, but asks why is the ASMP calculation different from what is used with thermal resources?  

Furthermore, the CAISO has demonstrated (see Market Simulation Summer 2023 Release) that the current opportunity cost of energy calculation for NGRs (providing regulation down) differs from that of non-NGRs in that it subtracts the energy LMP from the bid price for energy rather than subtracting the bid price for energy from the energy LMP. PG&E asks whether this is consistent with Tariff section 27.1.2.2.  

PG&E acknowledges that the Tariff is written from the perspective of a resource providing an incremental unit of AS, rather than a decremental unit of AS. The CAISO’s formulation appears to be calculating a decremental unit of regulation down— if a storage resource received one less unit of regulation down, it would lose the opportunity to provide less than one (due to efficiency loss) unit of discharge in another hour, and hence it should be willing to pay to deliver that unit of regulation down. PG&E asks the CAISO whether the current ASMP calculation for storage resources providing regulation down can be modified by a coding/software solution to be more in line with the intent of the Tariff.  

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

The Six Cities thank the CAISO for raising this topic and soliciting stakeholder input on potential solutions to the issue of negative regulation down pricing that results from implementation of previously-approved changes to the state-of-charge calculation for energy storage resources.  At this time, it appears that there is limited information about the possible implications of the options proposed thus far (as described in the paper issued July 27^th and in the August 3^rd workshop).  For this reason, the Six Cities support the proposal to continue discussions among stakeholders regarding alternatives, with such discussions to include more information on the advantages and disadvantages of both revising the current tariff rules regarding ancillary service pricing (consistent with the proposal to move forward with implementation of the previously-approved changes to the SOC equation) and the adaptation of envelope equations to manage regulation awards, as well as any alternatives suggested by stakeholders.  Stakeholders would benefit from a more complete analysis of these options, as documented an issue paper, and the Six Cities request that such an issue paper be accompanied by simulation or testing (using models that can be shared with stakeholders) of the options under consideration. 

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?

 The Six Cities have no additional comments at this time. 

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

see attached

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?

see attached

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

Vistra appreciates the CAISO hosting the August 3^rd workshop. Please see below for our feedback that we respectfully ask the CAISO to consider when informing its next steps.

Step One – Provide Analysis on Market Results since June 2023

Energy Storage Enhancements approved a policy to limit the storage operating range eligible to be awarded Regulation capacity to no more than 2/3 of its operating range.[1] However, the CAISO implemented a 50% limit in its Day-Ahead Market upon implementation, which was the original policy before CAISO increased it to 75%.[2]  CAISO implemented its original proposal despite the fact that the Board approved policy was a proposal to limit the operating range to 75%, reflecting the policy changes made by CAISO in its stakeholder process. Regardless of whether implementing a limit different than the limit stakeholder is appropriate, the fact is that the CAISO has and the tighter limit on storage eligibility to provide Day-Ahead Regulation is in effect in the market. Vistra believes that this change is likely to largely address the CAISO’s perceived concern that storage is receiving infeasible Ancillary Services (AS) awards out of Day-Ahead.[3] Consequently, as a first step, before taking any additional actions related to these concerns, CAISO should provide analysis on market outcomes accounting this new day-ahead constraint including:

• • How storage day-ahead AS award trends have changed.
  • Whether the trend of unavailable Regulation reserve in real-time from storage that received day-ahead AS awards has changed.

Step Two – Preferences on Approaches to Modeling Improvements

Vistra’s intuition is that the data requested above in Step One will show there is no urgent need to fast track any modeling changes because the 50% limit to eligible storage capacity providing Regulation implemented in June has largely addressed this issue. There may be a need for further improvements that can be tackled in an initiative once it is launched. At this time, we reserve our position until the analysis is provided.

Our preference on next steps includes in chronological order:

• (No Change) Do not update current/planned constraints on storage based on any of the options CAISO has previously proposed until after data has been provided to show how the market results have changed with 50% operating range limit on DA AS awards to storage.
• (Explore PG&E Proposal) If data analysis shows there is still a trend of issuing AS awards to storage that cannot reliably be delivered in real-time, then we support exploring PG&E’s proposal as a starting place for a solution. Any just and reasonable solution should fairly limit storage participation and should not produce negative AS prices.

Vistra does not support the use of the envelope equations for Regulation let alone Imbalance Reserves or Residual Unit Commitment schedules. CAISO would be prudent to acknowledge that its storage modeling proposals explored in Day Ahead Market Enhancements initiative did not allow for a robust stakeholder process and are not in the best interest of integrating storage into its markets. We recognize CAISO’s concerns with ensuring feasible awards as important, however the envelope equations are sub-optimal solution that overly restrict beyond what reliability needs would dictate storage participation.

[1] Please see CAISO video for the stakeholder call where the Day-Ahead constraint to limit the Regulation award to 2/3 of the operating range if certified to provide Regulation available at 1:51:44-1:52:28, https://www.youtube.com/watch?v=EteC-27WRQw.

[2] CAISO originally proposed to require energy bids from 100% of the AS award and to ensure that real-time energy bidding rule was feasible by applying a new day-ahead constraint that limits storage to be awarded Regulation up to an amount that facilitates the 100% energy bid requirement i.e., 50% of operating range. CAISO revised this proposal based on working with stakeholders in its Second Revised Straw Proposal from 100% to 50% with a correlated increase to the day-ahead limit from 50% to 75% of the operating range. Policy change described on Page 4, http://www.caiso.com/InitiativeDocuments/Second-Revised-Straw-Proposal-Energy-Storage-Enhancements.pdf.

[3] Vistra is concerned that CAISO concern stems from some storage operators offering more capacity into regulation than it can reliably support, but instead of pursuing targeted changes on those resources it is applying a market wide limit that in some instances may be too restrictive. A better approach to targeting non-availability of regulation awarded to storage in real-time would be to explore stronger no pay provisions or changing the asset’s eligibility to sell into ancillary service markets for continued non-availability. We suggest among other potential solutions these be considered in tandem with considering relaxing the limit on storage eligibility back to the 75% limit agreed upon.

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?

Vistra and other storage owners and operators raised a myriad of challenges with operating storage in CAISO markets at the July 26, 2021 and April 13, 2022 meetings. Energy Storage Enhancements scope promised to be an effort that address storage Scheduling Coordinator challenges, but the final proposal failed to capture the issues raised by the storage community. Those issues are still pressing and with the growth of storage it is even more important that CAISO launch an initiative to address these concerns.

1. Does your organization have any questions or comments on the workshop paper or discussion in the August 3rd workshop?

WPTF appreciates the opportunity to provide comments on the Energy Storage Enhancements workshop that took place on Aug 3.  First, we greatly appreciate the CAISO recognizing that the ESE market simulation results highlighted an issue that did not seem to align with the intent of the policy and thus opted to take additional time rather than proceed with the full implementation. Of the three options presented to stakeholders during the workshop in terms of how to move forward, at this time, WPTF is supportive of exploring the proposal presented by PG&E. The PG&E proposal seems to address the original issue of having the day-ahead state-of-charge more accurately capture the expected impact from providing regulation while also not having the unintended pricing impact that the original ESE proposal has.  Furthermore, the PG&E proposal does not seem to overly restrict storage participation in the market in the same manner as the envelope equations.

Regarding the envelope equations – WPTF does appreciate the time the CAISO spent walking stakeholders through several examples during the DAME process. However, we must recognize that that discussion took place not only months ago but was presented to stakeholders once during a meeting at the tail end of the policy process. Thus, WPTF respectfully requests that to the extent the CAISO wants to continue exploring the envelope equations alongside the PG&E proposal, additional explanation and a refresher of the envelope equations through examples is needed.

Additionally, upon WPTF’s initial review of the envelope equations, they seem to have the impact of overly restricting storage resource participation in the market. It is our understanding that once the lower and upper envelope limits are reached (i.e., at the lower and upper SOC values), the resource can no longer participate in the market. To be clear this means the storage resource can not only no longer provide ancillary services but also can no longer charge to discharge for energy. Thus, if storage resources reach these limits prior to the net load peak hours, they are not only unable to provide energy when needed most but can no longer energy arbitrage across hours within the day-ahead market, both of which contribute to increased market efficiencies. While we understand the day-ahead market is optimized over the entire 24-hr period at once, the magnitude of this issue is directly correlated with the multiplier used in the envelope equations. Taking a more conservative approach (e.g., a higher value) will have the adverse impact of then further limiting that resource from optimally participating in the market. If our understanding is accurate, this is extremely concerning to WPTF and thus warrants detailed discussions.      

2. Does your organization have any questions or comments that was not addressed in the workshop paper or August 3rd workshop?