Comments on Aug 10 working group

1. Please provide your feedback on the Guiding Principles presented in Working Group Session #2; Efficiency, Simplicity, Transparency, and Feasibility.

2. Please provide your feedback on any additional Guiding Principles you feel should be incorporated.

3. Please provide your perspective on the challenges/Problem Statements you would like the Working Groups to explore further, and if you would be interested in presenting to the community on said problem statement/challenge.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Group Sessions 1&2, or for consideration for the next Working Group.

1. Please provide your feedback on the Guiding Principles presented in Working Group Session #2; Efficiency, Simplicity, Transparency, and Feasibility.

PG&E generally supports the Guiding Principles discussed at the second working group session on August 10, for scarcity pricing. 

PG&E supports CAISO’s approach to first identify the price formation issues that CAISO is addressing, and then define the scarcity pricing problem statements. 

PG&E believes one additional general Guiding Principle should be added, which is that all issues and problem statements should be supported by data analysis.  

As a follow-up to the first and second working group sessions, PG&E expects the forthcoming workshop on scarcity pricing to assess how the mechanisms in place are aligned with the defined principles and identify the gaps and needed analysis. 

2. Please provide your feedback on any additional Guiding Principles you feel should be incorporated.

See responses to question 1. PG&E believes that the Guiding Principles should include that all issues and problem statements are supported by data analysis. 

3. Please provide your perspective on the challenges/Problem Statements you would like the Working Groups to explore further, and if you would be interested in presenting to the community on said problem statement/challenge.

See responses to question 1.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Group Sessions 1&2, or for consideration for the next Working Group.

See responses to question 1.

1. Please provide your feedback on the Guiding Principles presented in Working Group Session #2; Efficiency, Simplicity, Transparency, and Feasibility.

PacifiCorp appreciates the opportunity to provide comments on Working Group Session #2. PacifiCorp generally agrees with the Guiding Principles presented at the workshop and believes they can be used as a foundation for developing policy. PacifiCorp expands on the Guiding Principles with the following feedback:

Efficiency

• PacifiCorp views this Guiding Principle as the ability for any price formation enhancement to consistently incent the desired market behavior when it is triggered. For example, if the goal is to incent supply external to the CAISO to transact in the EDAM and WEIM, then an efficient scarcity pricing mechanism would lead to more external supply participating in the market. PacifiCorp agrees with WPTF’s comment that this Guiding Principle could also be ‘effectiveness’.

Simplicity

• PacifiCorp believes that any proposed price formation enhancement should include a common understanding by all market participants to foster a market in which market outcomes are expected and understood. While PacifiCorp agrees with many stakeholders who commented on the complexity of scarcity pricing in general, PacifiCorp believes there may be improvements to the market that are easy to implement and will lead to improved price formation. As an example, the CAISO does not currently give detailed reasons to scheduling coordinators and instead uses a blanket statement of “Market Adjustment” when adjusting schedules. As such, it is difficult for scheduling coordinators to assess the risk their export schedules may carry. During the week of August 14, 2023, PacifiCorp experienced a high volume of day-ahead deals that did not clear the IFM and RUC and therefore were rebid in the real-time market. During times of supply scarcity in the WEIM footprint, it is possible for a high volume of day-ahead deals to not clear the IFM and RUC. These deals then must be re-bid in the real-time market. However, it is difficult for scheduling coordinates to see how much supply is at risk of being adjusted down. There is currently not an efficient way for scheduling coordinators to assess the risk of their schedules being adjusted. This uncertainty then contributes to prices rising close to the hard bid cap in different regions across the WEIM footprint. If scheduling coordinators better understand the risk, they can price their schedules accordingly, which will improve overall price formation.
• PacifiCorp does not necessarily believe that ‘simplicity’ can be equated with ‘standardized’, as suggested in the Working Group Session. There are differences between how WEIM entities interact with the market compared to California LSEs. There may be pricing mechanisms that incent desired behavior from California suppliers, but that have no effect on supply external to California. It is PacifiCorp’s opinion that this initiative should be trying to solve a problem that is ‘standard’ among all entities that transact in the CAISO markets, but that the solution may need to account for the differences that currently exist between market participants.

2. Please provide your feedback on any additional Guiding Principles you feel should be incorporated.

3. Please provide your perspective on the challenges/Problem Statements you would like the Working Groups to explore further, and if you would be interested in presenting to the community on said problem statement/challenge.

During the working group sessions, there have been numerous comments on improving price formation to incent excess, external supply into the EDAM. PacifiCorp believes this is a worthy goal of this initiative but would like to point out that the discussion may need to be expanded beyond improving scarcity price signals. There are other market dynamics, including export adjustments in the CAISO markets, that contribute to entities transacting in the bilateral market instead of in the CAISO markets. A more holistic view of the interplays between the bilateral market, EDAM, and WEIM may be needed to properly incent excess Western supply.

In general, PacifiCorp advocates for more discussions that consider the entire WEIM and future EDAM. PacifiCorp acknowledges that California stakeholders make up a large proportion of the stakeholder community in CAISO initiatives. However, price formation improvements will be most effective if they fully consider the interactions between the various markets and resource adequacy programs in the West. So, while PacifiCorp does not take issue with hearing about and understanding the perspectives of California entities, we also urge the stakeholder community to consider the overall market footprint when considering price formation improvements.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Group Sessions 1&2, or for consideration for the next Working Group.

So far, PacifiCorp has been pleased with how the first two Working Group sessions have gone. There has been a lot of good discussion from an array of stakeholders. PacifiCorp would like the CAISO to consider having a working group session every two weeks instead of the current pace, especially as the working group begins to dive into more technical topics. This will give sufficient time for stakeholders to have discussions with SMEs within their organization. Hopefully, this will help stakeholders come to the working group sessions with a broader set of perspectives to contribute to discussions.

1. Please provide your feedback on the Guiding Principles presented in Working Group Session #2; Efficiency, Simplicity, Transparency, and Feasibility.

The Salt River Project Agricultural Improvement and Power District (SRP) appreciates the opportunity to comment on the recent Price Formation working group sessions. SRP is generally supportive of the guiding Principles presented in the working groups.

2. Please provide your feedback on any additional Guiding Principles you feel should be incorporated.

 No comment at this time. 

3. Please provide your perspective on the challenges/Problem Statements you would like the Working Groups to explore further, and if you would be interested in presenting to the community on said problem statement/challenge.

SRP has concern with the CAISO’s mechanism for market power mitigation (MPM) as it pertains to its reliance on the Gas Price Index (GPI). The GPI is considered a lagging indicator that may not account for rapid changes in market conditions, and it may provide inaccurate pricing information that is not reflective of current conditions. The use of outdated GPI values has the potential to create significant issues and cause adverse financial consequences. Further, SRP is concerned that the MPM mechanism proposed by the CAISO for the Extended Day-Ahead Market (EDAM) closely mirrors what is used for the Western Energy Imbalance Market (WEIM). In the context of EDAM, market participants will rely on accurate and timely information to make informed decisions. The use of a lagging indicator could result in participants offering or accepting prices that do not accurately reflect market conditions, which can lead to financial risk and potentially insufficient market outcomes. As a common example of weekly occurrence, currently the SRP will on Friday trade for the following Sunday and Monday, which leaves volatility with unit status and fuel capacity associated to them. It would potentially create risks for SRP to make such commitments in a market that is not flexible enough to account for any significant changes in SRP’s position. Other times where this becomes an issue as well would be the NERC holiday days that extend these forward trading days and increase the risk for day-ahead vs real-time discrepancies. Additionally, SRP would like to draw attention to the current timing misalignment of the default energy bid (DEB) calculation. The DEB calculation is currently performed at 23:00 PPT, which may not align with the gas schedule day. This misalignment can result in discrepancies and potential issues, especially when there are fluctuations in gas prices. Bids submitted during this misalignment period could be unreasonably mitigated for hour-ending (HE) 23 because the DEB process has completed, and a new GPI has been utilized.

SRP encourages the CAISO to provide clarity with respect to how the GPI and MPM mechanisms will be managed. It is important that market participants have a clear understanding of the data sources, methodologies, and timing involved in the GPI calculations. Additionally, SRP recommends the DEB calculation process be adjusted to align with the gas schedule day to allow a more accurate and efficient bidding process.

SRP acknowledges that these comments may be more closely related to the deliberations held during the August 17 Price Formation Enhancements working group session. However, SRP deems them of importance. Further, there is currently not clarity regarding the timeline for submitting comments specifically pertaining to the August 17 working group session.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Group Sessions 1&2, or for consideration for the next Working Group.

 No comment at this time.

1. Please provide your feedback on the Guiding Principles presented in Working Group Session #2; Efficiency, Simplicity, Transparency, and Feasibility.

WPTF appreciates the CAISO taking the time to discuss principles with stakeholders prior to engaging in conversations around potential solutions. However, as discussed further in response to #4 below, WPTF found it challenging to productively engage in a focused discussion with one worded principles. Each word can take on a different meaning depending on the context in which it’s being evaluated. To be clear, WPTF does not believe principles should not be discussed, but rather those conversations should take place after there is a clear understanding of the problem statements and purpose/objective of the program/process related to the problem statement.

Additionally, as the independent system operator for the wholesale competitive market, the CAISO should ensure that the principles discussed are aligned with fundamental competitive market elements.  For example, WPTF questions the concept of maximizing consumer surplus as included on slide 12 of the presentation as part of the efficiency principle. Maximizing consumer surplus implies keeping prices as low as possible relative to what consumers were willing to pay for the product, which is not necessarily a key concept of a wholesale competitive market. This seems completely counter to the basis for the conversation around price formation and scarcity pricing, which is intended to ensure prices are accurately reflecting system conditions, especially during tight supply and scarcity conditions. Thus, as these conversations continue, we strongly encourage the CAISO to keep in mind as the independent operator of the market that the objective of price formation and scarcity pricing is to improve the accuracy of the price signals being generated by the market, not to necessarily lower the prices signals.

2. Please provide your feedback on any additional Guiding Principles you feel should be incorporated.

3. Please provide your perspective on the challenges/Problem Statements you would like the Working Groups to explore further, and if you would be interested in presenting to the community on said problem statement/challenge.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Group Sessions 1&2, or for consideration for the next Working Group.

WPTF would like to take this opportunity to provide more process-oriented feedback that we believe will help move the policy discussion forward in the most effective and efficient way. This feedback primarily comes in reaction to the pivot in discussion order from the prior working group. We really appreciate the CAISO taking the time to discuss with stakeholders the problem statements, principles, and goals prior to diving straight into policy discussions around potential solutions. Having these level setting conversations ahead of evaluating policies will provide a robust structure which each potential policy can be equally weighed against one another and enable the necessary trade-off discussions that sometimes come too late in the policy process. However, WPTF found it challenging to productively engage in the discussions as structured due to being unclear what the issue or problem statement was that was trying to be addressed. Starting with one-worded principles was extremely difficult as the meaning can change depending on the problem/issue and purpose of the program under consideration.

WPTF strongly encourages the CAISO to rethink the order in which they are discussing principles and problem statements with stakeholders. We offer below a recommended order for the CAISO to consider:

1. State the purpose and objective of the existing program or process. This step would include the CAISO providing any necessary background information or education on the existing program/design that will help enable stakeholders to more reasonably engage in the discussions around problem statements, principles, and solutions.
2. Develop Problem Statements: This step involves first drafting a problem statement and then supporting that statement qualitatively and/or quantitatively. If necessary based on the analysis, the original problem statements can be revised and finalized.
3. Establish principles for evaluating solutions: This step would be to identify the fundamental market design goals and principles that the ideal solution would provide to address the problem statement while still achieving the original purpose and objective of the market design process/program under evaluation.
4. Develop and evaluate solution sets: This step is where the majority of policy development would occur, and solutions start to be proposed for consideration. During this step, all solution sets would be evaluated qualitatively and analytically to identify which best (1) addresses the problem statement, (2) encompasses the principles, and (3) achieves the objective and purpose of the program. It should also be noted that during this discussion (or prior steps) it could be the case that the original objective or purpose of the program needs to be adjusted. This is also the step where the trade off conversations can take place and be objectively measured against one another in terms of each solution's ability to address the problem and adhere to the principles.

WPTF strongly believes that structing the order of discussion in the above manner will help provide an efficient and effective path forward for not only price formation discussions, but any policy discussions.