Comments on Straw Proposal for BAA-level Market power mitigation and Scarcity pricing on Sep 03 & Sep 04

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

No comment.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

1. Bonneville supports this component of the proposal.  The grouping approach allows the residual supply index calculation to account for generating capacity that is connected via transmission. Bonneville believes that this incremental improvement – in isolation – should result in less unnecessary mitigation.

2. Bonneville finds it challenging to reconcile the competing implications of the analyses presented.  The results of the 2024 analysis (in which CAISO was import constrained in only three market intervals and were determined competitive in each of them) suggests that its default competitive status is reasonable.  This contrasts starkly with the grouping approach analysis which finds a high propensity for uncompetitive assessments when CAISO is included.  Bonneville questions whether the grouping approach and CAISO’s default competitive status are separable, so that the grouping approach can be implemented while retaining CAISO’s default competitive status.

Beyond the question of separability, Bonneville supports the requests from other stakeholders for additional analysis on CAISO competitiveness assessments for June-August 2025.  Bonneville believes stakeholders would also find value in including in the analysis the modified 3PS test (i.e., limit withholdable capacity to consider only net position). 

Finally, if stakeholder consensus points to removal of default competitive status for CAISO, Bonneville believes that it should only be pursued if accompanied by modifications to the withholdable capacity calculation and implementation of mitigation to only pivotal suppliers.  Without these two accompaniments, the removal of CAISO’s default competitive status would effectively apply mitigation to any resource in any BAA for which there is unloaded market transmission connectivity to CAISO, given the relative size of the generating fleets of California entities. 

3. No specific comments, only that Bonneville views these proposal components as requisite companions to removal of default competitive status for CAISO, should stakeholders agree that such removal is justified.

4. No specific comments, only that in principle, Bonneville favors approaches that encourage participation from supply and that limiting the likelihood of Type I errors (mitigating a non-pivotal supplier) is the more effective way to achieve that than approaches that limit Type II errors.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

1. Generally, Bonneville favors in-market solutions over post-market solutions and market-determined pricing over administrative pricing.  With respect to the in-market solution, Bonneville is concerned that the limitations of Option 1 in applying only to RTD may produce adverse settlement outcomes due to differential treatment of RTPD and RTD.  Among the post-market alternatives, Bonneville prefers the market-determined pricing of Alternative 2 over the administrative pricing of Alternative 1.  Regarding the post-market solutions, Bonneville would like confirmation that computational burden is not a critical factor in the stakeholder decision process for post-market alternatives.

In each of these options, Bonneville is wary of the potentially significant settlement impacts resulting from load-shedding cases in which RTPD produces elevated prices and market awards which can then be unwound in RTD (due to load-shedding) at scarcity prices. Such adverse outcomes could discourage additional supply, which is antithetical to the scarcity pricing component of this initiative. To that end, Bonneville would greatly appreciate additional opportunities for stakeholder discussion of the merits and implementation details of these or other alternatives identified by stakeholders.

2. No Comment.

3. Bonneville believes that use of out-of-market emergency actions should be reflected in market prices.  Given the complexity and financial weight of such tail events, Bonneville would appreciate additional focused discussion on the types of actions that might trigger administrative pricing and on how existing price-implicating programs (such as Assistance Energy Transfers) would fold into this component of scarcity pricing.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

Bonneville believes CAISO’s expectation is correct.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

Bonneville would appreciate more detailed discussion on the nexus, if any, between the market power mitigation components in this stakeholder process and the intertie bidding reformulation presented at the Extended Day-Ahead Market (EDAM) Implementation workshop of August 21, 2025.  Bonneville believes the competitive status of interties in the current day-ahead market is appropriate. Bonneville noted that the intertie bidding reformulation posited for EDAM seemed to open the door to LMP decomposition for external resources and would like some clarification on its implications for MPM processes in both WEIM and EDAM.

Bonneville is also interested in exploring ways to balance MPM-related incentives in CAISO markets.  Currently, there is an assumption of wrongdoing by suppliers in cases where the potential for market power is deemed to exist, and the cure for uncompetitive conditions applies solely to said supplier in the form of reduced bid prices.  No incentive appears to exist for CAISO or its stakeholders to attempt to reduce underlying causes of uncompetitive conditions. 

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

The California Community Choice Association (CalCCA) appreciates the opportunity to comment on the California Independent System Operator’s (CAISO) Balancing Authority Area (BAA) Level Market Power Mitigation (MPM) and Scarcity Pricing Straw Proposal (Straw Proposal). CalCCA directionally supports the CAISO’s Straw Proposal and recommends that the CAISO:

• Adopt the CAISO’s proposed grouping approach to BAA-level MPM;
• Include the CAISO in the BAA-level MPM tests consistent with other BAAs;
• Exclude net buyers from the pivotal supplier designation;
• Use CAISO’s proposed Option 2 for identifying which suppliers to mitigate;
• Pursue targeted modifications to scarcity pricing and pause discussion of a wholesale redesign until issues with flexible ramping product performance and ancillary service procurement are resolved;
• Run a counterfactual of the August 14, 2020, load shed events to see the impacts of each of the CAISO’s proposed options for reflecting scarcity during load-shedding events;  
• Decline to incorporate administrative pricing to reflect the scarcity value of out-of-market actions.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

The CAISO should adopt its proposal to transition away from an individual BAA assessment to a grouping approach for BAA-level market power mitigation. Including available supply from other BAAs in the CAISO’s test for a BAA’s competitiveness will better reflect actual market conditions and competitive dynamics.

CalCCA strongly supports the CAISO’s proposal to treat the CAISO BAA consistent with other BAAs in the MPM test by removing its default competitive status. 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’ default energy bids (DEBs) or the competitive locational marginal price (LMP) ensuring resources, if mitigated, still recover their costs at a minimum. For these reasons, the CAISO BAA should be tested for competitiveness under the grouping approach.

The CAISO should also exclude net buyers from the pivotal supplier designation 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. The CAISO’s proposal to estimate load serving obligations using historical averages, while not exact because it is a backward-looking estimate that does not capture real-time influences on load (e.g., weather), is a reasonable way to determine if an affiliate is a net buyer; it is administratively simple and uses recently available information on the affiliate’s supply and demand balance.

When identifying which specific suppliers to mitigate in an uncompetitive group, the CAISO should use its proposed Option 2. Option 2 would find the smallest possible group of pivotal suppliers in an uncompetitive group and only mitigate those suppliers. Option 1, while more administratively simple and supported by precedent, may result in an increased risk for over-mitigation by testing already mitigated suppliers with unmitigated suppliers. The CAISO should confirm that its intent of Option 2 is that in any case that a pivotal supplier is found, that pivotal supplier is no longer used in considering any subsequent two and three-pivotal supplier tests. Otherwise, Option 2 would cause the same over-mitigation potential as Option 1.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

CalCCA supports evaluating targeted modifications to scarcity pricing and pausing discussion of a wholesale redesign until issues with flexible ramping product performance and ancillary service procurement are resolved. 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.

The CAISO proposes to modify price formation to ensure market prices reflect scarcity during load-shedding events. CalCCA 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. The CAISO advances three options to ensure market prices reflect scarcity during load-shedding events, including one in-market process and two post-market processes. Each of these processes have tradeoffs.? Before taking a position on these options, CalCCA requests the CAISO run a counterfactual of the August 14, 2020, load shed events to allow stakeholders to evaluate the impacts of each option and better consider these tradeoffs. This counterfactual should focus on what the changes in prices would have been, the cost to load caused by the scarcity pricing event, and whether it is reasonable to anticipate that additional generation would have been available and dispatched in the CAISO market. 

The CAISO should not incorporate administrative pricing to reflect the scarcity value of out-of-market actions for two reasons. First, as the CAISO notes, different BAAs have unique emergency programs under their own operational control. It would be extremely difficult for the CAISO to develop an approach that effectively manages the out-of-market actions used in every program operated by the 22 BAAs participating in the Western Energy Imbalance Market. It is also unclear whether the CAISO should serve in that role, given it does not have jurisdiction over those programs. Second, for the CAISO BAA, out-of-market actions such as backstop or exceptional dispatch can occur in emergency conditions or on regular operating days. The CAISO would need to make a distinction between when administrative prices would be used and when they would not.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

CalCCA has no comments on the governance classification.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

CalCCA has no additional comments at this time.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Comments on Price Formation Enhancements Straw Proposal

Department of Market Monitoring

September 19, 2025

Summary

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the ISO’s Price Formation Enhancements Straw Proposal and the subsequent working group sessions held on September 3-4, 2025.[1] In the straw proposal, the ISO proposed several changes to address balancing authority area (BAA)-level market power mitigation (MPM) and scarcity pricing.

The ISO proposed several changes to the BAA-level MPM process:

1. Implement a grouping approach for BAA-level mitigation.
2. Include CAISO BAA in the BAA-level MPM test.
3. Incorporate “net supply position” into the BAA-level MPM process.
4. Only mitigate pivotal suppliers.

DMM continues to support grouping connected BAAs to test for regional competitiveness, rather than testing all BAAs individually. DMM supports treating the CAISO BAA consistently with the other BAAs by including the CAISO BAA in BAA-level MPM testing, instead of assuming it is always competitive.

DMM supports changes to consideration of net supply position when calculating the withholdable capacity in BAA-level MPM testing, but notes that there may be significant computational and implementation challenges in doing this accurately. In many cases, state regulatory oversight may serve as a backstop for any inaccuracies in measuring the net supply position of regulated entities. This increases reliance on state regulation and may warrant further consideration.

Lastly, DMM disagrees that pivotal suppliers are the only resources that can exert market power, as there are scenarios where non-pivotal resources can also set market prices above their marginal costs.

In addition to BAA-level MPM changes, the ISO also proposed two incremental scarcity pricing mechanisms:

1. Scarcity pricing when operators shed load.
2. Pricing armed reserves as a scarcity pricing signal in the real-time dispatch (RTD).

DMM supports the ISO’s interim proposal to implement a scarcity pricing mechanism during load shed events. DMM believes the in-market pricing option for scarcity pricing during load shed events aligns best with the core principles of scarcity pricing. DMM also supports the concept of pricing armed reserves in RTD, but it is unclear that the added benefit of this pricing mechanism would be worth the implementation effort and cost if this is an interim solution until the ISO implements full ancillary services procurement in RTD. 

The ISO suggested postponing larger scarcity pricing market redesigns until more progress is made in other policy efforts. DMM continues to recommend that the ISO place a high priority on developing an uncertainty product with a longer time horizon to allow prices to rise as scarcity conditions approach.  DMM believes 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 be designed to help ensure that Upward Imbalance Reserve capacity procured in the Extended Day-Ahead Market (EDAM) is actually available in the real-time market. In addition, such a product appears to be the only viable way to reduce the need for grid operators to utilize an extremely large load bias 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 will remain once EDAM is implemented.

Comments

BAA-Level MPM

DMM supports grouping connected BAAs to test for regional competitiveness

The ISO is proposing to change the BAA-level MPM process from testing BAAs individually without accounting for supply from neighboring BAAs in the pivotal supplier calculation, to a grouping approach where competitiveness is determined by testing groups of interconnected BAAs with uncongested transfer constraints. DMM continues to support implementing a grouping approach to test the competitiveness of BAAs.[2] Testing BAAs together, rather than individually, may reveal that the group as a whole is competitive and would avoid unnecessarily subjecting individually non-competitive BAAs to mitigation.

The proposed algorithm ranks BAAs from highest to lowest marginal energy cost (MEC) and iteratively tests groups depending on their transfer capability to determine competitiveness and establish competitive locational marginal prices. DMM agrees that grouping BAAs based on their MECs and transfer capability is a sensible approach to the grouping process. DMM has previously questioned whether it would be preferable to rank BAAs from lowest to highest MEC as an alternative approach.[3] 

The ranking methodology proposed by the ISO can lead to scenarios when BAAs that are competitive on their own are found to be non-competitive when tested in a group with larger non-competitive BAAs. Alternatively, if BAAs were tested from lowest to highest MEC, then likely all of the competitive BAAs with lower MECs would be identified as competitive prior to being included in a group with potentially larger non-competitive BAAs with higher MECs. DMM recognizes that both approaches could result in potential over- or under-mitigation in some situations but asks the ISO to consider the merits of this alternative ranking algorithm, and clarify why the approach in the straw proposal may be preferable.

DMM supports including the CAISO BAA in BAA-level MPM testing

DMM supports 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. During the September 3, 2025 meeting, a participant argued that DMM’s annual report shows the CAISO BAA is not structurally non-competitive, and thus the proposed change to include CAISO in BAA-level testing is not needed. DMM disagrees with this conclusion.

The report’s day-ahead market structural measures of system competitiveness show residual supply index (RSI) values when a single pivotal supplier (RSI₁) is removed, two pivotal suppliers are removed (RSI₂), and when three pivotal suppliers are removed (RSI₃).[4] RSI values less than one represent hours when the CAISO BAA is structurally non-competitive. DMM found the day-ahead market had RSI values less than one for 24 hours (RSI₁), 97 hours (RSI₂), and 176 hours (RSI₃) in 2024. The totals for RSI₂ and RSI₃ represent increases from the previous two years. These results indicate that the CAISO BAA should not be assumed competitive in all hours, and support the inclusion of the CAISO BAA in the BAA-level MPM process.

DMM notes that non-pivotal suppliers can exert market power in some cases

The ISO is proposing to no longer apply mitigation to all suppliers in a non-competitive BAA, and instead only mitigate pivotal suppliers, stating that this would prevent excessive mitigation of suppliers who cannot raise prices uncompetitively. This assumes pivotal suppliers are the only resources that can exert market power and raise prices above costs. DMM notes that in some situations, resources that are not pivotal can also raise prices above costs and may have more incentive to do so if they are not subject to mitigation.

The current tests for market power conducted by the ISO assess the ability of a supplier to raise prices based on an RSI calculation, which only considers the supplier’s capacity. Market power is the ability to set prices above marginal costs, not necessarily having pivotal capacity. While pivotal suppliers may be able to exert market power, other resources not identified as pivotal suppliers may also be able to exert market power.

While potential market power by non-pivotal suppliers is not directly identified in calculating an RSI, mitigating all suppliers when an RSI deems an area non-competitive also mitigates resources that have undetected market power. The attachment to these comments shows illustrative examples of a non-pivotal resource with market power and its ability to set prices above costs. In such a scenario, non-pivotal resources have an incentive to bid above their marginal cost, and it is possible these resources could be setting the price across multiple BAAs. However, such resources are most likely able to do so less consistently than a pivotal supplier would, and during certain circumstances that may or may not be easily predicted (e.g., with knowledge of where the resource is positioned in the supply stack, when certain congestion patterns occur, when similarly priced resources go on outage, etc.). 

Currently, the BAA-level MPM process indirectly addresses this type of market power by subjecting all resources to mitigation when the BAA fails the competitiveness assessment. The proposal to only mitigate pivotal suppliers would reduce this indirect benefit by no longer subjecting non-pivotal resources to mitigation, when such resources could potentially have undetected market power. DMM suggests taking this potential impact into account while considering the current proposal.

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

The ISO presents two options to limit bid mitigation to suppliers identified as pivotal, as opposed to all suppliers in the non-competitive group. The first option is a previously discussed algorithm that iteratively replaces the third largest supplier with the n^th largest supplier until a tested group passes the RSI test. All resources in the failing groups are subject to mitigation.

The second option is a new algorithm that attempts to identify the minimal set of pivotal suppliers. This algorithm tests whether suppliers are individually pivotal, or jointly pivotal, and iterates down the supplier list until a group of three pivotal suppliers pass an RSI test. The ISO notes that the second option is less prone to identify false positives than the first option, but also requires more computational demand and is a novel approach that lacks precedent. DMM recommends the ISO provide examples and analysis that show the tradeoffs of these options for stakeholders to weigh the benefits with the costs of the second option.

Mitigation is currently applied in a single step, whether the resource is flagged by the local market power mitigation (LMPM) process or by the BAA-level MPM process. DMM requests the ISO provide additional details on how rules can differ in the mitigation step across the two types of market power assessments and whether this type of logic will be difficult to implement. Specifically, DMM requests the ISO provide details on how all suppliers will be subject to mitigation under the LMPM rules, but only pivotal suppliers would be subject to mitigation under the proposed BAA-level MPM rules.

DMM supports changes to consideration of net supply position when calculating the withholdable capacity in BAA-level MPM testing, but notes that there may be significant computational and implementation challenges in doing this accurately

The ISO proposes to incorporate “net position” into the BAA-level MPM process through two mechanisms.

The first mechanism is to extend the existing net buyer exclusion used in the CAISO BAA to Extended Day-Ahead Market (EDAM) participants. Currently, net buyers within the CAISO BAA are excluded from qualification as pivotal suppliers in the local market power mitigation RSI, under the assumptions that net buyers lack the incentive to exercise market power and inflate prices. However, under current BAA-level MPM rules for the Western Energy Imbalance Market (WEIM), all WEIM entities – even those that are net-buyers – are treated as net sellers in the RSI calculation and can be pivotal suppliers. DMM agrees that EDAM participants do not need this same exclusion from the standard treatment of net buyers in the RSI calculation for BAA-level MPM.

The second mechanism is to exclude load serving obligations from the withholdable capacity calculation of net sellers. 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. In addition, the straw proposal indicates this proposal was spurred by findings that the CAISO BAA was frequently found to be non-competitive because some of the California regulated utilities are now identified as net sellers, noting that these entities are subject to external regulation by entities outside the ISO.

DMM supports changes to consideration of net supply position when calculating the withholdable capacity in BAA-level MPM testing, but notes that there may be significant computational and implementation challenges in doing this accurately. The net supply position of many entities may vary significantly from hour-to-hour and day-to-day. To accurately assess an entity’s net position, it would seem necessary to have complete data on the entity’s complete supply portfolio, including availability of all supply and all bilateral positions. This may vary widely from hour-to-hour and day-to-day, and complete information on actual available supply (taking into account bilateral physical and financial positions) may typically not be available until just prior to the day-ahead and real-time markets.

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

In many cases, state regulatory oversight may serve as a backstop for any inaccuracies in measuring the net supply position of regulated entities. DMM acknowledges that load serving utilities subject to state regulation may have limited incentives to withhold available capacity in an attempt to raise prices. However, implementing MPM rules that rely in part on regulatory agencies to prevent non-competitive behavior is a fundamental shift from previous market power mitigation design. Determining a lack of need for mitigation based on assumptions about regulatory incentives is introducing a reliance on state regulation into the MPM process that does not currently exist and may warrant further consideration.

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 continues to recommend the ISO create an hour-ahead uncertainty product

The ISO proposes postponing a full scarcity pricing redesign until progress is made in other policy initiatives. DMM continues to recommend that the ISO place a higher priority on developing a new hour-ahead uncertainty product that would allow the real-time market to better reflect real-time conditions and provide earlier price signals prior to a scarcity event.[5] An uncertainty product with a time horizon longer than one interval would allow capacity and energy prices to rise gradually and reflect upcoming scarcity in more distant advisory intervals. Additionally, a longer uncertainty horizon could mitigate the need to consider other scarcity pricing mechanisms, such as administrative pricing for emergency actions.

DMM believes 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 be designed to help ensure that Upward Imbalance Reserve capacity procured in the Extended Day-Ahead Market (EDAM) is actually available in the real-time market. In addition, such a product appears to be the only viable way to reduce the need for grid operators to utilize an extremely large load bias 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 will remain once EDAM is implemented.

DMM supports in-market scarcity pricing during load shed events as a mechanism to provide real-time price signals that impact market dispatch

The ISO proposes a new mechanism to trigger scarcity pricing during load shed events. Load shed events reduce the amount of demand seen by the market, which could potentially prohibit the market optimization from procuring additional supply to meet the previously shed load. Further, by reducing modeled demand, load shed events may also prevent the market price from fully reflecting the unserved demand and real-time scarcity. To address these issues, the ISO proposed three potential options to ensure prices in the real-time market are at or above the bid cap during actual load shed events including one in-market process and two post-market processes.

Among the three options proposed by the ISO, DMM recommends the in-market pricing option because it is the only option that would provide a real-time price signal that could influence dispatch in real-time. Any post-market pricing mechanism defeats the purpose of scarcity pricing, which is to develop prices that reflect scarcity and affect market dispatch accordingly. With no real-time price signal, the market cannot appropriately respond to or attempt to remedy a supply shortage. 

DMM recommends additional analysis to determine the potential magnitude of operational and settlements issues associated with the in-market pricing option

The ISO is concerned that the in-market pricing option may result in operational challenges. Specifically, if the market were to over-dispatch supply, more action may be required from market operators to manage area control error (ACE). It is unclear to DMM how significant these risks are, considering the relative frequency, duration, and size of load shedding events. Therefore, DMM recommends the ISO consult market operations on the likelihood of over-dispatching supply to assess the magnitude of risk this could pose to the market.

The ISO also notes that if scheduled supply does not match metered demand, there could be an increase in real-time imbalance energy offset (RTIEO). DMM agrees there may be potential for increased RTIEO during load shed events as a result of the proposed in-market pricing approach. However, like the noted operational concerns, the potential magnitude of this issue is unclear. DMM recommends the ISO conduct additional analysis on the potential settlement impacts to determine if this is likely to be a significant issue.

Load shed pricing should align with operational certainty

The ISO proposes only including the in-market pricing option in the RTD market, stating it is unclear if operations would have enough certainty of load shed events far enough in advance to include this mechanism in RTPD. To the extent load shed is uncertain in the timeframe of the RTPD market, DMM takes no issue with this pricing mechanism only applying to RTD, as this would be the most accurate reflection of physical market conditions and real scarcity. Additionally, RTPD prices most likely would reflect power balance constraint (PBC) violations prior to a load shed event, so RTPD prices would not be entirely unaffected by tight supply and potential scarcity conditions. However, DMM recommends the ISO consult market operations on the timing of certainty regarding load shed events to determine if it may be realistic/necessary in any circumstance to include this pricing in RTPD.

Propagation of scarcity pricing signals across balancing authority areas may be appropriate

The in-market pricing option has the potential to increase prices across interconnected balancing authority areas (BAAs) in the WEIM as load is shed within one particular BAA. DMM believes this outcome may be appropriate when transfers between the BAAs are not constrained. The WEIM resource sufficiency evaluation (RSE) establishes that all BAAs in the market have sufficient generation to meet their load for each operating hour in real-time. Therefore, any load shed events in the market are not likely to be the result of one BAA attempting to “lean” on others for capacity. As such, scarcity prices should not be administratively isolated to one BAA during load shed events. Further, allowing scarcity pricing signals to propagate to connected BAAs when not transfer constrained may increase the effectiveness of these signals to attract additional supply on a 5-minute basis through the WEIM.

DMM recommends further discussion of the scarcity price “circuit breaker” concept

To mitigate financial risk to market participants, the ISO proposed a “circuit breaker” as part of this pricing mechanism.[6] If administratively high prices were to be sustained for long periods, market participants may face credit or default risks. Therefore, the ISO suggests that after four hours, the market would deactivate this pricing mechanism.

DMM appreciates 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 rare case that a load shed event did 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 from the market. Conversely, because the instances where the price circuit breaker would trigger are likely to be very infrequent, there may be limited harm to including such a feature for the reasons described in the straw proposal. 

DMM recommends continued discussion on this topic, and why the proposed four-hour timeframe would be the appropriate length if a scarcity pricing circuit breaker were to be implemented.

DMM supports reflecting the scarcity value of ancillary services in RTD when load is armed to meet reserves, but suggests that the implementation effort may not be worth the interim benefit

The ISO proposes an additional scarcity pricing mechanism that aims to reflect the scarcity value of ancillary services (AS) in RTD when operators arm load. This new mechanism would allow energy from a resource’s previously awarded AS capacity to be economically dispatched based on the opportunity cost of the reserve shortage being met by armed load. This opportunity cost would be quantified by the Scarcity Reserve Demand Curve (SRDC). The ISO suggests that this approach allows real-time prices to reflect the true marginal cost of meeting energy demand and reserve scarcity, without full AS re-procurement in RTD.

DMM is generally supportive of this pricing mechanism and the conceptual framework, as it essentially prices the procurement of additional reserves acquired in RTD through armed load. However, DMM encourages the ISO to weigh the added benefit of this pricing mechanism relative to the cost and effort needed to implement it, especially if the ISO intends to redesign AS procurement in RTD in the relatively near future.

Including the cost of reserve scarcity in RTD makes sense conceptually when load is armed to meet reserve needs, but the proposed price increase may not meaningfully change the price signal and the resulting market dispatch. For example, a $300/MWh increase on top of a $1,000/MWh market price may not change the price signal enough to meaningfully impact market dispatch in RTD.[7] DMM does not propose the marginal cost be tied to something different than the SRDC (or something arbitrarily higher), but the real benefit of the price increase may not be worth the implementation effort for an interim solution.

DMM understands that implementing this pricing mechanism would be an interim solution until full AS re-procurement is implemented in RTD. Therefore, this mechanism will likely become obsolete in the relatively near future. If the ISO were to move forward with this pricing mechanism, DMM suggests the ISO consider simplifying the pricing mechanism to a one-tier reserve slack penalty price, instead of using all three tiers of the SRDC. This could simplify the implementation effort for the ISO and would not substantively change the resulting marginal cost values, as the tiers are currently within $50/MWh to $100/MWh of each other. However, DMM understands that the current proposal is aligned with how the SRDC is used in RTPD, and recognizes the intended consistency between RTPD and RTD.

Attachment: Illustrative Example of Non-pivotal Resource with Market Power

Figure 1 below shows a simple example of a non-pivotal resource with market power. Generator A4 is that non-pivotal resource in this scenario. This generator is in between two groups of resources – relatively cheaper resources that are essentially self-scheduling and more expensive resources with costs/DEBs much higher than the rest of the resources in the BAA. Depending on load demand, Gen A4 may be the marginal resource and can essentially set the price at any level up to $100/MWh through their own bids, or cause Gen A5 to set the price by withholding.

Figure 1              Non-pivotal Resource with Market Power Illustrative Example

Figure 2 below shows a more complicated scenario with two BAAs and 50 MWs of transfer capacity from BAA A to BAA B. In this example, Gen A4 is still the marginal resource that is setting the price at $80/MWh in both BAAs. Under the grouping approach, these BAAs would fail the RSI₃ test. However, the proposed option of an iterative pivotal supplier test would produce an RSI value greater than 1 by the second iteration that includes the two of the largest suppliers in BAA B (Gens B1 and B2) and one of the largest suppliers in BAA A (Gen A1). This means that Gen A4 would not be subject to mitigation, even though they can set the prices in both BAAs well above their estimated costs due to their position between cheaper and more expensive resources.

Figure 2              Non-pivotal Resource Exertion of Market Power

It is important to note that the current BAA-level MPM process also does not explicitly test for market power of resources that are not pivotal suppliers. Further, the ability of resources to exercise this type of market power may be less than that of a pivotal supplier. However, these resources are currently subject to mitigation if the BAA is deemed uncompetitive as a whole, because all resources in an uncompetitive BAA are subject to mitigation. By only mitigating pivotal suppliers, the proposed methodology would reduce the amount of times non-pivotal resources with market power are indirectly subject to mitigation.

[1] Price Formation Enhancements Straw Proposal, California ISO, August 22, 2025: https://stakeholdercenter.caiso.com/InitiativeDocuments/StrawProposal-Price-Formation-Enhancements-BAA-Level-MPM-Scarcity-Pricing.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 Issue Paper, Department of Market Monitoring, August 11, 2022: https://www.caiso.com/documents/dmm-comments-price-formation-enhancements-issue-paper-aug-11-2022.pdf

[4] 2024 Annual Report on Market Issues & Performance, Department of Market Monitoring, August 2025, pp 142-144: https://www.caiso.com/documents/2024-annual-report-on-market-issues-and-performance-aug-07-2025.pdf

[5] 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

[6] Price Formation Enhancements Straw Proposal, California ISO, August 22, 2025, p 54: https://stakeholdercenter.caiso.com/InitiativeDocuments/StrawProposal-Price-Formation-Enhancements-BAA-Level-MPM-Scarcity-Pricing.pdf.

[7] Ibid, p 58. $300/MWh reserve slack penalty price if reserve shortage < 70 MW and the energy bid cap is $1,000.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

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. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

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. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

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. Other Comments

1.Please provide any additional comments on topics not covered above.

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

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Energy Division Staff (“ED Staff”) appreciate the opportunity to comment on scarcity pricing and BAA-level market power mitigation and CAISO’s extensive analysis and facilitation of dialogue on these important topics.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

ED Staff generally support the direction for a grouping approach to market power mitigation (MPM). ED Staff specifically support Option 1 (identify pivotal group by starting with 3 largest suppliers and iteratively replace smallest member of test group until test passes) over Option 2 (identify minimal set of pivotal suppliers through sequential testing). Option 1 is a more straightforward and conservative approach that would ensure valid mitigation of bids and ensure efficient market operations. Some stakeholders expressed concern of over-mitigation, but analysis by DMM demonstrates the general infrequency of mitigation: “DMM’s analysis shows that the frequency that bids are actually capped by mitigation and that this mitigation effects market dispatch is very low. A recent analysis of 2023 WEIM data shows the actual impact of mitigation is very limited compared to the amount of bids that are subject to potential mitigation based on the structural pivotal supplier tests used as the initial market power screen”.1 In light of this data, the more conservative Option 1 is warranted. 

ED Staff request clarification on whether CAISO considers exports in addition to load when conducting MPM analysis- taking away the 3 pivotal suppliers - to see if load can be served? If not, has CAISO considered the potential associated problems?   

For example: 

Load = 45,000 MW 

Self-scheduled exports = 3,000 MW 

Internal generation = 48,000 MW and pivotal suppliers accounting for 3,000 MW of that amount. 

If only load is considered, then absent the 3 pivotal suppliers, load could be served (45,000 MW load = 45,000 MW non-pivotal suppliers). However, if the 3,000 MW of self-scheduled exports were included, CAISO could not serve load + self-scheduled exports without the 3 pivotal suppliers (i.e., load + exports, 48,000 MW > 45,000 MW of non-pivotal supplier load).? How would CAISO address such potentialities? 

[1]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.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

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 possible 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.2? 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 shedding3?, 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. 

Finally, CAISO asks “Should the market incorporate administrative pricing steps to reflect the scarcity value of emergency programs or operator actions taken by the CAISO BAA and other WEIM BAAs? If yes, we could begin a design process to define the appropriate triggers, administrative prices, and implementation tools?” 

As ED Staff have previously suggested,4 CAISO should maintain the status quo with regard to out-of-market actions tied to emergency demand response (DR) programs because raising prices through an administrative scarcity pricing mechanism or product could pose a direct conflict to established CPUC DR policy and cause a double-payment for CAISO customers (ratepayers).?When the CAISO market prices no longer reflect scarcity conditions because of out-of-market emergency DR, that is evidence that DR is working as intended because the scarcity conditions have improved and load has dropped.?SCE likewise encouraged CAISO not to consider arming load and manual load shedding as part of the list of actions not captured by price formation because “there will always be grid needs requiring addressing through reliability measures that cannot be included in the [market] optimization.”5? 

If scarcity pricing is implemented, ED Staff are concerned about California ratepayers double-paying for what CAISO categorizes as out-of-market DR programs: first with the DR program costs that are charged in rates, or general funded, and then with the higher scarcity prices charged to load in the CAISO market. For CPUC programs, the costs ratepayers pay include program administration and incentives, such as a bill discount in exchange for load shedding under certain conditions. If the load has already paid up front for the right to “interrupt” customers, it should not inevitably also have to pay remaining supply high prices when that customer interruption is occurring. Preventing double-payments by ratepayers is consistent with Public Utilities Code § 380(h)(7), which requires the CPUC to ensure that investments in DR are cost-effective. Increasing market prices to account for DR usage would eliminate the benefits of a DR programs’ cost-effectiveness. CPUC programs are legislatively mandated and targeted at addressing specific grid needs, lowering energy prices (the opposite of scarcity prices) and providing benefits to ratepayers. Increasing consumer costs with scarcity pricing because DR programs can target peak demand would run counter to these goals.      

ED Staff request more evidence demonstrating that these emergency DR programs are causing an issue. ED Staff suspect that emergency DR may not be an actual concern because according to a February 20, 2025, DMM report on DR Issues and Performance 2024, the only Energy Emergency Alert watch day that year was July 24, 2024.6  RDRR was not dispatched on that date and all other instances of RDRR dispatch were due to economic schedules in the day-ahead market.   

The implementation of scarcity pricing based on utility-specific or BAA-specific DR programs could be very challenging once EDAM begins. Scarcity pricing triggered by CPUC-mandated DR programs would necessitate close analysis of CPUC DR programs. Will CAISO be able to perform a close analysis on DR programs in other BAAs? As discussed below, inclusion of this topic in any final proposal may change the appropriate decisional authority.

[2] Comments on Issue paper - Price formation enhancements, July 13, 2022, Public Advocates Office.

[3] Ibid.

[4] CPUC Energy Division Staff comments from March of 2025, available at: https://stakeholdercenter.caiso.com/Comments/AllComments/d9653548-15a7-48d3-9844-42c865bf8209#org-0ce8afd5-08cf-40ba-9a57-7a8892f25148.

[5] SCE February 14, 2024 comments on working group priorities and scarcity pricing, available at: https://stakeholdercenter.caiso.com/Comments/AllComments/9c5f5397-76f6-41ce-83b5-91ec505d92f2#org-7377d607-05fb-495f-bad6-b3d88911f6e9.

[6] The DMM report is available at: https://www.caiso.com/documents/demand-response-issues-and-performance-2024-feb-20-2025.pdf 

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

Primary authority for the WEM Governing Body may be appropriate under the current straw proposal. However, ED Staff suggest that CAISO Board of Governors primary authority may be more appropriate for certain issues that only apply to the CAISO BAA, such as any proposal to implement scarcity pricing based on specific CPUC-mandated DR programs.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

ED Staff encourages consideration of Public Utilities Code § 345.5(b)(2), which directs CAISO to manage the energy markets in a manner consistent with, “[r]educing, to the extent possible, overall economic cost to the state’s consumers.” In this way, the CPUC and the CAISO have a shared interest in implementing solutions that reduce costs for ratepayers wherever possible.

Therefore, ED Staff suggest CAISO consider the following measures to ensure that the scarcity pricing mechanism it implements has sufficient guardrails to protect ratepayers:

• Use the appropriate priority for exports to ensure that CAISO ratepayers receive the benefit of resources that have been procured to support the CAISO BAA. 
• Limit the duration of scarcity pricing to prevent higher prices for a longer period than necessary and warranted.
• 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.
• Maintain the status quo with regard to out-of-market actions tied to emergency demand response (DR) programs because raising prices through an administrative scarcity pricing mechanism or product could pose a direct conflict to established CPUC DR policy and cause a double-payment for CAISO customers (ratepayers). 

1. General Comments

Please provide your high-level comments on the overall direction of the 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. 

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

Cal Advocates provides no response to this topic at this time.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

The California Independent System Operator’s (CAISO’s) Balancing Authority Area (BAA)-Level Market Power Mitigation and Scarcity Pricing Straw Proposal of August 22, 2025 and Scarcity Pricing Straw Proposal of August 22, 2025 (Straw Proposal) in part seeks to ensure that load shedding triggers appropriate market prices and sends accurate scarcity signals.[1]  The CAISO proposes three possibilities to address the issue: Option 1 is to include the shed load as actual load in the market optimization; Options 2A and 2B consider after-market (“ex-post”) price adjustments.[2]  Option 2A sets the price administratively to the appropriate bid cap.[3]  Option 2B re-solves the market optimization with the shed load, so prices are re-solved and may or may not be at the bid cap.[4]  All three of these options would end after a circuit breaker period.[5]

Scarcity pricing is useful if it delivers the right signals to supply and demand, in a way that will allow generators and LSEs to change their actions and support grid reliability.  The goal of scarcity pricing should be to improve market responses to scarce supply conditions in the real-time market at reasonable costs to ratepayers.  The CAISO must consider how market participants’ behavior will change if a scarcity pricing mechanism is implemented, and whether the increased cost to ratepayers provides commensurate benefits to reliability.

If the CAISO pursues a mechanism to apply scarcity pricing when load is shed, it should only consider the ex-ante design of option 1.

Cal Advocates is concerned that options 2A and 2B may not send the correct supply signals. Rather than inform the real-time market or directly affect dispatch, Options 2A and 2B adjust prices in the price correction process three days after the scarcity event to inform market settlements.[6]

Cal Advocates’ primary concern for Options 2A and 2B is that they do not create market prices to attract additional supply during a load shed event.  Rather, Options 2A and 2B assume that scheduling coordinators would be aware of the ex-post settlement process in order to provide additional supply or to continue to provide generation despite a price decrease caused by the load shed event.[7]  This is very different from Option 1’s design that informs the contemporary real-time price of energy.  This information can support the dispatch of ongoing generation and any additional supply through typical real-time operations.  Under options 2A and 2B, real-time market prices would not be informed by a scarcity pricing mechanism during the load shed event; suppliers would have to be aware that the settlement process would adjust prices upward after the fact.

For example, if an afternoon is forecast to have six hours of prices at $1000 or above, a battery might submit a bid to charge at $900 early in the afternoon, so there is enough charge to serve later load.  If grid conditions are unexpectedly tight in the early afternoon, LSEs shed load, and the price falls below $900, then the battery might be dispatched to begin charging.  It is not desirable to charge storage during load shed, but this could occur if the scarcity pricing does not change actual dispatch signals.

The CAISO has indicated that Option 1 will require a substantial effort.[8]  The benefits of Option 1  may be modest.[9]  If the effort required to implement Option 1 is prohibitive, found to be inefficient, or fails to provide benefits commensurate to the costs,[10] Cal Advocates recommends that the CAISO consider new alternative options or that it not implement load shed-scarcity pricing.

The proposed circuit breaker duration should be informed by expected load shed length.

The CAISO proposes to use a “circuit breaker” approach to mitigate systemic financial risk to the market,[11] such as high charges to load that will ultimately be borne by ratepayers.  The circuit breaker would force a cessation of scarcity pricing a certain amount of time after the scarcity pricing began.  The CAISO proposes a four-hour duration but seeks stakeholder feedback on an appropriate duration.[12] 

The CAISO notes that the proposed four-hour duration is a starting point for discussion but also points to the four hour circuit breaker design of the Mid-Content Independent System Operator (MISO).[13]  The MISO’s design is based on a multiple-tier Value of Lost Load (VOLL) where the duration is informed by load shed durations,[14] the VOLL of load shed durations,[15] and the startup times of resources expected to respond to scarcity pricing.[16]  Since the CAISO’s proposed circuit breaker would apply to load shed events that are not on a VOLL-based system, the circuit breaker duration should consider factors specific to the CAISO’s real-time market.

The CAISO should inform its circuit breaker duration proposal using data on likely lengths of load shed events as a starting point.  The CAISO should also choose a duration informed by potential costs to ratepayers and a consideration of how effective scarcity pricing can be to attract supply to mitigate a load shed event, which Cal Advocates separately recommends the CAISO investigate below.  Historical data points are sparse, as the CAISO BAA has only experienced two load shed events in recent history: August 14, 2020 load sheds lasted one hour and three minutes to two and a half hours, and August 15, 2020 load sheds lasted 8 minutes to one and a half hours.[17]  Both of these load shed events are significantly shorter than four hours.  Therefore, the CAISO should collect and present data on historical load shed events in the Western United States or other geographic area that would represent the Western Energy Imbalance Market (WEIM) footprint.  This historical load shed duration data should be considered along with a study of ratepayer costs associated with scarcity pricing to help determine a circuit breaker design that balances ratepayer impacts with reliability benefits.[18]

Another reasonable alternative would be for the CAISO to use a loss of load expectation (LOLE) study to estimate load shed events.  The MISO conducted such a study to help inform their own circuit breaker duration.[19]  The CPUC’s most recent LOLE study of the CAISO BAA found that total loss of load hours in a year lasted 0.204 hours at an LOLE level of 0.159.[20]  However, to estimate potential load shed lengths, an LOLE study would need to be able to produce loss of load hours on an event-by-event basis.  The CAISO should consider the feasibility of such a study to develop the circuit breaker duration.  Such a study would enable stakeholders to consider what percentile of studied loss of load event durations should inform a circuit breaker duration.

Finally, the CAISO should consider simulating the price changes that would occur if sudden supply loss led to load shedding during periods of historical grid tightness.  These analyses would provide useful data on the impact, and potentially the timing, of grid responses.

The CAISO should clarify when a load shed event ends.

The CAISO’s proposal to apply scarcity pricing during load shed events requires a clear definition of when load shed events begin and end for the purposes of scarcity pricing.  The Straw Proposal describes the start of load shed as when a balancing authority area operator formally declares they are curtailing firm load following CAISO declaring EEA 3 conditions.[21]  However, the time of load shed completion is less clear.  There may be a significant period of time between when the CAISO calls for load shed operations to cease and when the load shed is fully terminated by the transmission operators.[22]  In order to better understand the timing of scarcity pricing events, the CAISO’s next version of the scarcity pricing proposal should make clear what actions constitute the start, and particularly the end, of a load shed event.

The CAISO should estimate the incremental supply that scarcity pricing can attract and the costs of scarcity pricing

The CAISO states that scarcity pricing signals the level of system stress and allows prices to grow above typical market formulation to reflect the value of reliability.[23]  However, increasing energy prices to reflect the value of energy fails to consider the actual ability of scarcity pricing to attract more energy and mitigate or avoid load shed situations. The capability for scarcity pricing to attract incremental supply during load sheds, and scarcity pricing in general, must be estimated by the CAISO to justify the ratepayer costs of scarcity pricing.  A study of incremental supply that would respond to scarcity pricing, both the proposed load shed mechanism and the power balance constraint related scarcity pricing,[24] would estimate the ratepayer benefits or lack thereof of scarcity pricing designs.

In the next step of this initiative, the CAISO should provide a study that estimates how much incremental supply may be available to the real-time market beyond what is already committed when entering scarcity conditions.  The CAISO’s study should estimate the volumes of incremental supply that may be made available to the real-time market if prices were to increase beyond typical market price formulations, including power balance constraint violation penalties.  As CAISO’s Department of Market Monitoring (DMM) has noted, the time of use of scarcity pricing can matter significantly.[25] The CAISO study would help to inform whether additional ratepayer costs are necessary to mitigate or entirely avoid load shed events.  The study would also help to guide discussion about appropriate scarcity price designs,[26] including the expected timing of scarcity price conditions.

Cal Advocates performed a high-level estimation of the cost of load shed-based scarcity pricing and circuit breaker durations using market price conditions on August 14, 2020, one of two days in the last decade where load was shed in the CAISO BAA.  Load shed began at 6:38 PM and lasted until roughly 7:40 PM.[27]  The CAISO observed real-time prices falling at approximately 7:15 PM, from near the $1000 soft bid cap down to roughly $100 per megawatt-hour (MWh).[28]  The CAISO’s proposed load shed-scarcity pricing mechanism would have maintained some higher price between 7:15 PM and 7:40 PM in this instance, and for simplicity Cal Advocates assumes that scarcity pricing would have maintained prices at the $1000/MWh bid cap that occurred on that day.[29]  In this scenario, scarcity pricing would have increased the market price by $900/MWh for 25 minutes at load conditions of approximately 41,000 MW at a cost of $15,375,000.[30]  The CAISO would have settled some amount, likely most, of the real-time market load at day-ahead market prices; however, Cal Advocates does not have real-time settled load amount data to confirm this result.[31]  Cal Advocates recommends that the CAISO produce an analysis of costs of scarcity pricing to load along with the benefits study (namely the ability to mitigate or avoid load shed events).  The DMM may also be an appropriate group to conduct that cost and benefit study given its access to CAISO market data.

Separately, Cal Advocates requests the CAISO investigate why the OASIS system does not appear to have real-time price and load data available for August 2020.

The CAISO should differentiate between types of program funding when considering the scarcity value of out-of-market actions

The topic is in the early stages of development and received brief mention during the workshop and in the Straw Proposal.[32]  Out-of-market emergency actions that are funded by ratepayers or taxpayers are categorically different than other types of out-of-market emergency actions, and ratepayers should not be charged twice for these resources.  For this reason, as the CAISO considers and develops any proposal, it must take care to differentiate between these types of out-of-market emergency actions.

[1] CAISO states that currently load shedding “reduces the market’s view of demand.”  For example, if load shed occurs, the real-time market constructs prices for grid demand without the shed load, which “prevents the market price from fully reflecting the unserved demand.”  Straw Proposal at 49-50.

[2] Straw Proposal at 51.  Note that the Straw Proposal terms these options variously as “Option 2 alternative 1,” “Option 2, alternative 2” and “Option 2” and “Option 3.”  In these comments, the two Option 2 alternatives are termed “2A” (post-market process with administrative pricing) and “2B” (post-market process with pricing optimization).  Straw Proposal at 51-54.

[3] Straw Proposal at 51.

[4] Straw Proposal at 53.

[5] The CAISO’s proposed circuit breaker mechanism would create a maximum duration for load shed-scarcity pricing events to mitigate financial risks of market participants.  Straw Proposal at 53-54.

[6] The CAISO notes that they would use their price corrections process, which takes place 3 business days after the market run.  Staff Proposal at 52-53.  See also CAISO, CAISO Payments Calendar January 1, 2025 through December 31, 2025.  Available at: https://www.caiso.com/documents/california-iso-payments-calendar-2025.pdf.

[7] CAISO describes Options 2A and 2B as:

This option would create a post-market process to administratively set scarcity prices for the affected intervals after the market has run. While this approach would not provide a real-time price signal, it would ensure that settled prices align with the high value of reliability and send a clear, ex-post signal about the severity of the system event.  

Straw Proposal at 51-52.

[8] Straw Proposal at 54-55.

[9] Option 1 would provide an incentive for suppliers to remain available during potential load-shed events, but the potential reliability benefits from attracting increased supply to the real-time market may be small relative to reforms that send price signals with more advance notice. 

[10] Cal Advocates recommends effectiveness and benefit studies in response to questions below.

[11] Straw Proposal at 53.

[12] Straw Proposal at 54.

[13] Straw Proposal at 54.

[14] MISO derived potential load shed (referred to by MISO as “outage events” and “unserved energy events”) durations from its loss of load expectation (LOLE) model.  MISO, Updated Shortage Pricing White Paper: Value of Lost Load, Operating Reserve Demand Curve, and Pricing VOLL Circuit Breaker, November 2024 (MISO Shortage Pricing White Paper) at 14.  Available at: https://cdn.misoenergy.org/MISO%20Updated%20Shortage%20Pricing%20White%20Paper%20-%20Nov%202024663437.pdf.

[15] MISO Shortage Pricing White Paper at 11.

[16] MISO terms those resources as “Emergency Operations Resources.”  MISO Shortage Pricing White Paper at 14.

[17] These time ranges represent load shed operations undertaken by two CPUC investor-owned utilities (IOUs) which had unique load shed durations on each day.  August 2020 Final Root Cause Analysis at 35. 

[18] The CAISO seeks to design the circuit breaker in a manner to mitigate systemic financial risk: “Sustained periods of administratively high prices can create significant credit risk and potential financial defaults among market participants.”  However, market participants (namely load-serving entities including local regulatory authorities in WEIM) may be able to tolerate financial impacts more effectively than ratepayers who ultimately fund market participant costs.  Staff Proposal at 54.

[19] MISO Shortage Pricing White Paper at 13-14.

[20] Cal Advocates notes that those durations are aggregate, based upon specific planning reserve margins, and that the CPUC LOLE study had known errors.  CPUC, Appendix B to Loss of Load Expectation Study for 2026: Revised Slice of Day Tool Analysis, December 20, 2024 at 23.  Available at: https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M549/K797/549797826.PDF.

[21] Straw Proposal at 52.

[22] For instance, during August 2020 load shed events, IOUs 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.  

August 2020 Final Root Cause Analysis at 35.

[23] Straw Proposal at 14:

Scarcity pricing is a market design feature that ensures electricity prices transparently signal the level of system stress. It functions by allowing or administratively setting prices to move beyond the marginal cost of energy production and instead reflect the value of available operating reserves. This practice reflects the high value of system reliability, incentivizes resource availability, and motivates demand to reduce or shift usage during critical periods. 

[24] Straw Proposal at 54-55.

[25] DMM, Comments on Price Formation Enhancements Scarcity Pricing Working Group Sessions, February 27, 2025 (DMM Comments on Scarcity Pricing Working Group Sessions) at Section 1.  Available at: https://stakeholdercenter.caiso.com/Comments/AllComments/d9653548-15a7-48d3-9844-42c865bf8209#org-e0d42192-1f9f-4439-9d15-de4fad32020e.

[26] The load shed-scarcity price design as well as any other scarcity price designs that may be explored in the future.

[27] CAISO & CPUC & California Energy Commission, Final Root Cause Analysis Mid-August 2020 Extreme Heat Wave, January 13, 2021 (August 2020 Final Root Cause Analysis) at 28-29.  Available at: https://www.caiso.com/Documents/Final-Root-Cause-Analysis-Mid-August-2020-Extreme-Heat-Wave.pdf.

[28] The CAISO Open Access Same-Time Information System (OASIS) should contain relevant price data but appears to not have data for interval real-time LMPs for August 14, 2020.  Cal Advocates instead used a price graph presented by the CAISO Market Surveillance Committee (MSC) to estimate the timing and value of real-time prices.  CAISO MSC, Scarcity pricing background discussion, December 11, 2020 at 8.  Available at: https://www.caiso.com/Documents/ScarcityPricingBackgroundDiscussionHarvey-Presentation-Dec11_2020.pdf.

[29] The CAISO’s proposed Option 1 and 2B would calculate an ex-ante or ex-post market price based on supply and demand conditions which Cal Advocates is not able to estimate in this scenario.

[30] 41,000 MW * $900 / MWh * (25 min / 60 min).

[31] This load settlement information should also be in the CAISO OASIS but similar to pricing data is not available on OASIS.

[32] Straw Proposal at 60.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

Cal Advocates continues to support DMM’s previous characterization of scarcity price formation issues: “the real-time market software does not optimally position the resource fleet to meet potential high net load outcomes in these future time horizons”[1] beyond the 15-minute horizon of the flexible ramping product.  In the comments above, we emphasized that the CAISO should consider how these price formation changes would affect supply around a load shedding event.  Cal Advocates would like to emphasize that the CAISO should provide a discussion of how it expects market participants’ behavior to change in response to any proposed price formation enhancement.

[1] DMM Comments on Scarcity Pricing Working Group Sessions at Section 1.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Calpine appreciates the opportunity to comment on CAISO’s Price Formation Enhancements (PFE) Straw Proposal.

Early in this initiative, the CAISO committed to addressing system market power and scarcity pricing concurrently. This Straw Proposal deviates from that commitment by proposing ubiquitous system market power in the CAISO BAA without meaningful scarcity pricing improvements. As such, Calpine cannot support the proposal. Both elements of PFE should be linked to enhance price formation without degrading reliability. To that end, CAISO should condition any expansion of BAA-level MPM on the implementation of pre-emergency scarcity triggers and in-market scarcity pricing to better ensure reliability signals are preserved as the CAISO approaches tight supply conditions. Additionally, CAISO should provide stronger analytical support to the assertion that the CAISO BAA is not competitive and quantify the impacts of proposed changes on prices, imports, and mitigation frequency. Our key positions include the following:

Sequencing and Scarcity Pricing: Calpine supports the alignment of MPM design with scarcity pricing to preserve reliability signals. CAISO should not adopt BAA-level MPM expansion until pre-emergency scarcity triggers (EEA1–2, FRP shortfalls) and armed-reserve pricing in RTD are also adopted. Calpine supports an in-market scarcity design (Option 1) with calibrated circuit breakers and broadened triggers. Calpine recommends that CAISO publish a timeline for consideration of Operating Reserve Demand Curve (ORDC)-based scarcity pricing, or similar more gradual scarcity pricing signal reforms.

BAA-Level MPM Design: While grouping may reduce instances of unnecessary mitigation across the Extended Day Ahead Market (EDAM) footprint, it likely increases mitigation frequency for CAISO, muting scarcity signals. Calpine continues to prefer conduct-and-impact tests for MPM rather than the CAISO supported three-pivotal-supplier test. Calpine supports requests for CAISO to provide additional analysis to quantify impacts before adoption. Calpine opposes removing the CAISO BAA’s default competitive status absent a stronger analytical record and concurrent scarcity reforms.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

Calpine supports improvements to price formation and targeted mitigation but urges CAISO to pair any expansion of system-level MPM with robust scarcity pricing reforms and to ground decisions in transparent analytics.

1. Grouping approach: Calpine appreciates the goal of reducing false positives by recognizing broader regional supply, and we support integrating net position and focusing mitigation on pivotal suppliers. However, on balance we are concerned that the proposed grouping construct will increase the frequency and duration of system-level mitigation – particularly for the CAISO BAA – during stressed conditions. This risks suppressing legitimate scarcity signals, reducing intertie scheduling and EDAM transfer value exactly when these signals are most needed.

2. Removal of CAISO BAA default competitive status: Calpine does not support removing the CAISO BAA’s default competitive status absent a stronger analytical record and concurrent scarcity reforms. The CAISO BAA’s resource diversity, RA framework, and import dynamics differ from many WEIM/EDAM BAAs. Extending system-level MPM to CAISO without robust scarcity pricing increases the risk of unwarranted price suppression during tight conditions. 

Importantly, it is likely that CAISO’s competitiveness has materially improved in recent years due to significant new supply additions. From September 1, 2024, through April 1, 2025, 3,372 MW of new capacity came online, and an additional 2,163 MW is expected by June 30, 2025. In addition, the grid now includes over 11,000 MW of 4-hour lithium-ion batteries.[1] These additions represent a structural change in supply conditions that should be reflected in any competitiveness assessment. Therefore, CAISO should refresh its analysis using more recent data that captures this recent surge in capacity. Historical incidence of mitigation based on pre-2025 conditions may understate CAISO BAA competitiveness.

3. Excluding EDAM net buyers and integrating LSO: Calpine finds this direction conceptually reasonable, as it better aligns with actual withhold-able capacity. However, successful implementation requires methodological transparency and rigor to avoid misclassification and unintended mitigation. CAISO should explain interactions with dynamic imports/exports and storage State-of-Charge (SOC) and charging/discharging commitments, and show worked examples of LSO & net-position and their impact on pivotal outcomes and mitigation flags.

4. Identifying suppliers to mitigate: Calpine prefers an approach that mitigates only pivotal suppliers with the addition of an explicit impact screen. While a pivotal-only filter is a meaningful improvement over blanket mitigation, an impact test ensures mitigation applies only when a supplier materially influences LMPs, thereby reducing over-mitigation and preserving efficient offers.

[1] CAISO 2025 Summer Assessment Energy Matters blog

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

Calpine strongly supports reforms that ensure market prices accurately reflect system conditions as the CAISO approaches scarcity and emergency events. Current designs delay scarcity pricing until extreme conditions are present, which undermines reliability signals and import incentives. Below we provide our consolidated feedback on the three key areas: scarcity pricing during load-shedding, pricing armed reserves, and administrative pricing for emergency actions.

1. Scarcity pricing during load-shedding events: Calpine prefers Option 1 (in-market pricing) because it is the only approach that provides an immediate operational signal to influence dispatch and imports during scarcity events. Settlement-only designs (Options 2A/2B) fail to align incentives in real time and risk under-delivery of imports and flexible resources when they are most needed. We support the concept of a circuit breaker to manage credit exposure but recommend analyzing different time-periods rather than a fixed four-hour limit.

Calpine is concerned that limiting scarcity pricing to EEA3 load-shedding events will be ineffective in signaling the need for resources. CAISO’s proposal leaves a large gap where prices do not reflect tightening conditions. This approach misses opportunities to incent supply and demand response prior to curtailments (e.g., Warnings, EEA 1 or 2, contingency reserve stress, or “armed reserves” conditions). CAISO has previously acknowledged the need for more proactive, consistent scarcity signals. Stakeholders have highlighted that the CAISO Market Surveillance Committee (MSC) has been urging related enhancements since 2021.[2]

We urge CAISO to include pre-emergency triggers now, not defer them. CAISO should consider broadening triggers to include: Pre-emergency conditions (Warnings, EEA1–2), FRP shortfalls, and “Armed reserves” conditions where reserves are committed for energy.

Finally, CAISO should publish a clear roadmap toward an ORDC-based scarcity design and applicable across WEIM/EDAM to ensure long-term consistency and reliability.

2. Pricing armed reserves in RTD: Calpine supports pricing the opportunity cost of armed reserves in RTD now and extend to WEIM BAAs as an interim step rather than waiting for a full AS redesign. This aligns energy and reserve pricing and prevents price suppression during stress.

3. Administrative pricing for emergency actions: Calpine supports limited, transparent administrative pricing for clearly defined emergency actions (e.g., firm load curtailments, designated emergency imports, exceptional dispatch). We recommend the proposal should define eligible actions and thresholds, specify affected intervals and BAAs, and include a specific pricing formula (e.g., set LMP to the scarcity level plus original congestion and losses).

[2] See CAISO Market Surveillance Committee Update-Mar2021, and Opinion on Market Enhancements for Summer 2021 Readiness.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

Calpine supports CAISO’s objective to improve price formation across WEIM/EDAM, but the current balance of changes risks frequent system level mitigation without the complementary scarcity signals that reliability and efficient trading require. By (1) tightening the analytical foundation for BAA level MPM, (2) adopting in market scarcity pricing and earlier triggers, and (3) committing to a near term ORDC path, CAISO can deliver timely, durable improvements that align incentives and enhance reliability.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

The California Energy Storage Alliance (CESA) appreciates the opportunity to comment on the BAA-level market power mitigation (MPM) and scarcity pricing straw proposal. CESA is discouraged that after over three years of price formation enhancement working groups, the CAISO is proposing minimal changes to BAA-level MPM and scarcity pricing relative to when the working group began on June 9, 2022. 

The over-mitigation in the WEIM was a known issue prior to the start of the price formation enhancement initiatives given the rapid expansion to multiple balancing authority areas (BAA). Likewise, the CAISO held a system market power mitigation initiative[1] starting in late 2019, that was closed after the Summer 2020 load shedding event. This initiative proposed triggers by which only resources within the CAISO BAA would be mitigated and dismissed the need to mitigate imports. CAISO’s proposal to include CAISO in the grouping approach is a back door way to implement system MPM which the CAISO was unsuccessful in doing in 2020. The CAISO should include the CAISO BAA in the grouping approach, but any group with the CAISO included should be deemed competitive and not trigger MPM.

In addition, the CAISO previously linked the implementation of an operating reserve demand curve (ORDC) to the scarcity pricing design with system MPM. The argument was that while system MPM may reduce the voluntary supply made available to the CAISO markets, this would be offset by the increased incentive to offer from an ORDC producing prices higher than the marginal resource. While CESA in prior comments highlighted that this linkage was not appropriate, CESA also didn’t support implementing a system MPM design. CAISO now is proposing to implement system MPM without an ORDC which is a complete reversal of CAISO’s previous position.

CESA is also concerned that CAISO has postponed implementation of an operating reserve demand curve (ORDC) citing the need to address flexible ramping product performance and including ancillary service (AS) procurement across the EDAM/WEIM footprint. CESA agrees that flexible ramping product performance has been a multi-year issue that would benefit from a focused improvement effort. However, AS procurement is not a pre-requisite for implementing an ORDC. Since AS requirements must be met, the market optimization will relax the power balance constraint in the scheduling run before relaxing the AS requirement. This means that any ORDC will need a new “product” or requirement that can be relaxed before the power balance constraint using a demand curve.  Different stakeholders have used different terms – latent reserves, energy supply margin, excess spinning reserves, extended FRP, replacement reserves, or 30-minute reserves – which all represent a requirement that can be relaxed through an ORDC. In its presentation, the CAISO states “the long-term vision is to develop a robust scarcity pricing framework base on established ORDC principles.” Given that the price formation enhancements working group began on June 9, 2022, it is highly unlikely that a long-term vision could be realized before the end of the decade. 

The CAISO also claims that absent a must-offer obligation in the WEIM, there will be “false scarcity” because the bids don’t reflect actual headroom. The need for an ORDC in WEIM is precisely because there is not a real-time must offer obligation. As CESA highlighted in prior comments, latent reserves are “unloaded supply and demand response resources that have voluntarily submitted offers in the market”. The ORDC incentivizes voluntary participation of all available supply because suppliers know that energy prices will gradually increase above the marginal cost prior to reaching actual scarcity. Thus, even the marginal resource will earn a profit above its operating costs.

In summary, CESA recommends CAISO move forward with the BAA-levem MPM grouping approach with the CAISO BAA deemed competitive and develop an ORDC to enable prices to gradually increase prior to actual scarcity.  

[1] https://stakeholdercenter.caiso.com/StakeholderInitiatives/System-market-power-mitigation

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

1. CESA has long supported moving from an individual BAA assessment to a grouping approach for mitigation when WEIM transfer limits are binding. The current WEIM MPM has not evolved as the number of BAAs participating in the WEIM has increased. CAISO has demonstrated that the current approach is over-mitigating WEIM participating resources.  The grouping approach is needed in order to not extend this over-mitigation into EDAM. The CAISO BAA should be included in the grouping approach, but any group including the CAISO BAA should be deemed competitive. This would also ensure a competitive LMP always exists in the grouping approach.
2. CESA does not support implementing system MPM in the CAISO BAA. The question itself is misleading. The issue is not treating the CAISO BAA consistently with other BAAs, but whether system market power should be implemented. The CAISO is currently the only BAA in the WEIM/EDAM footprint that allows intertie bidding. Intertie bidding allows imports across WECC to compete with internal CAISO supply which limits the ability of internal resource to exercise system MPM unless the entire WECC is uncompetitive. If the WECC is uncompetitive, the WECC offer cap is how market power is mitigated.  The CAISO did not address mitigation of import bids in its prior system MPM proposal and did not in this straw proposal. In addition, CAISO has not discussed the scheduling incentives of additional exports in the event WECC is uncompetitive and CAISO mitigates all its resources, assumably below the WECC offer cap, during tight system conditions.
3. CESA supports removing EDAM net buyers from pivotal supplier designation and integrating LSO into the withholdable capacity calculation. CESA is heartened that the CAISO listened to the recommendations of the Market Surveillance Committee (MSC). CESA supports using prior-year meter data to create LSO profiles with an additional adder to cover load growth and inaccuracies from using a simple historical data approach. Similarly to default energy bids, a 10% adder could be used to cover uncertainty introduced using a simple approach.
4. CESA supports Option 1 to iteratively replace the smallest of three largest suppliers until RSI test passes and to not mitigate any smaller suppliers. While there is the potential for mitigating a supplier that is not pivotal, the implementation is less complex and is consistent with best known methods approved in other ISO/RTOs. The CAISO can monitor excessive mitigation and make future enhancements.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

1. CESA is discouraged by the scarcity pricing straw proposal. The three proposals are an attempt to ensure prices don’t collapse when operators shed load, i.e. the CAISO is IN scarcity. The primary purpose of a well-functioning scarcity pricing design is to incentivize additional supply prior to reaching scarcity. This is why the market design must have prices rise above the marginal cost resource as the likelihood of actual scarcity occurring increases. The CAISO market design lacks this feature. Option 1 would ensure prices in RTD are set by the power balance constraint by increasing the demand forecast. Option 2A would publish new prices by replacing the market energy cost with the power balance constraint relaxation parameter. Option 2B would re-run the market post binding dispatch to generate new prices. CESA notes that if CAISO implemented an ORDC, the pricing would reflect tight system conditions before and during actual scarcity. CESA is not opposed to a circuit breaker.
2. Ancillary services (AS) are held fixed in the real-time dispatch (RTD). This causes any AS scarcity pricing which impacted energy prices in the fifteen-minute market to evaporate. The CAISO proposal attempts to replicate the SRDC pricing tiers in RTD. CESA again questions why this proposal would be less difficult to implement than the actual ORDC. The ORDC based on latent reserves or energy supply margin would ensure prices reflect tight system conditions before and during actual scarcity. Lastly, it is inappropriate that CAISO would not apply the same price formation logic in RTD across the entire market footprint.
3. CESA believes there may be the need to apply administrative pricing during scarcity events; we recommend, however, developing an ORDC before tackling the incorporation of non-market emergency actions.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

Support

5. Other Comments

1.Please provide any additional comments on topics not covered above.

 No additional comments.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

For the last year, the CAISO appeared to strive to explore and develop a proposal that would balance the very different price formation enhancements mechanisms in this initiative, namely, system level market power mitigation and scarcity pricing.  Regrettably, the CAISO’s straw proposal now abandons this balance with a proposal titled heavily towards mitigation and away from a pricing system that would produce prices that reflect increasing system tightness.   While the CAISO’s proposed system level market power mitigation is not the most onerous system that the CAISO could have chosen, and includes a few thoughtful restraints, it imposes something that has never been applied to the CAISO Balancing Authority Area (BAA) before – system level market power mitigation that will be triggered if the supply remaining after the three largest suppliers has been removed from the supply stack (assuming that those suppliers all collude to raise prices, something that, in and of itself, would be a blatant and sanctionable violation of market rules) is not sufficient to meet demand.   While the CAISO’s analysis indicates that the CAISO’s energy market is structurally uncompetitive in a very small fraction of hours (for 2024, approximately 2 percent of all hours), the CAISO has never demonstrated or even alleged that market power has been exercised – only that the potential for doing so may exist.  

With regards to scarcity pricing, while the CAISO is proposing a few helpful fixes – such as ensuring that shedding firm load will not cause prices to fall like they did in August 2020 - the CAISO is not proposing to implement what most market participants expected from this initiative, namely, a system to increase prices as the level of system tightness increases before reserve shortages or load shedding occur.  Implementing system-level market power mitigation for the CAISO BAA but not implementing meaningful scarcity pricing does not represnt a balanced proposal and comes as a great disappointment after the CAISO and market participants undertook much work that seemed intent on driving towards a balanced proposal.  The CAISO should not move forward with this lopsided proposal but should withdraw it and replace it with a truly balanced proposal that does not abandon the work done to this point. 

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 

MRP agrees that adopting a grouping approach – which expands the pool of supply beyond an individual BAA – is an improvement over testing and mitigating individuals BAAs without consider the potential for extra-BAA supply. 

2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status.

CAISO’s proposal to treat the CAISO BAA as any other BAA is reasonable, to the extent that a test that considers three suppliers colluding to simultaneously withhold capacity (a blatant and sanctionable violation of market rules) and approximates only the potential for the colluding entities to exercise market power, not the actual exercise of market power, is reasonable.  MRP notes that the CAISO’s 2024 Annual Report of Market Issues and Performance found the structural competitiveness of the CAISO BAA (again, only a measure of the potential to exercise market power and not the actual exercise of market power) found that the number of structurally uncompetitive hours decreased significantly from 2021 to 2024, evidence of the 20,000 MW of new nameplate capacity that has been built in the last few years.  Given that this trend is likely to continue due to the new capacity being added due to the CPUC’s Mid-Term Reliability Procurement orders, MRP asks: will the move away from assuming the CAISO BAA is competitive be a transitory phenomenon, and, if so, is that move reasonable? 

3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 

MRP appreciates the Straw Proposal’s discussion of LSE positions in the assessment of structural competitiveness (at pages 40-42).  MRP agrees with excluding the supply position associated with Load Serving Entities’ Load Serving Obligation from a pivotal supplier analysis.  Given that LSEs should be well-regulated (and, therefore, have their market activity scrutinized), and that, in the cleraning price markets operated by the CAISO, an LSE bidding its net supply position in at high prices or withholding it from those markets would raise prices for all LSEs, including that same LSE, MRP questions whether it Is reasonable to assume that an LSE would try to exercise market power through its net supply position. 

4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

Given Option 1’s stronger likelihood of mitigating suppliers that are not truly pivotal, MRP prefers Option 2. 

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours.

MRP strongly prefers the first approach that would ensure that real-time prices do not drop after scarcity has been realized rather than the two ex post price proposals that would set scarcity prices only afterwards, during the settlement process.  To the extent that scarcity prices are intended to encourage additional supply during such events, only proposal 1 would accomplish that.  The ex post proposals might ensure more “accurate” settlement outcomes, but they would not affect dispatch during the scarcity event.

2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design?

CAISO currently bids in the energy associated with demand armed as reserves at the applicable Order 831 price cap. CAISO does this even though CAISO does not reoptimize AS procurement in the CAISO BAA in the real-time market. CAISO should extend this practice to other EDAM BAAs even though CAISO is not proposing to reoptimize AS in real time in those BAAs. 

3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

While CAISO Participating Transmission Owners (PTOs) may trigger emergency-based DR programs, such as Reliability Demand Response Resources (RDRR), separate from the CAISO’s direction for several reasons, including to address transmission emergencies, if the reliability DR program is triggered to address a supply/demand imbalance, including one resulting from loss of transmission, the affected area is experiencing scarcity and CAISO should trigger scarcity pricing for the area.. 

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

MRP agrees with that approach.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

On the CAISO’s September 4 call, a CAISO staffer observed that while there were more than 70 parties on the call, only four parties had commented during the call.   This observation implies that the CAISO may be considering market participant feedback on a purely volumetric basis, not based on the content of that feedback.  While MRP hopes this is not the case, MRP offers that if the volume of feedback is a significant factor in the CAISO’s consideration of market participant comments, perhaps CAISO should consider adopting a PJM-style stakeholder process based on sector-weighted voting.   

CAISO market participants that share common interests band together voluntarily in trade associations.  Having a trade association speak on behalf of those market participants instead of having each individual market participant reiterate the same position improves the efficiency of the CAISO’s process – an efficiency that will be lost if the CAISO expects or requires each individual market participant to express a position at a CAISO meeting.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

NCPA supports CAISO’s efforts to address over-mitigation observed today in EIM and prevent such results in EDAM.

NCPA generally does not support scarcity pricing. NCPA believes current bid caps are high enough to incentivize any additional generation to make offers above operating costs. NCPA supports the Straw Proposal not including value of lost load (VOLL) for administrative penalty prices. NCPA agrees that CAISO should focus efforts on the more fundamental price formation issues associated with the following:

1. Addressing ongoing issues and reviewing/refining how uncertainty products work after EDAM launch
2. Enhancing RTM AS procurement and potentially ending asymmetry where only CAISO BAA procures AS.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

NCPA supports CAISO BAA-Level MPM proposals as aligned with the objective of addressing over-mitigation that has been observed in the WEIM.  

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

NCPA does not support scarcity pricing in general nor CAISO’s specific proposal to trigger scarcity pricing when operators shed load.

At this time, NCPA believes that CAISO’s efforts should be focused on the two lasting price formation solutions referenced in the proposal as “foundational policy efforts”:

1. Addressing ongoing issues and reviewing/refining how uncertainty products (i.e., FRP, IRP) work after EAM launch
2. Enhancing RTM AS procurement and potentially ending asymmetry where only CAISO BAA procures AS.

CAISO’s proposal to trigger scarcity pricing when operators shed load misses the mark. By the time that load is shed, it is too late. Scarcity pricing typically involves raising pricing and incentivizing additional generation and capacity offers prior to load shed, to prevent it. NCPA does not support raising prices above current caps after load shedding has occurred and getting into pricing wars with neighboring BAAs for scraps of additional capacity. NCPA believes most real capacity is already committed to LSEs via various RA programs and there will not be much remaining during emergency conditions.

Moreover, this proposal has not been shown to be cost-effective and efficient, or that it will ultimately benefit ratepayers more than impose undue burdens on them. NCPA’s understanding is that there have been approximately three hours of controlled load reductions since 2002. Recently, CAISO has made tremendous progress in relieving bottlenecks in its interconnection queues and had commissioned approximately 13 GW of BESS and even more PV. While EDAM is fundamentally an economic displacement program, efficiently dispatching least cost generation, the fact that it is occurring across a wider footprint also enhances system reliability. Given the importance and stakeholder support for the two foundational policy efforts noted above, CAISO should act immediately to address issues in A/S and uncertainty products before adjusting pricing for load shed events.    

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

No comments. 

5. Other Comments

1.Please provide any additional comments on topics not covered above.

No other comments. 

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

• BAA-Level Market Power Mitigation (BAA MPM), PG&E:
  • supports shifting from individual BAA assessments to a grouping approach.
  • is seeking clarification on a few technical assumptions including pivotal supplier designations and mitigations as well as a process run through (see #2 below)
  • is seeking an impact analysis conducted by CAISO through simulation.
• Scarcity Pricing Enhancements, PG&E:
  • supports CAISO’s targeted, incremental changes to address immediate pricing issues within the current market design.
  • for load shedding price correction, supports an in-market solution as it provides the correct price signal to the market.
  • questions the use of a circuit breaker (in Option 1) in a reliability context as it may diminish the scarcity signal when still needed.
  • supports the proposal to price armed reserves in RTD but questions whether the potential benefits justify the effort at this time.
• Governance: PG&E agrees that most proposed changes fall under the WEM Governing Body’s authority but believes certain elements with direct and significant impact on the CAISO BAA should be considered joint authority with the California ISO Board of Governors’ authority.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

• PG&E supports transitioning from individual BAA assessments to a grouped approach but requests clarification on the technical assumptions.
  • Please provide an updated formulation of the Residual Supplier Index (RSI) test and explain how withholdable capacity will be used.
  • PG&E understands that net buyers are excluded from pivotal supplier designation under the current MPM. Can CAISO clarify whether this exclusion applies only to mitigation targets, or also to RSI formulation? Is it specific to LMPM or does it extend to BAA MPM?

• • We question the rationale for mitigating only pivotal suppliers. Market dynamics allow non-pivotal suppliers to raise bids in response to market power signals. This uncertainty makes it difficult to support a mitigation option based solely on pivotal status.
  • We request a full example illustrating the proposed BAA MPM process.
  • We would appreciate a side-by-side comparison of BAA MPM and LMPM, covering: (1) RSI formulation (2) Demand and supply calculations used in market power assessment (3) Mitigation targets (pivotal vs. all suppliers) (4) Competitive LMPM calculation
• In addition, PG&E requests CAISO to conduct impact analyses—ideally through simulation and at minimum comparable to working group efforts—to evaluate the interactive pricing effects from concurrent BAA MPM and LMPM implementation in EDAM and WEM.
  • We also seek insights on how concurrent implementation may affect congestion on CAISO BAA interties and imports into a BAA.
  • PG&E requests analysis on the impact of removing competitive assumptions for CAISO BAA. DMM’s prior findings suggest CAISO BAA is generally competitive. Using the grouping methodology without this assumption, how often would CAISO BAA be flagged as uncompetitive and subject to mitigation?
  • PG&E supports stakeholder feedback from the September 3rd meeting: data used in analyses should be comprehensive, covering representative peak and off-peak days to ensure mitigation is appropriately calibrated.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

• PG&E supports CAISO’s direction to address immediate pricing issues through targeted, incremental changes within the current market design.
• Regarding price correction during load shedding events, PG&E supports the concept of an in-market solution in order to provide the correct price signal during load-shedding events.  
• PG&E has questions regarding the only in-market solution: Option 1.
  • We request clarification on how the proposed mechanism interacts with existing pricing tools, including Reserve Shortage Demand Curves (RSDC) and other scarcity mechanisms outlined in Section 1.2.2 of the Straw Proposal.
  • If price correction is triggered in one or multiple BAAs, we would like to understand its impact on WEM transfer prices and quantities, as well as pricing effects in BAAs where the mechanism is not triggered.
  • For Option 1, please clarify why it applies only in the Real-Time Dispatch (RTD). Is this because load shedding decisions are exclusively made in RTD? Could such decisions occur in the Real-Time Pre-Dispatch (RTPD) and affect dispatch outcomes? If so, we believe Option 1 should also apply in RTPD under those circumstances. Operator insights would be appreciated.
  • We question the use of a circuit breaker mechanism in this context. While circuit breakers are generally appropriate in scarcity pricing, the proposed enhancement is triggered by actual reliability events—not by early warning signals of demand shortages. According to the Straw Proposal, CAISO recommends stopping price correction after four hours of continued load shedding. This could result in falling prices during an ongoing reliability crisis, sending a confusing signal to the market. Even if such events are rare, the rationale for this approach needs further explanation.
• PG&E supports the proposal to price armed reserves in RTD, but questions whether the potential benefits justify the effort at this point in time. Where the load-shedding price correction appears simple to implement, the pricing of armed reserves does not. PG&E is concerned that the level of effort required to implement this correction might be larger than the benefial impact of the change.  PG&E suggests that this amendment might fit better into a latter package of improvements that includes the full co-optimization of ancillary services.
• To better evaluate the enhancement, we request the following data from CAISO:
  • Historical load arming events and instances where armed reserves were actually deployed during contingencies
  • Expected price impacts
  • Insights on how price changes may incentivize additional supply

We also seek clarification on several points:

• • The enhancement is proposed only for RTD. Do load arming events occur exclusively in RTD, or can they also happen in RTPD? If so, the enhancement should apply in RTPD during those times.
  • During the September 4th meeting, the presenter stated that “armed reserves” are the same as “armed load.” Can CAISO confirm this and update the definition in the next proposal?
  • In Section 3.2.3 of the Straw Proposal, the new constraint is defined as:
    (reserves awarded – reserves dispatched) + slack = armed reserves
    Please clarify whether “reserves dispatched” refers to reserves used during a contingency or dispatched for energy.
  • We request a full example illustrating the proposed process.
• While prioritizing EDAM and DAME implementation is important, PG&E encourages CAISO to pursue long-term solutions to pricing issues after evaluating market responses across the expanded footprint post-EDAM.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

PG&E agrees that most changes in the proposal should fall under the primary authority of the WEM Governing Body. However, we believe certain elements—such as pricing armed reserves in RTD and removing the assumption that CAISO BAA is always competitive—have direct and significant impacts on the CAISO BAA and should therefore be considered joint authority of the California ISO Board of Governors. 

5. Other Comments

1.Please provide any additional comments on topics not covered above.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

PacifiCorp is generally supportive of the proposals in the Straw Proposal and believes it is a good starting point for developing improvements to market power mitigation (MPM) and pricing in the CAISO markets. Regarding BAA-level MPM, PacifiCorp believes the grouping methodology and recommended improvements to the pivotal supplier test will more accurately evaluate suppliers for market power. As such, PacifiCorp supports further refining the high-level designs proposed in the Straw Proposal.

With respect to the scarcity pricing proposals, PacifiCorp is also supportive of moving forward with determining a design for improving scarcity pricing during times of firm load shed. PacifiCorp believes more discussion is needed on the circuit breaker design as PacifiCorp would like to better understand the trade-offs of a time duration longer or shorter than four hours. The Company is not, however, in support of developing a consistent approach to pricing emergency actions into the Western Energy Imbalance Market (WEIM) because of the differences in how WEIM BAAs manage emergency system conditions.  PacifiCorp believes it would be very difficult to develop a consistent pricing mechanism that may only be triggered a few hours a year. Finally, PacifiCorp supports continuing to discuss whether a scarcity pricing mechanism based on the energy supply margin in the WEIM and Extended Day Ahead Market (EDAM) is worth pursuing. In short, PacifiCorp believes it could meet many of the stated goals of a robust scarcity pricing mechanism that applies consistently across the CAISO markets. 

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

Grouping Approach

PacifiCorp supports moving from the individual BAA assessment to a grouping approach. The grouping approach is expected to reduce the frequency of unwarranted MPM, which is an improvement to the current MPM framework used today. The test today is likely too restrictive as it only considers the supply within each BAA even when there is transfer capability between neighboring WEIM BAAs. Transfers are used to help meet load in the WEIM BAAs, and so the BAA-level MPM test should reflect that reality. The grouping approach appropriately considers the transfer capabilities between WEIM and EDAM BAAs such that suppliers are judged for market power within the entire group of BAAs that can transfer energy amongst each other. This more accurately reflects market dynamics and the opportunity for suppliers to exert market power. PacifiCorp believes the grouping methodology should be further developed in future meetings and draft proposals. Finally, the grouping approach should be used in both the WEIM and EDAM, which PacifiCorp believes is the CAISO’s intention.

Testing the CAISO for BAA-Level MPM

PacifiCorp supports treating the CAISO BAA consistently with other BAAs for BAA-level MPM. The consistent treatment puts all suppliers on a level playing field within the WEIM and EDAM.

Excluding Net Buyers and Incorporating LSOs

PacifiCorp believes the proposal to exclude EDAM net buyers and integrate LSOs into the withholdable capacity calculation is an improvement to the BAA-level MPM design. Like the grouping methodology, the proposed changes add real-world market dynamics into the BAA-level MPM test, thereby making it a more accurate test. Excluding net buyers from the pivotal supplier designation makes sense because net buyers do not have any incentive to exert market power. Similarly, integrating LSOs into the test reflects the reality that load-serving entities (LSEs) would not withhold capacity necessary to meet their own load. To answer the CAISO’s question of how to determine the LSO for each LSE, PacifiCorp would like to better understand the forecasting tools available to the CAISO that could be used instead of historical averages. While using historical averages seems like the simplest option, PacifiCorp has doubts that the averages would provide reasonable accuracy. PacifiCorp requests this topic to be discussed more in a future meeting.

PacifiCorp found the CAISO’s analysis of the grouping approach very useful. PacifiCorp’s assumption of the grouping approach was that it would generally decrease frequency of BAAs being subject to mitigation because the three largest suppliers in a group of BAAs would constitute a smaller share of supply compared to when a BAA is tested individually. The CAISO’s analysis showed the opposite to be true, which is confusing to PacifiCorp. PacifiCorp believes the results of the CAISO analysis may be different if net buyers are not considered a pivotal supplier and if LSOs are integrated into the three-pivotal supplier test. As such, PacifiCorp requests the CAISO test the pass rates for WEIM BAAs if changes are made to the market power mitigation test so that stakeholders understand whether the changes decrease or increase the frequency of WEIM BAAs being subject to mitigation.

Mitigating Only Pivotal Suppliers

PacifiCorp agrees with the CAISO’s proposal to shift from mitigating all suppliers in a BAA or group of BAAs to identify only pivotal suppliers within a group of BAAs. On the option for testing pivotal suppliers, PacifiCorp prefers Option 2 because PacifiCorp believes it is a fairer test for smaller suppliers. Many WEIM BAAs comprise of one large supplier, which serves as the LSE for the WEIM entity, and smaller LSEs or independent power producers. It seems likely to PacifiCorp that in many instances where a WEIM BAA fails the three-pivotal supplier test, it is because of the largest pivotal supplier only. In those cases, Option 1 for testing pivotal suppliers would still always subject the second and third largest supplier to mitigation and may even subject smaller suppliers to mitigation. PacifiCorp’s understanding of Option 2 is that it would be a more precise test for mitigating suppliers such that only the suppliers that are truly pivotal are subject to mitigation.  If Option 2 is not feasible to use in the EDAM or WEIM due to market clearing time constraints, PacifiCorp would prefer subjecting only the three largest suppliers to market power mitigation, assuming they failed the three-pivotal supplier test, instead of Option 1 because of the risk of mitigating smaller suppliers that have no opportunity to exert market power.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

Scarcity Pricing During Firm Load Shed

PacifiCorp supports the CAISO’s proposal to ensure that prices reflect maximum scarcity pricing during firm load shed events. At this time, PacifiCorp’s preference for pricing during firm load shed events is Option 2A due to concerns about the operational risks associated with Option 1. Option 1, which will include the firm load shed into the market optimization, will dispatch resources to meet a higher demand than what is physically on the system. In a way, the dispatch will be non-optimal considering the physical load. PacifiCorp believes this may cause challenges for operators to manage the potential over-dispatch of resources. Therefore, PacifiCorp prefers a post-market process that will not affect real-time operations. Regarding the Company’s preference of Option 2A over 2B, the administrative approach of Option 2A is appealing because it ensures prices are at the bid cap during firm load shed events. This gives market participants price certainty during firm load shed events, which in turn creates a strong incentive for resources to follow their dispatch targets and for demand response resources. PacifiCorp’s understanding of Option 2B is that market prices wouldn’t necessarily be at the bid cap during load shed events because the market optimization may come to a solution that clears resources at a price below the bid cap. While this may be the optimal dispatch of resources, it doesn’t offer as strong of an incentive during firm load shed events because market participants do not know what market prices will be.

Regarding the circuit breaker duration, PacifiCorp requests that the topic is discussed more in a future meeting. While PacifiCorp generally agrees with the need for a circuit breaker, there are different trade-offs with longer and shorter durations than four hours that PacifiCorp would like more discussion on. To help stakeholders understand these trade-offs, PacifiCorp believes the CAISO should share analysis on past firm load shed events. Specifically, it would be useful to see how long the firm load shed events occurred, what the resulting impacts to prices were, and how the prices impacted payments and charges to market participants.

Reflecting the Opportunity Cost of Dispatching Armed Reserves

Since the proposal to change RTD pricing when armed reserves are dispatched only impacts the CAISO BAA, PacifiCorp has no opinion on whether it should be used or not. With respect to whether a similar mechanism should be used in the WEIM BAAs, PacifiCorp believes it would be ideal to have a consistent design between the CAISO BAA and WEIM BAAs but it doesn’t appear to be a WEIM feature that is equivalent to ancillary services in the CAISO BAA. PacifiCorp believes there may be merit in making design changes to the Assistance Energy Transfer (AET) program so that it behaves in a similar way to what the CAISO is proposing with respect to dispatching armed reserves. However, PacifiCorp prefers that any discussions about AET are held in a future initiative on resource sufficiency evaluation enhancements so that the price formation enhancements initiative does not stall.

Administrative Pricing for Emergency Actions

Due to WEIM BAAs likely having unique emergency programs, PacifiCorp believes it would be difficult to create a uniform administrative pricing mechanism across the WEIM that effectively incentivizes market participants during emergency system conditions. It also seems like a complex and time-consuming process to develop a mechanism that may only impact prices for a few hours every year. As such, PacifiCorp does not support pursuing a consistent administrative pricing approach across the WEIM at this time.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

PacifiCorp agrees with the CAISO’s expectation that the WEM Governing Body will have primary authority over the tariff changes from the price formation enhancements initiative.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

While PacifiCorp does not yet fully support a scarcity pricing mechanism based on the energy supply margin in the WEIM and EDAM, the Company believes the topic should be left open for more discussion. Past discussions on a robust scarcity pricing mechanism that applies consistently across the WEIM have revealed that most stakeholders are supportive of strengthening scarcity pricing in the CAISO markets, but many were not supportive of changing the flexible ramping product or developing a new reserve product. This therefore leaves few features of the WEIM or EDAM that could be used to develop a scarcity pricing mechanism. In past discussions on using the energy supply margin for scarcity pricing, the CAISO raised important points about the lack of a must-offer obligation in the WEIM and potential for false scarcity. PacifiCorp also believes there may be challenges developing a scarcity pricing mechanism that appropriately reflects operational realities of the WEIM and EDAM with respect to the resource sufficiency evaluation and transmission availability.

However, there is merit in further discussing whether the energy supply margin in the WEIM and EDAM could be used to develop a scarcity pricing mechanism because it is common across the WEIM and EDAM, easily measurable, can be made transparent to market participants, and directly reflects the energy supply available to the markets. PacifiCorp believes that the discussion would be aided by analysis on past scarcity events. Specifically, reviewing data on the availability of supply in the WEIM during scarcity events, the resulting prices, and the system-wide bid stack would help stakeholders understand how supply margins in the WEIM changed throughout a scarcity event.  So, while PacifiCorp stops short of endorsing a scarcity pricing mechanism based on the available energy supply, the Company does support further evaluating whether it could be used to reflect energy scarcity in market prices for the WEIM and EDAM.  

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Comments of Powerex Corp. on

Price Formation Enhancements – Phase 2

Straw Proposal

Powerex appreciates the opportunity to submit these comments on the CAISO’s August 22, 2025 Price Formation Enhancements BAA-Level MPM and Scarcity Pricing Straw Proposal (“Straw Proposal”). 

In order to fully realize benefits for consumers, prices in wholesale electricity markets must be accurate, provide strong price signals for efficient behavior, and provide equitable compensation for supply needed to serve load.  As explained by FERC:

Locational marginal prices for energy and ancillary services ideally would reflect the true marginal cost of production, taking into account all physical system constraints, and fully compensate all resources for the variable cost of providing service.[1]

In seeking to achieve these goals, both FERC policy and best practices in other organized electricity markets in the U.S. include robust mechanisms to ensure prices are neither artificially high nor artificially suppressed.  These mechanisms include:

• Market Power Mitigation, which is intended to protect market purchasers in the limited circumstance that a seller attempts to exercise market power by offering its supply at a price above its estimated marginal cost.  When there is clear evidence of such behavior, market operators will replace the seller’s offer price with an estimate of the resource’s variable production cost.  When sellers’ offer prices are replaced without clear evidence of an attempt to exercise seller market power, however, it can lead to some sellers being forced to sell their output at prices that are below their cost, and to an elevated risk of inappropriately suppressed market prices that harms all sellers in that period.
• Scarcity Pricing refers to pricing mechanisms in organized markets that formulaically increase market prices above the variable cost of generation when there is an elevated risk of insufficient supply to serve all demand.  Organized markets that lack robust scarcity pricing fail to send accurate price signals for more supply to be made available when the grid is close to a reliability event, while suppressing the prices paid to sellers that do provide supply. 
• Fast-Start Pricing refers to the mechanism used in nearly all organized markets to include the cost of natural gas-fired peaking units in the market price.  In organized markets that lack fast-start pricing, market prices are suppressed below the actual cost of meeting load, harming all sellers while benefitting purchasers in the applicable hours.

Contrary to FERC policy and best practices in other organized markets, the Straw Proposal articulates that the CAISO plans to:

1. Expand the use of its already-aggressive practice of replacing sellers’ offer prices with formulaic offer prices, including in circumstances where there is no clear attempt to exercise seller market power;
2. Not apply robust scarcity pricing, so prices will not rise above marginal costs to reflect growing reliability risk; and  
3. Not apply fast-start pricing, so prices will exclude the cost of operating natural gas-fired peaking units to meet demand.

Taken together, the CAISO’s approach in the Straw Proposal represents a suite of measures that will serve to artificially and systematically suppress market clearing prices during the specific hours that the CAISO’s own Balancing Authority Area (BAA)  is a net importer of electricity from its neighbors. 

The chart below shows the average hourly imports into the CAISO BAA across each hour of the day for 2024, and identifies the hours most likely to be affected by the CAISO’s chosen approach.  (For completeness, Appendix A shows this chart separately for each month of 2024.)

The CAISO’s chosen course of action will systematically benefit California ratepayers by suppressing the market price their utilities pay when importing wholesale electricity from neighboring areas.  This will come at the direct expense of ratepayers outside California, since their respective utilities will earn suppressed revenues for their electricity sales in those same hours (resulting in less revenue to credit toward retail rates outside California).  Under the Straw Proposal, every entity that participates in the Western EIM and/or in EDAM, or that sells to the CAISO at interties at its boundary, will receive less than the fair, efficient and accurate market price they should receive for supplying electricity to California.  This includes sales from out-of-state flexible hydro resources, natural gas combined cycle and peaking resources, coal resources and those renewable generation resources that happen to be producing during the applicable hours.  This will effectively result in a transfer of wealth from ratepayers outside the CAISO area to ratepayers inside it. Importantly, this transfer of wealth is not recognized in any EDAM benefits studies, as those studies are largely based on simulations of generic organized market rules and are poorly-suited to evaluating the CAISO’s unique price-formation choices.

In Powerex’s view, the Straw Proposal is contrary to FERC policy and the best practices applied in all other organized markets.  The Straw Proposal ignores the strong opposition expressed by a broad range of stakeholders outside of California over the past several years whenever these same price formation issues have been raised. 

Specifically, in the Straw Proposal:

CAISO proposes to expand its already-aggressive replacement of sellers’ offer prices

Protections against the exercise of seller market power are important elements of any organized market.  However, most other organized markets seek to minimize interfering in competitive market dynamics and therefore do not over-ride a seller’s offer price unless there is clear evidence that:

1. A seller is attempting to charge excessively high prices; and
2. That seller’s offer price will actually elevate market prices significantly.

This is referred to as a “Conduct and Impact” test.  The CAISO has repeatedly refused to consider adopting the Conduct and Impact approach, choosing instead to continue with a very different and far more aggressive approach to over-riding sellers’ offer prices.  Under the CAISO’s approach, sellers’ offer prices can be overridden by the CAISO whenever supply conditions are deemed “non-competitive” by the CAISO software, but without requiring evidence that a seller is actually attempting to exercise market power or that the seller’s offer price will significantly increase market prices.  Several stakeholders outside California have repeatedly expressed concerns that the CAISO’s bid mitigation framework can result in excessive bid mitigation and artificially suppressed prices for all sellers, while forcing some resources to sell at prices that are below their actual marginal cost.[2]  Excessive mitigation can cause significant unintended consequences because, as FERC staff have noted, “measuring marginal cost can be a complicated endeavor. For example, fuel costs, particularly the costs of natural gas and fuel oil, can change substantially day-to-day and potentially within the day; further opportunity costs for some resources can be difficult to determine with precision.”[3] 

The Straw Proposal would expand the CAISO’s already-aggressive approach by adding to the circumstances under which sellers’ offer prices will be over-ridden by the CAISO. The CAISO made a similar proposal several years ago (at the time described as “System Market Power Mitigation”).  The proposal was highly controversial, and the CAISO temporarily abandoned it, only to re-introduce it now ostensibly as part of EDAM-related rule changes.

CAISO will not implement robust scarcity pricing, distorting market prices during tight grid conditions and harming all sellers

The need for market prices to rise to reflect tightening grid conditions has been clearly described by FERC staff:

Under [increasingly tight grid] conditions, prices should rise, inducing performance of existing supply resources and encouraging load to reduce consumption so that the system operator would not need to administratively curtail load to maintain reliability. A failure to properly reflect in market prices the value of reliability to consumers and operator actions taken to ensure reliability can lead to inefficient prices in the energy and ancillary services markets leading to inefficient system utilization, and muted investment signals.[4]

To support prices that reflect increasingly tight system conditions, other organized markets have adopted a framework that gradually increases prices formulaically as the quantity of remaining reserves declines. CAISO instead proposes to apply only “shortage” pricing, once supply shortages actually occur.  Non-market interventions by CAISO operators—a clear indication of scarcity in the market—will continue to be largely ignored in the calculation of market prices.

CAISO will not implement fast-start pricing at all and will therefore continue to exclude gas peakers from setting market prices, distorting market prices and harming all sellers

Every other FERC-jurisdictional organized market has implemented fast-start pricing, and FERC has repeatedly found that:

 [fast-start pricing] can advance price formation by more transparently reflecting the marginal cost of serving load, which will reduce uplift costs and thereby improve price signals to support efficient investments in facilities and equipment.[5]

Despite these fundamental goals, the CAISO and its Department of Market Monitoring (DMM) have long opposed implementing fast-start pricing, with the DMM expressing its concern that one result of fast-start pricing would be that “resources that are less expensive than the market clearing price would be paid substantially more through a higher market clearing price.”[6]

Closing Remarks

The Straw Proposal exemplifies the governance challenges inherent in a regional market in which the market operator is in charge of prioritizing, proposing, and developing market rules, but is accountable to a single state.  While a final policy proposal must be approved by the appropriate board, the content of that proposal—such as which price formation practices to pursue, and which practices to omit—is developed entirely by CAISO management and staff.  Unfortunately, despite the recently successful Pathways legislation, CAISO management is demonstrating in this stakeholder process that it, as market operator, can be expected to continue to pursue market design choices that benefit the interest of California ratepayers, often at the expense of ratepayers outside of California.  This is possible because the Pathways legislation, while an important step forward in the governance of CAISO markets, does not make CAISO management accountable to the Regional Organization, nor does it change the governance of the CAISO Board (i.e., the CAISO Board will continue to be appointed by the California Governor and confirmed by the California Senate).

Powerex reiterates that it seeks the adoption of price formation practices that result in market prices that accurately reflect grid conditions, are consistent with industry best practices, are equitable to both sellers and purchasers of wholesale electricity, and do not favor any particular region or group of stakeholders in the West.  Powerex believes that the Straw Proposal is not consistent with these objectives, and the underlying process for deciding the contents of the Straw Proposal is and will continue to be a major impediment to achieving well-functioning, impartial CAISO-operated markets.  Finally, Powerex notes that SPP’s Markets+ will take a different approach on all three of these topics, adopting industry best practices.  Specifically Markets+ will adopt the Conduct and Impact framework for market power mitigation, and will include both scarcity pricing and fast-start pricing, all of which will be applied in a similar manner to how these elements have been applied in other multi-state organized markets.

Appendix A:

The charts below summarize the average net imports into the CAISO Balancing Authority Area by the hour of the day for each month during 2024.[7]

As shown below, the CAISO Balancing Authority Area is consistently a net importer from the rest of the West outside of the solar hours.

[1] See Price Formation in Energy and Ancillary Services Markets Operated by Regional Transmission Organizations and Independent System Operators, Notice, Docket No. AD14-14-000 (June 19, 2014).

[2] See, e.g., Joint Comments of Select Entities on CAISO System Market Power Mitigation Revised Draft Final Proposal, at 1: “The commenters maintain that the broad application of a new CAISO system market power mitigation framework, if not carefully designed, has the potential to result in significant unintended consequences, including the potential to incorrectly suppress prices during periods of tight supply conditions[.]”

[3] Energy Offer Mitigation in RTO and ISO Markets (ferc.gov), at P 1.

[4] Shortage Pricing in RTO and ISO Markets

[5]  Fast Start Pricing in Markets Operated by Regional Transmission Organizations and Independent System Operators, Notice of Proposed Rulemaking, Docket No. RM17-3-000 (Dec. 15, 2016) at P 3.

[6] Fast-Start Pricing in Markets Operated by Regional Transmission Organization and Independent System Operators, Comments of the Department of Market Monitoring, Docket No. RM17-3-000 (filed Feb. 28, 2017) at 26.

[7] Source: CAISO OASIS.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

The Public Generating Pool (PGP) is composed of nine publicly-owned electric utilities, eight in Washington and one in Oregon, that work together on issues of common interest. The PGP members have a large presence in the Pacific Northwest, serving approximately 1.4 million customers with approximately 8,000 megawatts of non-federal generating resources, which is approximately 90% hydro. PGP members also purchase approximately 45% of the requirements power sold by the Bonneville Power Administration, who is a participant in the EIM. Two PGP members, Seattle City Light and Tacoma Power, participate directly in the EIM.

As stated in our 2/27/2025 comments on the scarcity discussions, PGP supports changes that improve price signals leading up to and during tight conditions. We believe changes at this time should align with the direction of the Pathways initiative, which indicates increased separation of the BA and MO roles of the CAISO BAA where feasible. Changes towards the Pathways model also implicate a goal of improved equity of participation and impact, and concepts that move the market away from the scarcity signal being based on a single BA’s AS procurement mechanisms align with this objective. The direction of the scarcity proposal, if broadened to address other previously discussed emergency or out-of- market actions by any participating BAs, can provide meaningful progress towards addressing the problem statements articulated early in the stakeholder process while aligning with the direction of moving towards the regional market and governance.  PGP supports addressing the “low hanging fruit” with the changes proposed, with modifications to cover a broader set of emergency conditions/actions that have historically driven illogical or inconsistent price signals as discussed earlier in the stakeholder process.  

PGP also generally supports the direction of the BAA-Level Market Power Mitigation which aligns with reducing the potential for mitigation when no ability to exercise market power exists, and recognizes the evolving footprint and enhanced competition in the market since the BA-level mitigation was introduced at EIM inception. Many new concepts introduced in the straw proposal may require additional detail and development. PGP supports pursuing an aggressive timeline to wrap up these items to maintain the target final approval of Q1 2026.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

1. PGP supports moving to the grouping approach vs individual BAA assessment.

2. PGP generally supports the idea of analytically driven policy changes, and consistent treatment between different BAAs with participants in the WEIM and the EDAM where feasible and appropriate. We also recognize that the CAISO BAA does not participate in the same way that WEIM BAAs do, with some unique market and price formation impacts due to market-based Ancillary Services procurement, Resource Adequacy program impacts on bidding behavior, intertie bidding differences, and resource types such as DR and emergency supply that differ from other BAs. These unique price formation concepts would need to be explored more thoroughly if the CAISO BAA is going to be included in the BAA grouping approach. PGP also shares concerns expressed by other stakeholders regarding the structure of the counterfactual analysis, which does not appear to demonstrate whether or not the CAISO is competitive, (which is analyzed separately by the DMM and generally has confirmed the competitive status of the CAISO BAA) yet shows significant impact on neighboring BAs during tight conditions should the CAISO BAA be included in the grouping. Given these concerns, PGP supports ongoing analysis of this issue to determine the need, and for now recommends that it may be appropriate to continue to deem the CAISO BA competitive until demonstrated otherwise and explored further with the requested analysis. PGP would like to understand any impacts to implementation and feasibility should the CAISO wait on this change in designation.

With EDAM implementation, we anticipate new market participants in EDAM areas and recommend that the CAISO expands monitoring and analysis to determine when the addition of local MPM may be required in EDAM BAAs, and/or when neighboring BAs may reach the threshold of sufficient diversity of supply to be deemed competitive for the grouping test like the CAISO BAA.

3. Evolving resource portfolios in the West may include significant renewable resources or hydro power. This can lead to significant hourly, daily, and seasonal supply variance among many market participants.  Such a variance undermines the validity of assuming that long-term “Net buyers have limited incentives to exercise market power because any attempt to inflate market prices to benefit their sales will disproportionately increase the cost of their purchases” under the current annual calculation methodology explained in the stakeholder meeting. Given this concern, PGP does not support extension of the long-term net buyer exclusion to EDAM affiliates, and instead we recommend the CAISO re-examine the logic of an annual net buyer test and exclusion from the pivotal supplier test for CAISO BAA affiliates to maintain equity across EDAM participants as intended in the proposal.

PGP supports incorporating Load Service Obligations into the witholdable capacity calculation and PGP agrees with the conclusions that the methods for capturing affiliates and any participation in neighboring markets need to be articulated further to be able to implement this design. Given that market participation among LSOs in western markets is likely to evolve and change for the foreseeable future, we have concerns that it may be difficult to formulate and maintain an accurate evaluation of net buyer calculations if they are based on backward-looking/historical analysis. For the concepts proposed it makes more sense to align with forecast methods for the market clearing and to provide mechanisms for BAs to submit a BA-specific methodology for how to most appropriately capture affiliate entities in the LSO calculation in alignment with the BAs own operations. Such an approach will require processes to submit updates to the calculations if affiliates change, perhaps as part of the registration process for any new SC with LSOs in participating BAs.

4. PGP prefers option 2 which focused on use of the witholdable capactity calculation for the reasons outlined in the straw proposal regarding error tradeoffs and accuracy.  The long-term net buyer concept should be removed from the existing process and excluded from any new mitigation procedures. All participants and affiliates should be subject to the same rules and calculations where feasible.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

1. PGP prioritizes the discussed tradeoffs of minimizing operational risk, enhancing price predictability, and applicability across markets. While we generally see the long-term goal as an in-market solution, the complexities and challenges of this given the differences between BAAs in the market have been explored thoroughly in this process, showing that this may not be achievable at this time. In order to address the most obvious concerns and to make progress now, PGP supports Option 2, Alternative 1 using administrative pricing during these intervals rather than a market re-run or in-market process. This alternative (Table Option 2) appears to be most compatible with other types of emergency actions and deployment of non-market resources that different BAs may have at their disposal, including the energy assistance program in the EIM. This can support improving consistency of impact and predictability of price impact across market participants. PGP would like to see further examples and discussion of how this would apply during other types of emergency actions and how the various price caps may be used in different examples in any draft proposal.

PGP supports the proposed circuit breaker duration of four hours with a plan to re-evaluate this as duration at a later date after implementation of other concepts included in this proposal.  

2. PGP supports improvements that will send more consistent signals between the RTD and RDPD during these conditions, and further discussion of how a similar mechanism can be developed for WEIM and EDAM BAAs.

3. PGP would like to see an expansion of the proposal to address price formation and scarcity signals during other out-of-market or emergency actions that may impact demand or supply during extreme system conditions as discussed in prior stakeholder meetings. These include out of market load conformance by the CAISO BA, emergency DR deployment, use of emergency supply (Reliability Reserve Deployment or potentially the use of Available Balancing Capacity that was not offered into the market), or the use of the Energy Assistance Program in the EIM. In general, we support addressing the most obvious examples of the market sending the incorrect or inconsistent signals leading up to and during these events. If the proposal is broadened to address price formation during other emergency actions on the part of BAs, this could be a meaningful improvement towards the problem statements articulated in the stakeholder process so far without continuing in the direction of the entire scarcity signal being based on AS procurement in a single BA. Any change should be designed in a way that it can apply to similar actions between EIM and EDAM entities and the CAISO BA.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

PGP agrees with this governance classification for the changes proposed.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

 No further comments.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

The Salt River Project Agricultural Improvement and Power District (SRP) appreciates the opportunity to provide feedback on the overall direction of the Straw Proposal. CAISO has presented several thought-provoking concepts; however, many lack sufficient clarity regarding their operational implementation, and the potential interactions among them require careful consideration before a proper evaluation can be made. Providing additional concrete examples and empirical analyses would significantly enhance the assessment process.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

SRP supports the principle of reducing over-mitigation and improving price equity.

1. It is not clear to SRP whether a grouping approach for assessment will eventually or occasionally comprise the entire WEIM footprint, and whether this is a potential concern. Additionally, the use of Marginal Energy Component (MEC) as the primary grouping criteria seems to allow detachment from any geographic proximity. The BPM (section-39-market-power-mitigation-procedures-as-of-aug-1-2024.pdf) identifies a Transmission Constraint as a key for identifying market power scenarios, which presumably are driven by the geographic nature of the transmission system. It may be helpful if the straw proposal addresses how this approach compares to other RTOs/ISOs.

SRP requests clarification that the grouping approach considers transfer connectivity and available capacity. To improve transparency and stakeholder understanding, SRP recommends CAISO provide examples that address:

• How groups are formed and merged
• How counterflows are calculated
• How the competitive LMP is determined for groups that pass mitigation

2. From an equity standpoint, SRP agrees with the concept that the CAISO BAA should be tested for market power on the same basis as other BAAs in the WEIM footprint. Including CAISO in the evaluation aligns with the principal of fairness in market design. However, SRP requests clarification on the results shown on page 28 of the straw proposal. As written, the paper suggests that including CAISO in the grouping increased the amount of mitigation, which is an outcome that seems counterintuitive. If CAISO’s inclusion results in more mitigation, further explanation would be helpful to understand the grouping logic and CAISO’s competitiveness. Additional examples would be helpful to explain this outcome and whether CAISO’s inclusion has unintended effects.  SRP agrees with excluding EDAM net buyers from pivotal supplier designation since the day-ahead market will fully schedule and settle both supply and load.

3. SRP agrees with the integration of LSO into the withholdable capacity calculation but disagrees with using estimated load in the calculation. CAISO historically can mis-forecast hour-ahead demand load and there is similar risk of error in forecasting LSO. More information is needed to understand the impact of LSO forecast errors. The risk of LSO error influencing an inaccurate withholdable capacity (WC) amount is significant enough to require additional study and testing.

4. As noted in Section 3.1.4, Option 1 does not vary much in design from current practice. SRP requests that the CAISO demonstrate that the outcome would result in improvement compared to present-day design. SRP also believes the computational impact of Option 2 needs to be considered in determining the appropriate approach. Mitigating group entities who do not have market power does nothing to mitigate market power but reduces incentive for entities to participate by potentially impacting reliability and overall supply.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

1. SRP stands by its previous comments that revamping FRP design and AS procurement is not supportable for WEIM-only entities due to the wide sweeping changes it would require with third party software vendors. Further, SRP does not believe BAs outside CAISO will benefit from the creation of an AS procurement tool if they are not participating in the AS market.

There is no change in our position of circuit breakers compared to previously submitted comments seeking to better understand the real-time impacts to CAISO and WEIM from implementing circuit breakers during long-duration shortage conditions.

2. Option 1 (real-time price signal) best reflects actual emergency conditions. The need to shed firm load should be every BAs last resort and be priced as such. A post-market process may not reflect real-time scarcity.

SRP encourages the CAISO to study how much time the “Pricing Armed Reserves” proposal adds to market optimization outcomes. There are several additional constraints introduced that could add significant time to the model run process and the impact should be known in advance.

There may be benefits for extending the scarcity price mechanism in Section 3.2.3 to WEIM which needs to be studied in greater detail. SRP agrees with the general conclusion drawn in Section 3.2.3 that a fully integrated market design would be more effective than the establishment of a temporary workaround that may quickly become obsolete. Additionally, this affords stakeholders the time necessary to test and study the feasibility of such a tool.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

SRP supports the WEM Governing Body having primary authority over initiative-related tariff changes. The WEM Governing Body is regionally representative and designed to be independent of any specific state interests. SRP believes this governance structure will best ensure equitable outcomes for market participants and stakeholders.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

It would be helpful for CAISO to cite the specific sections of the proposal in the individual comment requests. There are many overlapping compound questions which, as written, are difficult to dissect and connect back to specific sections of the proposal.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Please see responses below.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

Given the interconnected nature of the market and forthcoming roll out of EDAM, SDG&E is supportive of the proposal to transition to a process that would test BAAs in groups rather than individually. SDG&E also supports the objectives underlying this proposal, specifically to reduce over-mitigation, better reflect competitive conditions, and adapt to an expanded market footprint. Several stakeholders requested additional analysis as capacity has been/will be added in 2025, as compared to the 2024 data utilized in the analysis recap provided at the September 3 workshop. SDG&E supports these requests as additional analysis with updated data, including an analysis of both potential pivotal supplier test methods, would help to inform stakeholder feedback.   

Regarding the pivotal supplier test, CAISO provided two options. Based on the information available to date, Option 2, although lacking precedent, appears to more surgically address concerns regarding over-mitigation by, in CAISO’s words, finding the smallest possible group of pivotal suppliers. While Option 1 shares similarities with PJM’s approach and is less complex, it is also less precise. CAISO classifies Option 2 as potentially worth the increased Type II (failure to mitigate a pivotal supplier) error risk, but also likely requiring a higher level of regulatory justification due to its novel approach. One potential option may be to seek approval of Option 1, assess its effectiveness once implemented over a set period of time, and then seek approval to transition to Option 2 if needed. The additional analysis referenced above would help to facilitate stakeholder feedback on the best approach.

Regarding the other elements of the proposal, SDG&E supports excluding CAISO and EDAM net buyers from the pivotal supplier test as well as integrating Load Serving Obligations (LSO) into the withholdable capacity calculation. The pivotal supplier test is intended to mitigate market power—an action that net buyers have no incentive to take. Similarly, integrating LSO into the withholdable capacity calculation recognizes that an LSE has no incentive to withhold the capacity needed to serve its own load.  

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

CAISO’s stated goal for scarcity pricing is to ensure real-time market prices reflect the prevailing bid cap during firm load shedding events. SDG&E appreciates CAISO’s efforts to formulate three options, with the first being an in-market mechanism, and the remaining two providing post-market solutions. Each option has benefits and drawbacks as outlined in the Straw Proposal, but based on the information to date, it seems that only the in-market option would provide a real-time price signal that would influence dispatch during an event, consistent with CAISO’s stated objective. That said, CAISO flagged this approach as having the highest operational risk in that it could increase operator actions to manage ACE if the market is over-dispatching supply. CAISO also notes that this solution would only be available in the 5-minute market, not the 15-minute market, due to timing and certainty. It is unclear whether limiting this solution to the 5-minute market could result in misaligned price signals and/or whether this could reduce the effectiveness of the in-market option. Additional analysis would be useful in guiding stakeholder feedback.

SDG&E supports the concept of a circuit breaker as customer cost impacts are an important consideration. The Straw Proposal notes that four hours aligns with MISO’s design as approved by FERC, thus, pursuing four hours is logical from a regulatory perspective. However, it would be helpful if CAISO could provide additional analysis regarding the four-hour timeframe so stakeholders can better understand the implications. CAISO should also consider ways to monitor the circuit breaker’s effectiveness if implemented so that it can be adjusted in the future if needed.    

SDG&E’s understanding of the proposal to price armed reserves is that this is intended to address current pricing inconsistencies between the 5- and 15-minute markets to ensure that AS resources are optimized. Based on the information available to date, this is reasonable, and SDG&E is open to CAISO further exploring and analyzing this proposal. On the question of extending a similar mechanism to WEIM BAAs, SDG&E appreciates CAISO’s consideration of consistent price signals across WEIM and notes that additional analysis would be helpful as well. As noted in the straw proposal, the same logic that forms the basis of the CAISO-specific proposal also applies across WEIM, but the September 4 workshop presentation notes that developing a WEIM-specific mechanism now may result in a design that later becomes obsolete. It would be helpful to understand the magnitude of the issue within WEIM, and how the timeline for developing a solution compares to the timeline within which a footprint-wide AS co-optimization might be developed.

With respect to CAISO’s question on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions, SDG&E shares the concerns raised by the CPUC’s Energy Division and SCE that certain out-of-market emergency actions are ratepayer funded and using them as scarcity pricing triggers could result in duplicative ratepayer payments. To the extent this proposal is further explored, CAISO should adopt the guiding principle that the methodology should not result in duplicative ratepayer payments and CAISO should provide analysis demonstrating consistency with this principle for any proposed out-of-market emergency action trigger.  

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

No comment.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

No comment.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Shell supports CAISO’s scarcity-pricing reforms and targeted market-power mitigation. In particular, we support incorporating the real-time opportunity cost of re-optimized reserves into LMPs to extend and smooth the SRDC tail, so scarcity prices emerge before reserves are exhausted. This aligns CAISO with best practice in other ISO/RTOs. Shell also supports exploring footprint-wide AS procurement in EDAM to harmonize scarcity and performance incentives across BAAs.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

1. A structural approach is much needed. While the proposed grouping approach appears to be novel, and somewhat complex, it is likely to mark an improvement in the overall MPM design. There is a clear problem with the current MPM design and using the PBC shadow price as the only trigger for DCPA testing is not appropriate, and, as indicated by the analysis, leads to periods of over mitigation during intervals when entities do not have market power.

2. Shell is supportive of shifting to true parity and does not believe in special treatment for market participants. Treating the CAISO on level footing with all other BAAs in the market is appropriate and aligned with the enforcement of PBC at a BAA level. We recognize that more entities are likely to be flagged as potentially having market power, this doesn’t necessarily mean that they will fail the DCPA. Further, the net buyers provision may serve to partially offset this drawback.

3. The proposal to exclude EDAM net buyers from pivotal supplier designation and integrate LSO into the withholdable capacity calculation is sound and reasonable, given that a net purchasing entities are unlikely to be withholding supply from the market and have weak incentives to raise price or exert market power. Further, these mechanisms would serve to reduce the occurance of type 1 errors. 

4. Preference to mitigate only pivotal suppliers.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

1. Shell is supportive of option 1, given that it is the only option with a live market price signal component - this is market based and results in LMPs derived from the optimization – therefore aligned with principles of accurate price formation. We do not believe that an ex-post adder will foster accurate price formation in real-time. Regarding the circuit breaker concept, Shell recognizes that this is a necessary provision to prevent the occurrence of cap level pricing for prolonged periods of time, a situation which pose a solvency threat to market participants. However, we believe that a 4-hour limit is arbitrary and would support exploring a performance-based approach, perhaps considering the impact that elevated prices are having on attracting supply. Supportive of stepping out of the cap incrementally vs. removing the cap entirely.  

2. Shell is supportive of extending the RTD armed-reserves opportunity cost adder to all WEIM BAA’s now with the understanding that this design promotes consistency across the footprint and aligns dispatch + LMPs.

3. Yes, this should be applied whenever the out of market action removes demand from the market model or injects non-bid in supply to prevent distorting the price signal. We would propose consideration of emergency demand response, load shed, strategic reliability reserve dispatch or exceptional dispatch. Anything that is priced into the market construct does not need to be considered.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

WEM GB primary authority is appropriate given the impact that scarcity pricing and MPM will have on broader market price formation.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Six Cities’ Comments:  As discussed below, the Six Cities generally do not oppose the CAISO’s Straw Proposal on balancing authority area (“BAA”)-level market power mitigation (“MPM”).  The Six Cities have several questions and concerns regarding the CAISO’s scarcity pricing proposals. 

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

1.   Please comment on the proposal to move from an individual BAA assessment to a grouping approach.

Six Cities’ Comments:  The Six Cities do not oppose the proposal to move from an individual BAA assessment to a grouping approach as discussed in the Straw Proposal. 

2.   Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status.

Six Cities’ Comments:  The Six Cities agree with the proposal to treat the CAISO BAA in a manner that is consistent with the assessment of other BAAs in the application of the MPM test by removing the CAISO’s default competitive status.  As the CAISO’s analyses have shown, there can be intervals in which suppliers may exercise or have the opportunity to exercise market power. 

3.   Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO.

Six Cities’ Comments:  The Six Cities take no position at this time on the proposal to exclude Extended Day Ahead Market (“EDAM”) net buyers (but not entities that participate only in the Western Energy Imbalance Market (“EIM” or “WEIM”)) from the pivotal supplier designation, but, conceptually, the proposal appears to be a reasonable way to reflect in the MPM processes EDAM entities that both serve load and control supply offered into the markets.  In order to more fully evaluate the CAISO’s proposal, the Six Cities request that the CAISO provide additional information regarding how it applies this aspect of MPM within the CAISO BAA currently.  (See Straw Proposal at 40, stating that the “current Tariff prohibits the MPM process from designating CAISO BAA affiliates that are net buyers as potential pivotal suppliers in the RSI”).  How does the CAISO’s proposed approach for EDAM entities compare with existing determinations for CAISO BAA affiliates? 

In general, the Six Cities agree with the CAISO’s proposal to use the best estimates of load obligations that are available for the relevant market interval while minimizing impacts on software and business practices, but acknowledge the shortcomings identified by the CAISO of its reliance on historic data to identify which entities are net buyers in which intervals.  (See Straw Proposal at 42.)  It would be helpful to review examples of this approach in order to fully assess how well it may capture the relative positions of EDAM entities. 

4.   Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

Six Cities’ Comments:  The Six Cities remain open to the CAISO’s proposal to not mitigate all suppliers within a BAA in the event the BAA is determined to be potentially non-competitive.  The CAISO’s discussion of the benefits and tradeoffs among the two proposed options is helpful.  At this time, the Six Cities support further consideration of Option 1, because it appears designed to ensure that suppliers that may be pivotal are mitigated to the higher of their default energy bids or the competitive locational marginal price, rather than erring on the side of under-mitigation by applying no mitigation to suppliers that may be pivotal, as the CAISO identifies is the key risk of its proposed Option 2. 

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

1.   Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 

Six Cities’ Comments:  The Six Cities are unpersuaded that any one of the three proposed mechanisms is optimal for reflecting scarcity conditions during load-shed events and do not believe there is a significant need to adopt any of these at this time.  In particular, the two ex-post processes represented by alternatives 1 and 2 of Option 2 do not provide pricing signals (presumably apart from market participants’ awareness that load shedding will result in a pricing adjustment after the fact) and do not provide an opportunity for the pricing effects of the scarcity conditions to impact dispatch, as recognized explicitly in Table 4 of the Straw Proposal.  Ex-post price increases would 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.  Option 1 appears more effective at providing a price signal, but the implementation lift is identified as larger, and the CAISO notes that this option raises concerns of operational risk and may increase real-time energy imbalance offset.  If the CAISO opts to proceed with any of these options, it may be preferable to further consider Options 1 and 2 (alternative 2), despite their relatively high implementation effort. Although these approaches appear somewhat more aligned with the objectives of this initiative compared to Option 2 (alternative 1), it is far from obvious that any of the three measures are critical to adopt in the near term, especially given the competing implementation demands of other initiatives and the EDAM. 

The Six Cities continue to support development of a circuit breaker mechanism if any scarcity pricing measures are adopted, for the reasons discussed in the Straw Proposal (see Straw Proposal at 54).  As the market gains experience with any scarcity pricing, erring on the side of a shorter period of time before the circuit breaker deactivates the measures is preferable and will help prevent the assessment of excessive costs to load over an extended period of time.  For this reason, an initial period of two hours represents a reasonable starting point.  Data on the duration of Energy Emergency Alert level 3 events within the CAISO and the broader Western footprint may further inform the circuit breaker design. 

2.   Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design?

Six Cities’ Comments:  The Six Cities remain open to consideration of this proposal, but further stakeholder discussion and examples are necessary.  In particular, would it be feasible for the CAISO to assess the impacts and costs of this proposal having been in place during a prior scarcity event?  How frequently does the CAISO believe this measure would have impacted pricing in a manner consistent with the objectives of this initiative, and what would the magnitude of the pricing impacts have been?  The costs and benefits of this proposed change are unclear at this time, and the proposal’s seeming complexity makes it unclear if implementing this proposal is worthwhile use of resources and implementation effort.

In concept, the Six Cities support the extension of similar mechanisms to the Western EIM BAAs, but recognize that there are challenges with doing so pending integration of ancillary services into the WEIM market design.  The objective should be to provide comparable treatment of the CAISO and WEIM BAAs, and there may be a need to further assess how best to accomplish that objective if the CAISO moves forward with its proposal in the CAISO BAA.

3.   Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

Six Cities’ Comments:  The Six Cities agree with the CAISO’s observation that attempting to reflect in the market the “scarcity value” of out-of-market actions is challenging in light of the different emergency programs with different triggers, compensation, and operational steps (see Straw Proposal at 60) used by different Western EIM BAAs.  A “one size fits all” approach appears impractical to develop, and certainly not without extended stakeholder efforts, and it is not reasonable to adopt measures that will result in only CAISO BAA programs triggering scarcity prices.  To minimize asymmetric impacts, any scarcity pricing mechanism that is adopted should apply market-wide. 

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

Six Cities’ Comments:  The Six Cities have no comments on the governance authority discussion included in the Straw Proposal. 

5. Other Comments

1.Please provide any additional comments on topics not covered above.

Six Cities’ Comments:  The Six Cities have no other comments at this time.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Southern California Edison appreciates the opportunity to comment on the Price Formation Straw Proposal.   SCE comments are provided under the subsequent questions.  

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

BAA Grouping Approach 

SCE supports transitioning from the BAA-level Market Power Mitigation (MPM) to the BAA grouping approach, viewing it as a meaningful enhancement to system-level market power mitigation. In the context of EDAM and broader Western regional markets, SCE believes the grouping methodology will allow BAAs without binding transfer constraints to be evaluated collectively, better reflecting the economic realities of an interconnected grid. 

Treatment of CAISO BAA in the MPM Test 

SCE conditionally supports removing CAISO’s default competitive status and including it in the competitiveness test alongside other BAAs. This change should represent an improvement by ensuring CAISO is subject to the same MPM scrutiny. However, before offering full support, SCE requests that CAISO perform an analysis to evaluate whether the proposed changes will cause excess false positives, as a result of CAISO’s relative size to other BAAs, when the overall supply/demand balance indicates there should be significant excess supply.  

Excluding Net Buyers from the Pivotal Supplier Test using the Load Serving Obligation Test 

SCE supports excluding EDAM net buyers from pivotal supplier designation and incorporating the Load Serving Obligation (LSO) into the withholding capacity calculation. This approach should help to reduce the risk of mitigation even when conditions indicate there is a significant contestable supply.  This is particularly relevant for entities with substantial load obligations. 

However, SCE has concerns about using historical average load date to set the LSO. SCE believes this method will not accurately reflect current system conditions—particularly during extreme weather or peak demand events—and could lead to inaccurate mitigation outcomes. 

SCE recommends using scheduled load from the market power mitigation run (excluding virtual bids) or, if that is not feasible, a weather-adjusted historical average to better capture real-time obligations. Additionally, SCE seeks clarification on whether mitigation applies to the full generation portfolio or only the netted portion for entities that serve both load and generation.  For example, assuming an LSE has ten generators, each with a capacity of 150MW, totaling 1,500MW of supply.  Assuming the LSE’s load is 1,200MW, per the net buyer calculation, the LSE would have 300MW of excess supply (1,500MW – 1,200MW).  If the LSE is then subject to mitigation, which generation would be mitigated?  The entire 1,500MW fleet, or just 300MW of the fleet?  And if it is just 300MW (or two generators in this hypothetical), which two generators of the ten-generator fleet would be mitigated?  Please clarify the application of the mitigation.  

Supplier Mitigation Options within Uncompetitive Groups 

As described, SCE supports the adoption of Option 2 for identifying which suppliers to mitigate within an uncompetitive group. Option 2’s iterative process appears to better identify and mitigate only those suppliers that possess market power.  

SCE is concerned that Option 1 could easily mitigate all generators in an area if one or two of the generators are substantially larger and create a pivotal situation irrespective of size of the third generator tested.  SCE could support Option 1, if the Option 1 proposal were modified to include a rule that “if the area is pivotal with just two suppliers only the three largest suppliers are tested and mitigated.” 

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

Load Shedding Option Proposals 

SCE appreciates CAISO’s decision to limit its Scarcity Pricing proposal to apply only to load shedding events. This targeted approach is the practical step forward in an incremental approach to adopting Scarcity Pricing and is more likely to gain broad stakeholder support. 

SCE also supports CAISO’s decision to defer more complex and less mature proposals such as modifications to the Ancillary Services Scarcity Pricing Demand Curve (SRDC) and the Flexible Ramping Product (FRP).  These alternative proposals remain underdeveloped with mixed feedback from stakeholders, making any policy proposals difficult to properly evaluate. 

Out of the current proposal, SCE supports Option 1, the “In-Market” approach, as it offers real-time price signals during scarcity events. This is critical for transparency and for incentivizing voluntary demand response and other market behaviors.  Compared to the two ex-post alternatives, real-time visibility of scarcity pricing appears to be more effective. 

Additionally, SCE requests further clarity on the propagation of scarcity price signals under Option 1—particularly to neighboring BAAs—and whether congestion limits its spread. 

Reflecting Opportunity Cost of Dispatching Armed Reserves in RTD 

SCE does not support the CAISO’s proposal to additionally reflect AS marginal prices in RTD as established in RTPD.  The addition of the SRDC price tiers to the energy cost would not increase the capacity available for meeting reserve shortages and therefore would only serve to administratively increase the administratively set bid cap, whether $1,000/MWh or $2,000/MWH.  Further, because SCE does not believe this change should be implemented for the CAISO BAA, SCE also does not believe it should be extended to other EIM BAAs. 

Administrative Pricing to Reflect Out-of-Market Actions 

At this time, SCE does not believe that the CAISO should try to incorporate administrative pricing steps into the market optimization for all other out-of-market emergency actions that could be taken.  The above Option 1 covers the situation where firm load is armed and curtailed. Other out-of-market actions, such as exceptional dispatch, emergency load reduction programs, and dispatch of RMR units generally have compensation determined outside of the market optimization and if scarcity pricing were applied to these situations, customers would likely be concurrently paying for the use of out-of-market actions and paying an administratively higher price for cleared supply that was not sufficient to obviate the use of out-of-market actions.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

SCE supports subjecting these tariff changes to the primary authority of the WEM Governing Body.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

SCE does not have any additional comments. 

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

The Energy Authority (TEA) was pleased to see CAISO restart the Price Formation initiative this Fall and appreciates CAISO staff’s efforts to draft a Straw Proposal that consolidates their vision for potential solutions to the problem statements discussed by stakeholders and staff earlier in the process.

TEA supports incremental enhancements to the existing CAISO Market Power Mitigation and Scarcity Pricing frameworks and understands there are limits to what can be accomplished in the near-term through this initiative. That said, TEA still encourages CAISO staff and other stakeholders to focus more heavily on forward-looking solutions that meet the challenges of the next 2-5 years and that recognize much of what can be observed in market data from the last few years will be somewhat or mostly irrelevant in the years to come.

By the time elements of this initiative can be implemented, the fundamentals driving trade in Western power markets will have shifted considerably due to a combination of the following:

• Introduction of IRU/D and RCU/D products in the day-ahead market clearing, each with their own bidding complications, qualifiers, and impact to price performance between DA and RT;
• Movement to a multiple-choice GAP-Tie, LMPM-exposed bidding structure for frequently marginal supply and demand that has historically bid as effectively unmitigated System Resources or undefined-sink demand at CAISO’s individual intertie schedule points;
• Strong self-scheduling incentives for resources and transmission in the non-CAISO EDAM BAAs and the overall lack of cohesive congestion-revenue accrual and allocation policies across CAISO’s markets;
• Increased transmission costs and uplift exposure for third-party SCs in EDAM;
• Absence of explicit convergence bidding and liquid hub-based IST activity in the non-CAISO EDAM BAAs alongside robust markets for each in the CAISO EDAM BAA;
• Dissimilar pathways for uncommitted capacity to offer supply to the CAISO EDAM BAA vs. the non-CAISO EDAM BAAs due to the lack of an open intertie market for those areas, or to SPP’s Markets+ and RTO-E entities, both of which include open intertie markets;
• Departure of WEIM BAAs that currently provide significant surplus supply and transmission to the CAISO and other WEIM BAAs to SPP’s Markets+ day-ahead market or its RTO-E in the 2027-29 horizon;
• Near-term bilateral market seams between CAISO’s markets and SPP’s markets, as well as the long-term potential for market-to-market seams agreements;
• Ongoing proliferation of zero-marginal cost, highly-flexible storage resources across the region; and
• Increasingly heightened risk of hydro-year volatility, wildfires, and other climate-change related impacts to the western grid.

TEA recognizes the challenge of developing proposals in this environment and does not want to see CAISO or stakeholders be dragged into a state of analysis paralysis. Still, it is critical that CAISO and stakeholders attempt to design market enhancements that move in the direction of addressing the outcomes that can be reasonably expected based on market design and other decisions and factors that are more or less locked-in at this point.

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

1. TEA supports the move to a grouping approach as an incremental improvement on the existing program, provided it is capable of accurately identifying all supply that is or could be made available to serve system-level demand under constrained conditions.
   
   That said, TEA has observed that the optimal cure to market power concerns in an organized market is having well-constructed incentives for entities to maximize their economic market participation in liquid and open inter-regional markets, above and beyond what is required by LRA programs or any in-market MOO or RSE test. This includes having incentives to draw in transmission rights to support efficient economic dispatch in the market solution that may not automatically be included, as well as any supply that is available at the border of the given market footprint in both day-ahead and real-time. It also includes having a united and sensible congestion revenue allocation framework that reduces or eliminates the risk that competitive emergency supply will see adverse price impacts if making itself available during constrained grid conditions. TEA understands that most of these market design aspects are well outside the scope of this immediate initiative but mentions them here because they are such critical components of evolving CAISO’s markets to remain highly competitive, reliable, and efficient over time, which ultimately will reduce the need to find a “perfect” market power mitigation framework.
    
2. TEA does not believe that CAISO should predicate the move to a grouping approach on removing the CAISO BAA’s default competitive status.
    
3. Notwithstanding the comments below, TEA supports excluding EDAM net-buyers from pivotal supplier designations and integrating LSO into the withholdable capacity calculation. TEA stresses the importance of CAISO working with all EDAM LSEs in this context to understand their assets and obligations and of providing a sizeable margin for calculation error, to prevent false positives.
    
4. TEA expects Option 1 would have a lower risk of false-positive errors and therefore supports that option subject to thorough pre-implementation testing.
    

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

1. Notwithstanding its general comments below regarding the benefits of employing graduated scarcity pricing in advance of load-shedding events and regarding the need to ensure all market participants have access to available uncommitted supply and financial hedging mechanisms, TEA supports CAISO at a minimum implementing market enhancements to ensure market prices reflect scarcity during load-shedding events.
   
   If it were feasible to apply an in-market solution to HASP and RTPD, following initial application in RTD as the event triggered, TEA would strongly prefer that option as it would immediately send a fully-transparent signal that could be reacted to by all resources, including demand-side, within CAISO’s markets and at their border. An in-market solution would also more easily integrate with additional scarcity-pricing processes to create a holistic program. For example, if graduated scarcity pricing were applied in advance of a potential load-shedding event, such in-market pricing could peak during an actual event in alignment with this proposal and then be allowed to gradually back out of the solution as a BAA recovered from such an event. This would be more efficient overall than the proposed on/off scarcity price application and reduce the need for supply to guess when the scarcity pricing would be pushed into or pulled from the market solution. A circuit-breaker could still be applied in this integrated model by identifying the point at which the market would by default transition from during-event scarcity pricing to post-event scarcity pricing.
   
   Among the proposed options that CAISO has identified as being feasible at this time, however, TEA tentatively supports Option 2, Alternative 2: “A post-market process in which the pricing run is re-run for all intervals affected by the load-shed event, with the demand forecast adjusted (by having the curtailed load quantity added back into the load forecast).” In order to be able to fully support this option, TEA requests CAISO provide clear practical examples of how the process would be performed if such an event occurred in the CAISO BAA, a non-CAISO EDAM BAA, and a WEIM-only BAA. TEA also requests CAISO confirm there will be sufficient transparency provided to all market participants before, during, and after an event, as well as comprehensive review of outcomes.
   
   TEA requests CAISO revisit the circuit-breaker duration question with stakeholders once one of the proposed pricing options has been selected. TEA encourages CAISO and stakeholders to think holistically about how a circuit-breaker would interact with the market and impact decisions made by both supply and demand, and whether the circuit breaker should apply differently if the load-shedding event were driven by a failure of the market to attract sufficient supply or reduce flexible demand, vs. an unresolvable failure of infrastructure. For example, load-shedding could occur due to system-wide under-supply infeasibilities that could be resolved by increasing flexible supply or decreasing flexible demand. In this context, retaining the scarcity-price signal as long as it takes to return to a feasible in-market solution without shedding firm load may be appropriate, even if such an event extends longer than four hours. However, load-shedding can also occur in a sub-area due to a combination of high inelastic demand (e.g., heating demand during a prolonged cold-snap) and a lack of local generating resources and/or import capability due to forced outages. In such an event, maintaining the scarcity-pricing signal beyond four hours may have very little effect on the near-term ability to return full service to firm demand in the sub-area, and while the punitive effect of maintaining the scarcity-pricing signal could incentivize future solutions, it may not be appropriate under the current market construct to use the spot-market to send that signal, vs. relying on the local-regulatory authority to instruct forward capacity-based solutions.
    
2. TEA sees more value in other scarcity pricing approaches that can more easily be applied to the entire CAISO markets footprint and recommends CAISO defer this aspect of the proposal to future phases.
    
3. TEA supports triggering scarcity pricing when out-of-market emergency actions are taken by system operators but understands it may be difficult to find a metric that can be applied consistently across the entire CAISO markets footprint to identify which actions fit in this category. A strict interpretation could be any operator actions that intervene on the side of supply or demand and influence the marginal clearing point of the market, other than to correct for clear data-integrity issues. From that perspective, multiple types of interventions would be captured: discretionary load conformance, exceptional dispatch or out-of-market purchases to resolve any undersupply infeasibility, discretionary demand augmentation, receiving AET through WEIM, or use of ABC in WEIM beyond AS-based thresholds. A more permissive interpretation could limit that to only exceptional dispatch to resolve a system-wide undersupply infeasibility. TEA notes that this is another area where applying graduated scarcity-pricing in advance of an event or action would be more efficient overall as it precludes having to identify the exact on/off point where the system is or is not experiencing “scarcity” or a specific trigger has been tripped.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

TEA supports CAISO’s Governance expectation.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

As a next-step in the initiative and prior to issuing a revised Straw Proposal or draft Final Proposal, CAISO should hold a stakeholder workshop – in person if possible – for market participants and CAISO staff to look holistically at the market changes coming over the next 2-5 years and consider together whether the proposed enhancements are or are not likely to produce intended results given those expected changes.

1. General Comments

Please provide your high-level comments on the overall direction of the Straw Proposal.

Fundamental to a competitive wholesale energy market is accurate price signals. This was a core reason for moving from the zonal market back in 2009 to the nodal market we have today – more granular and accurate price signals improve overall market efficiency and inform the market where additional resources and transmission is needed most, which also supports a more reliable operation of the grid. Furthermore, it helps improve market efficiency and lowering costs to ratepayers by (1) incentivizing load to forward contract such that in the event of accurate price signals during scarcity conditions, load and ratepayers are protected from the exposure to higher prices, and (2) the more forward contracting that takes place the more supply the market will have and thus less likely to enter into tight supply and scarcity conditions.

WPTF has always been, and continues to be, supportive of CAISO’s efforts to improve price formation, recognizing the high priority placed on this initiative since 2021. As outlined in CAISO’s September 2024 Discussion Paper wrapping up Phase 1 of the Price Formation Enhancements initiative, there has been broad agreement among CAISO and stakeholders that robust price signals are essential, especially in light of the August 2020 blackout events. A strong pricing framework ensures that prices accurately reflect system conditions while guarding against the exercise of market power. In response to the 2020 blackouts, CAISO implemented several incremental changes to strengthen price signals during tight supply and scarcity conditions and committed to prioritizing scarcity pricing and improved BAA-level market power mitigation. These commitments were made to stakeholders and the Board of Governors with the clear goal of ensuring that market prices are both accurate and protected. However, five years later, CAISO’s recently issued straw proposal fails to meet the goals, objectives, or commitments made regarding robust price formation.

The proposal as currently drafted fails to promote accurate price signals and increases reliability risk. Furthermore, it directly contradicts the objectives and goals of this effort as well as the commitment the CAISO made to both stakeholders and the Board of Governors following the August 2020 blackout events. This proposal will not only suppress market prices during tight supply conditions (the exact conditions all stakeholders and the CAISO agreed are when we need to see market prices start to reflect scarcity conditions) but it will also increase the frequency of Type I errors (over mitigation) which runs directly counter to a goal of improved BAA level market power mitigation. Suppressed prices and over mitigation will only cause any additional supply that could be made available to the market during stressed system conditions to go elsewhere; this is especially important as we face an environment with two markets operating in the west.

We also want to take this opportunity to remind the CAISO and stakeholders that the CAISO also committed to only moving forward with BAA level market power mitigation being applied to the CAISO BAA so long as it is coupled with a robust scarcity pricing design that enables prices to gradually increase as supply tightens. This was even noted in the Sept 2024 Discussion Paper. Yet we now see the CAISO moving forward with BAA level market power mitigation design that will create Type I errors absent a robust scarcity pricing design. This proposed approach will undoubtedly put CAISO and the EDAM/EIM market at higher reliability risk. During tight system conditions across the western interconnect when the EDAM/EIM markets need additional supply, the combination of no scarcity pricing design and increased over mitigation will deter any of that supply from being made available; rather those suppliers are more likely to offer that energy to another market that has more accurate price signals, increasing the likelihood of reliability events.

CAISO is an independent market operator and is charged with ensuring efficient and reliable operations of the grid. We understand that often the CAISO must weigh its core function and principles against stakeholder interest. In this situation, that balance is obtainable through a robust scarcity pricing design. WPTF respectfully requests that the CAISO stick to its core functionality and follow through with the commitments made 5 years ago to prioritize a robust scarcity pricing design that includes a mechanism to allow prices to gradually increase above marginal costs as the market nears and enters into scarcity conditions in this immediate effort.

WPTF believes this is not an insurmountable ask; the CAISO can make a few changes as noted below, and as discussed in more detail throughout these comments, and will help improve system reliability through robust price signals.

CAISO should make the following changes to its straw proposal:

1. Include an ORDC type mechanism that is based on an energy supply margin that will allow prices to gradually increase as supply tightens in all markets (IFM, FMM, and RTD), across products, and across all BAAs (described in response to #5 below)
2. Expand the triggers used to determine when administrative scarcity pricing should be applied to capture other emergency out of market actions that will suppress market prices inappropriately during scarcity conditions
3. Improve the calculation of the counterflow of demand used in the RSI formulation to accurately test if the elevated prices in a given BAA are competitive or not as originally contemplated by the EIM BAA Level Market Power mitigation design (described in response to #5 below)
4. Continue to assume CAISO BAA is competitive, as supported by several studies, and not apply BAA level mitigation to the CAISO BAA

2. Comments on BAA-Level Market Power Mitigation

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach. 2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status. 3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO. 4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

1.Please comment on the proposal to move from an individual BAA assessment to a grouping approach.

WPTF generally supports improving the supply that is considered in the RSI calculation to better capture all available supply. Even though the grouping approach introduces significant complexities, grouping BAAs together more accurately accounts for supply that can be made available to the BAA.

We would like confirmation from the CAISO that the grouping approach proposal will increase the frequency of each BAA being tested. Today a BAA is only tested when a BAA’s energy price (SMEC plus transfer constraint shadow prices) is higher than the CAISO’s. Tomorrow, each BAA will be tested whenever there is at least one BAA with a higher MEC (SMEC plus transfer constraint shadow prices) than another BAA. Assuming this is accurate, we would like to better understand how this increase in frequency was normalized in the studies that shows the grouping approach will increase the pass rate of BAAs. Specifically, if a BAA interval was not tested under today’s approach, did that default to being part of the “pass” group? It may be useful to also see the data broken out to (1) only the intervals during which a BAA would be tested under today’s approach and (2) only the intervals during which a BAA is not tested under today’s approach but would be under the proposed approach.

Finally, we remain concerned with the added complexity the grouping approach introduces, especially the inability to accurately identify a competitive price that will set the mitigation floor. We believe how the competitive price is determined still warrants discussion, especially in cases when there is no competitive LMP due to the grouping approach design.

2.Please comment on the proposal to treat the CAISO BAA consistently with other BAAs in the MPM test by removing its default competitive status.

WPTF strongly opposes changing this assumption absent a robust forward looking study that shows the CAISO is structurally uncompetitive. Over mitigation poses real reliability risk, which is even further exacerbated absent a robust scarcity pricing design. WPTF has routinely asked for the past 5 years for a study that evaluates the competitiveness of the CAISO BAA (both in the IFM and real-time) that reasonably accounts for the additional supply that will be in the market by the time any market design would be implemented. While we appreciate the analysis that has been done in this policy effort, they represent more of an impact study that evaluates how often the CAISO would be subject to mitigation if the proposed approach is applied. Furthermore, the assumptions made in the study inappropriately ignores competitive supply and load serving obligations. Specifically, the study does not include import capacity which represents a significant amount of competitive supply especially during the net load peak hours when CAISO is routinely a net importer. It also does not account for load serving obligations of LSEs; for example, it is our understanding that the study assumes all of PG&E’s supply would be withheld despite knowing that PG&E will have to buy energy to serve its own load – thus it would never withhold capacity in a manner that would knowingly increase the price it has to pay for its own load.

Several of CAISO’s other studies to date continue to show that the CAISO BAA is structurally competitive and does not support removing the assumption. CAISO produced a study in March 2025 that showed of all the intervals in 2024 during which the CAISO BAA was import constrained and thus would be tested for uncompetitive conditions under today’s approach – it was only 3 intervals. Furthermore, of those 3 intervals NONE were found to be uncompetitive. Thus, this shows that the CAISO BAA in all of 2024 would never have been uncompetitive. Furthermore, the DMM does a competitive study each year for the Annual report that looks at how often the CAISO BAA would fail an RSI based on day-ahead supply and forecasted demand. The 2024 Annual Report continues to show very few percentage of hours during which the CAISO would have failed an RSI3 – less than 2%. One important thing to note is that both of these studies – the March 2025 and DMM Annual Report for 2024 – does not include expected supply to come online by the time any form of BAA mitigation would feasibly be implemented. Thus its reasonable to expect the percentage of hours in the DA during which the CAISO BAA would fail a RSI will only decrease over time.

3.Please comment on the proposal to exclude EDAM net buyers from pivotal supplier designation and integrate Load Serving Obligations (LSO) into the withholdable capacity calculation. Please provide feedback on the proposed approaches for determining LSO.

WPTF supports excluding all EDAM net buyers from being designated as potentially pivotal suppliers and we agree that the amount of capacity any one entity would reasonably withhold should be net of its load serving obligations. As noted in our summary of these comments, an entity will only exercise market power if the conditions exist such that its predictable, persistent, and profitable. An entity will not withhold capacity if it means the higher prices the generation would benefit from is more than offset by the energy it will have to buy at the higher prices.

Lastly, we also believe the CAISO should consider how it should treat supply that is offered in at a price point that for all intents and purposes is not trying to economically withhold. While we understand setting an offer price threshold is more of an art than a science, we believe discussions should be had. For example, if a wind or solar resource is offered in at -$150/MWh or even $0/MWh would we assume the entity is trying to economically withhold that capacity? This was a point raised by the MSC during the May meeting and one we believe warrants further discussion and possibly modifications to how the CAISO is calculating the withheld capacity.

4.Please comment on the two proposals to identify which specific suppliers to mitigate within an uncompetitive group. Please state your preferred option (if any) and provide your reasoning.

Generally speaking, WPTF supports the proposed approach that more accurately mitigates only those suppliers that are in fact pivotal. Given that this proposed approach will actually test BAAs more often than today it is imperative that the market design is as accurate as reasonably possible to help mitigate occurrences of Type I errors.

3. Comments on Scarcity Pricing

1.Please comment on the three proposals to ensure market prices reflect scarcity during load-shedding events. Please state your preferred option (if any) and provide your reasoning. Also, please comment on the proposed "circuit breaker" duration of four hours. 2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design? 3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

WPTF generally supports ensuring prices reflect scarcity conditions during load-shedding events. We appreciate that the CAISO has given thought to a few different approaches, each of which have pros and cons. While in-market solutions are typically preferred, we do understand that with this mechanism it could introduce some additional complexities that need to be considered. If the added complexities outweigh the additional benefit an in-market solution may have over a post-market process, then it may make sense to consider post-market processes. At this time WPTF does not have a formal opinion other than we encourage the CAISO and stakeholders to continue discussing the pros and cons of each approach so we can appropriately weigh the costs and benefits of each before deciding which approach to take.

Regarding the 4 hour circuit breaker, WPTF believes further discussion is warranted. WPTF supports a circuit breaker rooted in the ability of high prices to continue to attract further supply rather than solely a time limit. If the high price is attracting needed imports or continued demand response, it would be detrimental to reliability to simply drop the high price after a certain number of hours.  

Additionally, the 4 hour proposal seems somewhat arbitrary and also does not even capture the full AAHs. This is not to say that WPTF supports a 5 hour circuit breaker, but just to support the notion that 4 hours does not seem rooted in any meaningful analysis. Generally, WPTF believes that scarcity pricing is intended to send a signal to the market that the CAISO needs additional supply, and incentivize the additional supply to be made available. However, we also recognize that after some period of time the benefit of a scarcity pricing diminishes and is now just a high price the market is printing without the ability to attract any additional supply. At that point is when we believe a circuit breaker should kick in – once the market signals can no longer actually attract additional supply or it has resulted in cumulative cost that is the equivalent of a new resource, similar to what other ISOs have done.

2.Please comment on the proposal to reflect the opportunity cost of dispatching armed reserves for energy in the Real-Time Dispatch (RTD). Do you support the extension of a similar mechanism to WEIM BAAs, or should the CAISO wait for a fully integrated ancillary services market design?

WPTF is generally supportive of this element of the proposal as it will provide an adder to the prevailing energy price – which given the current policy of pricing reserves that are released into the energy bid stack at the bid cap (i.e., $1,000/MWh or $2,000/MWh) – it will create a price higher than the bid cap. This is a key element of a scarcity pricing design – the price should gradually increase above the marginal cost so one can distinguish between a market signal set by an economic offer vs a signal set by tight system conditions.

WPTF does seek clarification on if/how prices will continue once the system enters into load shedding conditions. For example, if prices prior to load shedding are $2,600/MWh (based on CAISO’s example when the operators are arming load) but the load shed occurs, will prices drop to $2,000/MWh again or remain at or above the price of $2,600/MWh? It seems to WPTF that prices should not decrease since system conditions have worsened in this example; however, going from a $2,600/MW price (pre-load shed) to a $2,000/MWh price (during load shed) sends the wrong market signal. Thus, we encourage the CAISO to ensure that all of the scarcity pricing proposal elements align such that the market will see increasingly higher prices as system conditions worsen.

3.Please provide feedback on whether the market should incorporate administrative pricing to reflect the scarcity value of out-of-market emergency actions. If you support this, what types of actions or programs should trigger administrative pricing, and how should the market incorporate the administrative prices?

WPTF believes that if out of market emergency actions are being taken to help prevent shortage conditions or during shortage conditions, those should be reflected in the market prices. Thus, we believe there are some additional out of market actions that should be considered triggers in this design element.

1. Using SRR – these resources are not available to the CAISO market except for extreme system conditions. At that time they are put into the market and dispatched alongside the other resources. When you add that amount of capacity into a market, it will naturally suppress prices, especially given the level of Pmin on these resources. However, if the market is leaning on these emergency resources to try and prevent system reliability events from occurring, it absolutely needs to be reflected in the price. Thus calling upon SRR resources should also be a trigger used to apply administrative pricing, otherwise we will see prices decrease even though we are in stressed system conditions.
2. AET – WPTF believes further discussions around if/how to include the use of AET as a trigger.
3. Emergency Demand Response – similar to SRRs, if the market is calling upon emergency resources to help prevent or address system reliability events the market prices should reflect that fact. It does not make sense to send a lower price when the market uses emergency DR resources – prices should remain elevated or increase.

4. Governance

1.Please comment on the CAISO’s expectation that tariff changes from this initiative will be subject to the primary authority of the WEM Governing Body.

5. Other Comments

1.Please provide any additional comments on topics not covered above.

WPTF continues to strongly support CAISO’s efforts to improve price formation, particularly through the development of a more robust scarcity pricing design. However, we believe the current draft of the straw proposal does not achieve the stated objectives of this policy effort, which CAISO committed to in 2021.

To strengthen the proposal, WPTF recommends two key improvements for consideration in this initial phase:

1. Inclusion of a scarcity pricing mechanism that allows prices to gradually rise above marginal cost as supply tightens. This feature is critical to providing higher reliability benefits during the most stressed system conditions.
2. Modification to the RSI formulation used in the BAA-level market power mitigation process. As currently structured, the RSI test extends beyond what was originally envisioned for BAA-level mitigation, increasing the risk of type I errors.

Scarcity Pricing

WPTF believes CAISO should adopt a robust scarcity pricing mechanism within the first phase of this initiative. Such a mechanism would promote efficiency and reliability by allowing prices to gradually rise above marginal cost as supply tightens, rather than only once scarcity conditions are reached. WPTF proposes an Operating Reserve Demand Curve (ORDC) framework based on supply margin.

Following the August 2020 blackouts, CAISO and stakeholders recognized the need for robust scarcity pricing. Accurate price signals during stressed conditions are critical for mitigating reliability risks and improving efficiency. Scarcity pricing provides important incentives:

• Immediate benefits: Suppliers are incented to make additional energy available as prices rise before shortages occur.
• Short- to medium-term benefits: Load-serving entities schedule more of their demand in the day-ahead market to reduce exposure to real-time scarcity prices.
• Long-term benefits: Entities are incented to forward contract more supply, making additional resources available to the market and reducing reliability risks.

WPTF believes CAISO should explore an ORDC construct triggered by a calculated supply margin. The supply margin is the remaining supply available to meet demand based on the supply made available to the market through offers. It’s also important to recognize that while AS procurement differs across BAAs (i.e., market procures for CAISO BAA while the other EDAM/EIM entities inform the CAISO how much AS they are carrying), we believe CAISO has sufficient information to adjust the calculation to accurately to capture the varying requirements.

As the supply margin diminishes, scarcity pricing would gradually increase prices above marginal cost, with price points along the ORDC curve determined by analysis of tight system days. Some discussion around the MW points and prices that make up the supply margin curve is needed but we believe it can be constructed in a similar way to the CAISO’s proposed constraint for when reserves are armed.

Stakeholders have raised several concerns about the potential for false scarcity under such a scarcity pricing design but WPTF believes these can be addressed. The first concern is that differences between Resource Adequacy (RA) and Resource Sufficiency Evaluation (RSE) frameworks could result in inconsistent or inaccurate assessments of supply availability, leading to artificial scarcity signals. A second concern involves how Ancillary Services (AS) are treated in supply margin calculations: specifically, whether AS obligations are being counted without including the supply-side resources used to meet them, which could understate available capacity. Lastly, there is concern that BAAs could deliberately withhold capacity, either economically (by offering it at unreasonably high prices) or physically (by not offering it at all), to create tight conditions and benefit from scarcity pricing. Below is a short description of how each of these concerns are addressed under a supply margin ORDC construct:

RA vs. RSE and Supply Margins: The difference in must-offer obligations between RA (used by CAISO BAAs) and RSE (used by all BAAs) does not distort the measurement of true scarcity under an ORDC type construct. Both RA and RSE serve as mechanisms to ensure that each BAA offers enough supply to meet its forecasted needs. These must-offer obligations are distinct from scarcity pricing logic, which is based on actual market conditions. Therefore, a low supply margin in a BAA with an RSE obligation is not a false signal—it reflects real conditions just as it would in an RA-based BAA.

Ancillary Services Accounting: The concern that AS requirements may artificially inflate demand in the supply margin calculation without properly accounting for the supply used to meet those AS obligations is mitigated by CAISO’s access to AS data for all BAAs, not just CAISO BAA. Non-CAISO BAAs tell the CAISO how much AS it is carrying and which resources are being used to meet that requirement. Thus, CAISO can adjust supply margin calculations to ensure an accurate representation of available capacity. This prevents the creation of false scarcity due to accounting inconsistencies.

Market Manipulation via Withholding: The risk of a BAA intentionally creating false scarcity through withholding is addressed in two ways. Economic withholding (e.g., bidding at high prices) does not remove the resource from the supply margin calculation, meaning it still shows up as available supply. If prices are used to exert local or BAA-level market power, CAISO’s existing mitigation tools would intervene. Physical withholding (i.e., not offering available capacity) is a direct violation of the CAISO Tariff and would trigger immediate enforcement action, including potential referral to FERC. Moreover, for manipulation to be profitable, an entity would need to accurately predict rare and persistent conditions while risking regulatory penalties, making such strategies highly impractical and risky.

Upon close analysis of the concerns, it becomes clear that the proposed ORDC construct, when triggered based on supply margin, does not introduce the risk of false scarcity. Instead, it enhances market transparency and reliability by using observable data and enforceable rules. The framework provides the right incentives to maintain efficient market operations thereby supporting both system reliability and fair pricing for all market participants.

Robust scarcity pricing is also critical in a context where multiple western markets may be competing for supply. A strong design ensures CAISO can attract available supply rather than losing it to markets with better price signals. Even under current EIM/EDAM restrictions on economic bidding at non-CAISO interties, scarcity pricing would send the correct incentives because administrative prices tied to supply margins apply regardless of bidding method.

WPTF strongly urges CAISO not to defer robust scarcity pricing until after potential FRP or AS reforms. Deferral would delay implementation by many years, given CAISO’s expected bandwidth constraints post-EDAM/DAME. Moreover, relying on reserve products or enhanced FRP would not achieve the objectives of scarcity pricing:

• Using existing AS products would require full re-optimization in both the FMM and RTD and would apply only within the CAISO BAA, inconsistent with the EDAM framework. There is no current plan to procure AS for non-CAISO BAAs thus should not be used for determining when CAISO should consider a robust scarcity pricing design.
• Creating a new reserve product solely to raise prices is not justified absent an operational need.
• FRP, while important to fix and enhance, is only procured in the real-time market and does not provide scarcity pricing signals in the day-ahead market.
• The IRP design in DAME, capped at $55/MW, would fail to send meaningful scarcity signals because procurement simply ceases once that cap is reached.

BAA-Level Market Power Mitigation – Modified RSI

WPTF believes the demand for counterflow in the RSI calculation should be modified to align with the original intent of the BAA-level market power mitigation (MPM) test. WPTF supports protecting the market against the exercise of market power. For market power to be exercised, uncompetitive conditions must be predictable, persistent, and profitable, such that suppliers can withhold capacity to benefit their portfolio without risking harm to themselves.

Prior to CAISO applying BAA-level MPM to the EIM BAAs, FERC required a study for each BAA demonstrating structural uncompetitiveness. The Department of Market Monitoring carried out those studies, and CAISO then applied the existing LMPM framework to transfer constraints in order to automate mitigation. WPTF is concerned that the current and proposed approaches are inconsistent with the original intent of BAA-level MPM and expand the mitigation test inappropriately. A simple modification to the RSI demand would realign the test with the policy’s intent while still achieving the objectives of this effort.

The purpose of BAA-level market power mitigation is to test whether elevated prices in one BAA relative to others are competitive or uncompetitive. In other words, whether the markup or premium in a BAA reflects competitive costs or the exercise of market power. The test should focus only on the markup component that a pivotal supplier can influence, not the system marginal energy cost (SMEC), which reflects the footprint-wide price and is reasonably assumed to be competitive. Otherwise, the test drifts toward examining system-wide market power, which is not under debate.

Price premiums occur when transfer constraints bind, raising the shadow price of those constraints. This is analogous to how internal constraints affect nodal prices. For example:

• If BAA 1 offers energy at $40/MWh and BAA 2 offers at $50/MWh, a binding transfer constraint creates a shadow price of $10/MWh. Prices in BAA 2 become $50/MWh, broken into a $40 SMEC and $10 transfer congestion cost (TCC).
• If a BAA 2 resource bids $100/MWh, the shadow price rises to $60/MWh, increasing the price in BAA 2 to $100/MWh ($40 SMEC + $60 TCC).

This illustrates that a supplier can only exercise market power on the transfer congestion component, not the full price.

Today, energy prices are composed of a SMEC and a TCC component (ignoring GHG, losses, and internal congestion components for simplicity), although CAISO currently lumps TCC in with internal congestion. Under EDAM, CAISO will combine SMEC and TCC into a marginal energy cost (MEC). Because the RSI test applies to the entire MEC and evaluates whether total BAA demand can be met without the largest suppliers, it implicitly tests the SMEC as well. WPTF believes this is inconsistent with the original EIM BAA-level MPM policy because the SMEC is footprint-wide and competitive. The RSI test should instead focus only on whether the TCC component is competitive.

If a supplier has the ability to exercise market power at the BAA level, it can increase the shadow price of the transfer constraint by ensuring the market must rely on energy from within the BAA. The appropriate question is whether the energy flowing against the prevailing transfer flow can be supplied absent the three largest suppliers. This is the same approach used in LMPM for internal constraints, where competitiveness is tested by evaluating whether counterflow can be supplied without pivotal suppliers.

For example, if a transfer constraint has a 100 MW limit and the net import into a BAA is 100 MWs, the constraint is binding and increasing the price within the importing BAA. However, even though there is 100 MW net imports into the BAA, there very well could actually be 125 MWs importing to the BAA and 25 MWs exporting; the net of the two keep the total net transfer of 100 MW within the transfer constraints limit. Thus the demand for counterflow in this example is 25 MWs and we believe this is what should be tested as opposed to the total demand within the BAA. Although CAISO only publishes net transfer values on transfer constraints, we believe there is sufficient data within the market to determine the gross flows on the transfer constraints (e.g., the 125 MW import and 25 MW export in the above example).

This adjustment would realign the RSI formulation to properly test whether transfer congestion prices are competitive. It also ensures that part of the LMP, the SMEC, remains assumed competitive, allowing CAISO to always identify a competitive LMP floor for mitigation.