1.
Please provide a summary of your organization’s feedback in response to the Straw Proposal on Inter-SC Trades in Regional Markets posted on August 2, 2024.
WPTF appreciates the opportunity to comment on CAISO’s Straw Proposal for Inter-SC Trades (IST) in Regional Markets. While the EDAM policy process initially determined that ISTs were not necessary for go-live, we appreciate the CAISO making this improvement to the EDAM design. We hope this is one of many more EDAM enhancements to come.
WPTF generally supports extending IST functionality for energy to EDAM BAAs under the EDAM design. WPTF understands that ISTs for energy function purely as an optional financial settlement tool and generally fall into two categories in the CAISO’s existing market: (1) Aggregate Pricing Node (APN) ISTs that can help facilitate contracts for energy at the APN where trading liquidity is highest and optionally acquire Congestion Revenue Rights (CRR) to hedge congestion risk between the APN and their generator or load; and (2) Physical Asset ISTs can help facilitate contracts for energy at specific generation or load nodes. ISTs for energy represent an alternative to other forms of forward financial transactions and generally reference prices formed at liquid trading hubs in those forward markets. There are valid scenarios where using Inter-SC Trade functionality to settle bilateral forward contracts for energy using CAISO settlements mechanisms may improve market efficiency and reduce transactional friction in EDAM, however, we believe a few aspects of the proposal require further discussion/clarification to ensure those benefits can be realized by all EDAM SCs.
First, WPTF encourages CAISO to ensure that APNs in the non-CAISO EDAM BAAs are created transparently and consistently. One of the primary EDAM use cases discussed during the stakeholder call was hedging congestion cost allocation risk in the non-CAISO EDAM BAAs associated with bilateral energy transactions. Congestion can occur within and between EDAM BAAs in multiple ways with multiple congestion cost allocation outcomes possible: (1) congestion cost allocation within the CAISO BAA will be managed using its CRR market and existing mechanisms; (2) congestion cost allocation between the CAISO BAA and adjacent non-CAISO EDAM BAAs will be managed on a transfer-resource basis according to where the transfer constraint binds; (3) congestion cost allocation between the non-CAISO BAAs will be managed on a transfer-resource basis, splitting rents 50/50; and (4) congestion cost allocation within non-CAISO BAAs will be managed as determined by each EDAM Entity BAA in its Tariff. SCs may, therefore, find value in using Inter-SC Trades to settle bilateral energy contracts within or across BAA boundaries in EDAM, referencing either specific generation or load nodes, or APNs. How the APNs are defined could have implications to the transactional liquidity that may develop at each APN, to the congestion cost reflected at those locations, and ability to hedge congestion risk between the APN and other settlement locations. Thus, transparency and consistent treatment are imperative. Additionally, while providing Inter-SC Trade functionality is useful under the current EDAM congestion management and cost allocation framework, it would be significantly more effective and useful if the CAISO implemented a consistent congestion cost allocation mechanism (e.g., CRR framework) that applied consistently across all BAAs or if (at a minimum) a direct congestion cost allocation framework was developed at the EDAM BAA level that allowed path-specific congestion cost allocation within the non-CAISO EDAM BAAs.
Second, it may be useful to discuss potential implications given how the non-CAISO EDAM BAA tariff efforts are progressing regarding SC functionality, in addition to the congestion cost allocation framework(s) under development for the non-CAISO EDAM BAAs. For example, we understand that there is a proposal for non-CAISO EDAM BAAs to act as an EDAM Entity SC for all load serving entities within their BAA. This in turn means that individual load serving entities within that EDAM BAA will not have their own SC that can opt to use the IST functionality; that decision would have to be made by the EDAM BAA acting as an SC for all load serving entities, significantly under-cutting the utility of the tool.
Lastly, it is essential that this functionality is thoroughly tested before go-live and that BPMs affecting their use either/both at the CAISO BAA or the non-CAISO EDAM BAAs be established far enough in advance of market go-live that all entities can incorporate the functionality into their market participation planning. We request that CAISO test IST functionality not only within CAISO and non-CAISO EDAM BAAs but also between various CAISO and non-CAISO EDAM BAAs, and work to harmonize the practical functionality of the tool across all EDAM BAAs to promote efficient use of the tool.
3.
Please provide any feedback not already captured.
