Comments on Draft Final Proposal

1. Please provide a summary of your organization’s comments on the draft final proposal:

Arizona Public Service (APS) welcomes the opportunity to comment on the Energy Storage and Distributed Energy Resources Default Energy Bid proposal. APS agrees the use of the default energy bid for storage resources proposed by the ISO is more complex than most other default energy bids that the ISO currently employs. APS aims to provide added flexibility with the formulation of the default energy bids include three components: 1) the cost to purchase energy, 2) the seasonal impact of variable costs to charge and discharge energy, and 3) the opportunity cost to ensure that the limited amount of energy stored in the resource is not discharged prior to the hours with the highest price potential. 

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

APS agrees with CAISO’s acknowledgement to provide seasonal changes to account for costs when resources are operating during hot summer weather in the desert Southwest compared to cooler weather during the remainder of the year. Such seasonal consideration around the Thermal Management Units (TMUs) needs to be factored into the adverse impacts to Variable Costs and the Round-Trip Efficiency. These factors may seasonally degrade performance. The incremental energy consumed by the TMUs when charging and discharging will impact the value of the lost energy into operations.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

There may be concerns around the construction of small storage facilities to intentionally offset and defer investments in distribution and transmission assets. Such resources would possess the ability to exercise localized market power within constrained load pockets on a case by case basis.

The Market Surveillance Committee (MSC) comments around the ability for such smaller resource to materially affect prices in very small load pockets or under highly unusual circumstances must be noted. Proper aggregation of specific small, congestion constrained resources should have similar treatments to provide the most efficient market solution.

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

APS agrees with MSC that extending the time horizon of real-time market software including the Short Term Unit Commitment (STUC) and improvements to quantile regression forecasting models to minimize net load forecasting errors would likely result in better reflection of opportunity costs in storage scheduling, especially if the time horizon is after the seasonally adjusted net load peak(s). 

1. Please provide a summary of your organization’s comments on the draft final proposal:

CESA generally supports the ISO’s Energy Storage and Distributed Energy Resources (ESDER) Initiative and appreciates the careful consideration CAISO staff has given to the recommendations made by the Market Surveillance Committee (MSC). Overall, CESA agrees with the two modifications considered within the Storage Default Energy Bid (DEB) Draft Final Proposal. In these comments, CESA focuses on the following areas:

• The ISO should reconsider the energy cost assumptions included in the DEB Draft Final Proposal.
• The ISO should adopt MSC’s recommendation to exempt small storage assets from market power mitigation (MPM).
• The ISO should consider alternatives to using the day-ahead clearing price as the opportunity cost for the real-time storage DEB.

CESA recognizes the thought leadership of the MSC and looks forward to further collaborate with the ISO in this and other initiatives.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

CESA supports with caveats the proposed modifications to the DA formulation of energy storage DEBs. As noted by the MSC, it is reasonable to simplify the DA DEB formula given the DA market currently implicitly assumes opportunity costs by scheduling resources to charge during the lowest-priced hours and discharge during the highest-priced hours. While this modification is fair, it overlooks other issues with the current DEB formulation. In particular, as CESA has noted previously, the ISO has failed to show actual correlation metrics that support the assumption that energy storage resources will charge during the periods with the lowest prices. This assumption does not integrate the fact that energy storage resources may participate by providing different products and services within the ISO’s markets. Ignoring this fact might overlook the occurrence of apparently “uneconomic” charging; that is, charging that occurs in hours that are outside the ones used by the DEB framework. Thus, CESA recommends the ISO re-evaluate this assumption as it could significantly underestimate the costs incurred by energy storage resources, resulting in an unfair calculation of DEBs.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

CESA supports the MSC’s recommendation to grant MPM exemptions for small energy storage assets. Given the MSC’s recommendation, the ISO has incorporated into the DEB Draft Final Proposal a provision that states storage resources less than 5 MW and whose ultimate parent company is not a net-supplier in the ISO market will not be subject to market power mitigation. CESA agrees with this recommendation since small storage resources are not likely to exercise market power and could be unduly burdened by the application of DEBs.

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

It is relevant to note that the current formulation of the Real-Time (RT) DEB is likely to result in significant efficiency losses due to the assumption that an n hour storage resource will face an opportunity cost equal to the nth highest day-ahead price. Scheduling Coordinators (SCs) are very likely to be able to forecast real-time prices with much greater accuracy than the simplified assumption that RT prices are equal to those of the DA forecast. Under the proposed DEB, a 4-hour battery might be forced to discharge at a price of, say, $60/MWh, because the 4^th highest day-ahead price is only $55/MWh. However, the SC might be forecasting that the real-time price will rise to $100/MWh. If the SC is correct, the grid will be operating inefficiently.

While the general issue that a DEB should not be below a resource’s actual marginal cost applies to all resources, the CAISO should recognize energy storage resources are a special case; as the complexities the ISO has faced within this initiative demonstrate. As such, CESA respectfully requests that the real-time DEB for energy storage not be implemented as proposed and be given further attention by the CAISO and stakeholders.

1. Please provide a summary of your organization’s comments on the draft final proposal:

Please see comments in the link below:

http://www.caiso.com/Documents/DMMComments-ESDER4StorageDefaultEnergyBidDraftFinalProposal-Oct92020.pdf

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

Please see link to comments in item 1.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

Please see link to comments in item 1.

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

Please see link to comments in item 1.

1. Please provide a summary of your organization’s comments on the draft final proposal:

CPUC staff requests that the CAISO provide the time-frame for revisiting the proposed Energy Storage and Distributed Energy Resources (ESDER) Phase 4 Default Energy Bid (DEB) formulation and the method it will use to present information on the impact of the proposed DEB on energy storage participation in the CAISO markets.   

CPUC staff is making this request because during the September 22, 2020 ESDER-Storage DEB stakeholder meeting, CAISO staff acknowledged the need to revisit the proposed energy storage DEB formulation to make further refinements as it gains more experience with energy storage operations and has more market participation data on energy storage; however, CAISO staff did not provide a time-frame for revisiting the energy storage DEB proposal. 

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

1. Please provide a summary of your organization’s comments on the draft final proposal:

1. The Long Duration Energy Storage Association of California appreciates the opportunity to provide comments on California Independent System Operator’s (CAISO) Storage Default Energy Bid. LDESAC largely supports the plan put forth in the proposal but seeks to ensure that the unique capabilities and opportunity costs associated with long duration energy storage solutions are considered along with their shorter duration counterparts. Long duration storage complements short duration storage technologies, like batteries, by providing large amounts of renewable energy back to the grid for at least eight hours at a time. It can also include multi-day and seasonal solutions.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

1. Consider metrics or allocations for Long duration energy storage technologies and projects.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

1. LDESAC agrees that it does not make sense to expose all storage resources to market power mitigation. As energy storage technologies offer unique opportunity costs due to their diverse durations and locations, it stands to reason that resources are evaluated by size and time.

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

1. We need meaningful action from California regulators and policymakers to ensure these new energy storage resources are built. The unique opportunity costs and capacities of long duration energy storage must be considered in developing this proposal. We appreciate your consideration of our comments and would be pleased to discuss further if you have questions.

1. Please provide a summary of your organization’s comments on the draft final proposal:

LS Power supports the Day-Ahead Default Energy Bid (DEB) changes made in response to the Market Surveillance Committee’s (MSC) comments. We agree with removing the opportunity cost for the day-ahead market DEB calculation, but emphasize the opportunity cost is critical to include in DEB calculation for the real-time market. As noted below, we encourage CAISO to reconsider its proposal on tying the opportunity cost of a storage resource to the duration of a resource, as it may not be appropriate solution for all duration resources. As explained below, we would like to include opportunity cost in settlement for Exceptional Dispatches for storage resources. 

LS Power would also like to take this opportunity to urge CAISO to timely open the next phase of ESDER, or another stakeholder initiative, to address several pressing issues for storage integration into the markets. CAISO’s current system for processing bids and determining dispatch and settlement for energy storage, specifically in front of meter storage participating as a Non-Generator Resource (NGR), does not provide resource owners with adequate ability to convey their cost to operate to CAISO and to control their own dispatch. Without timely attention to these matters, CAISO would be sending market signals that could discourage storage investment at a time when the state needs thousands of MW of new storage capacity to integrate renewable energy and replace capacity that is retiring.

Specific issues to address in the next phase include:

• • How to minimize reliance on Exceptional Dispatch and similar tools to tightly control storage resources in ways that take some or all of the NGR’s capacity out of market
    • We understand that on certain days, under certain operating conditions such as projected tight supply and grid emergencies, CAISO may need to use Exceptional Dispatch. However, our experience has been that CAISO has been sending frequent Exceptional Dispatches to NGR, which effectively takes these resources out of the market, and does not pay the resources for lost opportunity costs or other costs incurred in doing so.
    • CAISO has proposed tools that would limit the participation of storage in the Real Time market, including Minimum Charge Requirement and Proposed Revision Request 1278 for Non-Generator Resources, which would set up the same dynamic as an Exceptional Dispatch and remove portions of the NGR from the market automatically under non-emergency conditions without compensating the resources for this action.
    • LS Power recommends that CAISO focus on holistic long-term solutions that can allow CAISO operators to let the market dispatch storage, and minimize the need to restrict market participation for storage resources, which can negatively impact the business case for storage. CAISO should consider changes to its market structure such as creating new products and sending price signals that enable the full flexibility of storage resources and economic conditions for the market.
  • The Multi Interval Optimization and Bid Cost Recovery algorithms/calculations were designed for conventional (e.g. gas) generation units and are impressive pieces of market design and engineering, but do not work well for energy storage today. These aspects of the market should be revisited to account for storage’s unique characteristics, and to enable storage resource owners to determine the absolute price levels their resource will be dispatched at in real-time. Today, the algorithm frequently causes a storage unit to cycle more and at lower price spreads than it would if CAISO followed the actual prices submitted by an NGR’s Scheduling Coordinator. Because Multi Interval Optimization in real-time does not consider awards in prior market runs, it is not uncommon for the Multi Interval Optimization algorithm to lock in losses in storage operation that are not covered by Bid Cost Recovery unless the losses in a period are so severe they wipe out the entire 24 hour day’s revenue.
  • Other market issues include:
    • Infeasible dispatch schedules and DOTs;
    • No ability to change the bid curve to reflect higher wear and tear costs from heavy cycling (i.e. VOM increases exponentially from 1 cycle to 2 to 3 in a day);
    • No tool to account for the charge speed of storage resources, which tapers off as the unit gets full (i.e. Pmin and Pmax changes as a function of SOC);
    • No way to convey to CAISO that Opportunity Cost, and thus the willingness to charge at higher prices, increases if the unit is at low SOC.
    • Further tweaks and monitoring of the implementation of tools from ESDER Phase 4 such as biddable State of Charge parameters, which risk being impacted by other stakeholder processes such as UCAP definitions for storage.

LS Power urges CAISO to hold further stakeholder discussions on storage integration issues to come to effective and economic market solutions. The LS Power team has experience in operating large battery storage projects in CAISO markets. We stand committed to working with CAISO team in addressing these issues.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

LS Power supports the day-ahead DEB changes made in response to the MSC’s comments, and offers the following additional comments.

We agree on removing the opportunity cost for the day-ahead market DEB calculation, but emphasize the opportunity cost is critical to include in DEB calculation for the real-time market. In real-time market, opportunity costs can be incredibly high, especially if there is a day-ahead award in the same or an upcoming hour (note that Multi Interval Optimization currently has problems recognizing this and is a problem for storage resource owners). Real-time opportunity costs could also be high on a day where prices will likely go to the cap multiple times per day. Therefore, we support CAISO keeping an opportunity cost component for real-time market. We suggest a review and adjustment over time as CAISO and storage resource owners develop more experience with storage operations in the market.    

In the DEB formulation, at the top of page 7 the proposal notes the value will be assumed to be zero for the entire charging portion of the bid. Having the entire charge portion of the bid set to a constant value is a simplifying assumption that may cause issues, and CAISO should be open to changing this assumption in the future if needed. There may be a very real cost to charging at higher values, as auxiliary loads often increase proportional to power squared, for instance, so a lower price for charging at higher power may be needed. This may or may not be meaningful in the future depending on whether the DEB ultimately has the effect of causing the unit to charge at high power more often than it otherwise would have. CAISO should monitor the impact and be open to adjustments in the future. , Further in the proposal, CAISO states that “if a specific storage resource is capable of storing 4 hours of energy, the opportunity cost included in the real-time default energy bid will be equal to estimated prices in the 4th highest hours of the day from the day-ahead market.” How does this work if the duration of a resource was different than 4 hours, such as 1 hour or 2 hours? This shorter duration resource could potentially charge and discharge multiple times so tying the opportunity cost to the duration of a resource may not be appropriate.

LS Power advises care in implementing the DEB for storage, and close monitoring of its effects once rolled out, perhaps with regular reporting by DMM. In particular, CAISO should avoid the scenario where the DEB forces a storage resource to submit such low charge and discharge bids that it winds up being empty when needed most. This is a bigger concern in the real-time market than day-ahead. In the day-ahead, it is unlikely that any one storage unit will have enough market power to require a DEB. Instead of focusing on an individual storage unit, the market power test should focus on common ownership with other resources in the local area that would benefit from the storage unit’s impact on price.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

LS Power supports the exemption for small resources.

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

1. Please provide a summary of your organization’s comments on the draft final proposal:

No comment.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

PG&E disagrees with the changes made to the day-ahead (DA) default energy bid formulation. Specifically, the removal of the opportunity cost (OC) term creates a scenario where storage resources could be mitigated in the DA market to levels that don’t sufficiently reflect (a) the potential for greater arbitrage opportunities outside of the DA market horizon and (b) the increased level of cycling as a result of higher DA awards. Each of these concepts is explained further below:

1. PG&E understands the Market Surveillance Committee’s recommendation to remove the OC term as being primarily justified by the length of the DA market horizon. This rationale, however, does not consider the long-term optimization of the storage resource over several days, weeks or even years of operation. In other words, the default energy bid should consider the limited availability of storage resources across the lifetime of their operation, rather than incentivizing DA schedules which maximize even the slightest of arbitrage opportunities. This concept was illustrated by Section 4.3 of the Final Proposal, where Energy & Variable Cost components were compared to Opportunity Costs components throughout a hypothetical year. 

2. While PG&E supports the CAISO moving away from a dynamic DEB calculation that changes with the depth of each cycle, the revised DA default energy bid formula places a greater reliance on the value of the variable cost (cell degradation) term to support a storage resource’s true cost to operate. Set too high, there is the risk of a storage resource not being awarded sufficiently in the DA market to achieve one cycle per day. Set too low, there is the risk of the resource receiving a DA schedule to cycle more than one once per day. The OC term that was removed from the DA default energy bid formula in part protected a storage resource against receiving DA schedules that would lead to excessive cycling (> 1 cycles per day). While DA schedules are not physically binding, they do impact the resource’s real-time bidding and state-of-charge (SOC) management, as well as come with resource adequacy must-offer obligations. Under the revised formulation, a storage resource is incentivized to use a conservative estimate for number of estimated cycles per day when determining its cell degradation cost, due to the expectation of being mitigated (and subsequently overscheduled) in DA markets.  

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

No comment.

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

No comment.

1. Please provide a summary of your organization’s comments on the draft final proposal:

DA OC exclusion 
SCE supports the simplification presented for calculation of the day-ahead default energy bid for short duration energy storage resources whereby opportunity cost has been eliminated. This decision is consistent with the simultaneous optimization of all 24 hours in the day-ahead market for which the offer prices will reflect the incorporation of opportunity costs.  

RT OC inclusion 

The inclusion of opportunity cost in the formula for the real-time calculation of the default energy bid for a resources reflects the dynamism of price formation in the real-time market given the shorter time horizon over which optimization occurs with opportunities for changing market conditions that may result in the adjustment of bids submitted in the market. 

The Market Surveillance Committee’s opinion of sunk costs in relation to charging for energy storage resources is appreciated for its theoretical accuracy though such an interpretation for hydro resources and batteries is irrelevant given the long-term decision making and decision uncertainty that underpin the operations of such resources.  

Small resource safe harbor 

SCE supports the CAISO’s decision to accept the Market Surveillance Committee’s recommendation to exempt small energy storage resources from market mitigation with some caveats. This proposal should apply to all individually owned and controlled energy storage resources less than 5 MW that are not a part of an aggregation model. This threshold size exemption should not apply to situations where an individual owns many energy storage resources such that each individual resource is less than 5 MW in size and when aggregated under a single owner is less than 5 MW despite the geographic dispersion of the locations of the resources. To the extent that the per capita supply density in the area is greater than the smallest available size of the energy storage resource exempt from mitigation, the decision is acceptable. The CAISO’s 5MW threshold is acceptable only if this threshold value accounts as equal to or greater than the supply density within the local area. Otherwise, there is the potential for the exercise of local market power in load pockets when this load density relationship does not exist. 

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

SCE concurs that the exclusion of opportunity cost as an alternative to the sum of the energy storage resource’s charging and variable costs in the  day-ahead calculation of the energy storage resource’s default energy bid is appropriate due to the simultaneous optimization of the 24-hour day during market clearing with no recourse for offer updates during the day-ahead market process. Such updating exists for the real-time market thereby allowing bidders to incorporate their price expectations within their supply and demand decisions in the forward-looking hours for which dispatch has not occurred.  

SCE recommends that should locational marginal prices become negative in the day-ahead and/or real time market, the calculation of the default energy bid should have the charging value set to $0 such that the formula reads as follows: 

DA Storage DEB = [ Max (0, En_δ/η) + ρ] * 1.1

and

RT Storage DEB = Max [ Max((0, En_δ/η) + ρ), OC_δ] * 1.1

Where:  

En:  Estimated cost for resource to buy energy 

δ/η: Energy duration  

η: Round-trip efficiency  

ρ:  Variable cost 

OC:  Opportunity Cost 

Because the proposed energy cost component for the Day-Ahead Market DEB will be based on market power mitigation (MPM) run prices, these prices can represent prices prior to any mitigated market prices. The CAISO should monitor the impact of any discrepancy between MPM prices and IFM prices and address it should this become an issue.  

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

While SCE concurs with the idea of granting an exemption from market mitigation to small energy storage resources in the market, SCE is unconvinced that the 5MW threshold proposed by the CAISO is reasonable unless the per capita supply density is greater than the available capacity of the smallest resource available for dispatch in the market. 

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

While the current formula for the calculation of the energy storage resource’s default energy bid does not explicitly account for cycling costs, SCE expects that should such costs be incurred and the resource’s  default energy bid does not accommodate the cycling costs, then the negotiated option for the DEB will remain available to the supplier whereby cost representation for resource cycling may be demonstrated to the CAISO. 

1. Please provide a summary of your organization’s comments on the draft final proposal:

Vistra appreciates the opportunity to provide comments to the CAISO on its storage Default Energy Bid (storage DEB) proposal updated in the September 15^th Draft Final Proposal. Vistra appreciates the effort and details the CAISO has put forward on this topic. Vistra understands the importance of a robust market power mitigation paradigm to support efficient market outcomes so that the fundamentals can provide meaningful information to the market and the market can be confident that prices do not reflect the exercise of market power. While Vistra conceptually supports the CAISO’s proposal to expand its mitigation paradigm to applying mitigation in its Non-Generator Resource (NGR) model, we remain concerned with some practical implications and consequently have modest request for revisions as well as requests for additional clarity on certain elements. The remaining comments will discuss in more detail Vistra’s requests for additional clarity and consideration on the storage DEB proposal.

First, Vistra is uncertain whether the day-ahead and real-time storage DEB formulations in Equations 1 and Equations 2 are intended to be storage DEB components that replace the Incremental Cost Curve as registered in Master File and provide guidance for the custom Operations & Maintenance Adder negotiations in the DEB formulation currently used for non-gas or if the equations are intended to fully replace all components contained in the current formulation.

Vistra interprets the CAISO’s proposed DEB formulation where it shows the following summation in the two equations to be proposing that the Enδ/η input will functionally replace the ICC and O&M adder in the current formulation where the details in the proposal on the p input is providing additional details for the CAISO’s custom O&M negotiations. Vistra supports the inclusion of variable operating costs in storage DEB formulation but believe there is a need for additional clarity. Currently, in non-gas fired resources DEB formulation there is the O&M adder for operations and maintenance costs, which can be a default value or an SC can request establishing a custom O&M with the CAISO. In the August 21, 2020 ESDER 4 Final Proposal and the September 15, 2020 storage DEB Draft Final Proposal, the CAISO states that “this data will be collected via CAISO master file process that is already in place to capture resource specific data”. Vistra requests the CAISO clarify that the existing process in place for establishing  through requesting a custom O&M adder consultation pursuant to Tariff section 39.7.1.1.2[1] will remain unchanged as result of this proposal. If the process for registering   is intended to be different than the current custom O&M negotiation, we respectfully request more transparency on what the proposed change will entail.

Vistra asks the CAISO to provide clarity on whether the CAISO’s proposal is to continue to include GMC, FMU (if eligible), and Variable Energy Opportunity Cost (if eligible) in the future storage DEB formulation. For context, the current non-gas fired resources' DEB formulation documented in CAISO’s Market Instruments BPM in Section D.5.8[2] is:

Where:

ICC is the Incremental Cost Curve as registered in Master File

O&M is the variable operating and maintenance adder either default or custom, if negotiated

GMC is the Grid Management Charge adder

FMU adder is the Frequently Mitigated Unit adder, if resource is eligible

Variable Energy Opportunity Cost is the variable energy opportunity cost for registered use limited resources with calculated or negotiated VEOC to reflect use limitations over greater than 24 hours

If Vistra’s interpretation is incorrect and the CAISO does not currently intend to include these components, Vistra requests the CAISO revise its proposal to include in its DEB formulation the additional components that all resources may be eligible for today. Vistra asks the CAISO to clarify the:

• GMC adder will apply across the full output: Storage will incur GMC costs across the full output range of the asset so the GMC adder should be included in its DEB across all segments.
• FMU adder will be included, if eligible: FMU adder is eligible to any Frequently Mitigated Unit in today’s Tariff[3] and should continue to be available to any resources that meet the mitigation frequency criteria even under the adoption of storage DEB.
• Variable Energy Opportunity Cost will be included, if eligible: Daily limitations are likely to be the majority of limitations on storage resources initially, but this may be in some instances a function of storage operators translating longer term limitations into daily limitations. Additionally, as storage technology development continues and a greater variety of technical configurations become operational, storage resources may be subject to longer term limitations. Vistra believes it is appropriate to allow storage the ability to seek use limited status and any associated Variable Energy Opportunity Cost for limitations that span beyond a single day. It is appropriate so that if the longer-term limitation can be supported, then the storage operator will have equivalent access to existing CAISO processes.

With a lens towards implementation, we have a few practical questions. First, we are unclear on whether the variable operating costs (p,O&M) on the discharge side is expected to be established as a curve across the discharge segment or as a constant value and ask the CAISO to specify this detail as soon as practical. Second, we believe it is unclear where it is appropriate for the longer term major capital expenses for battery storage augmentation needed roughly on a five-year basis to be included in the storage DEB since there are no commitment bids in NGR – the variable operating costs, variable energy opportunity costs, or negotiated DEB. We would ask the CAISO to provide additional information on what guidelines the CAISO will provide Scheduling Coordinators for estimating variable operating costs and for including the longer-term augmentation expenses.

[1] California ISO, Fifth Replacement Electronic Tariff, Section 39.7.1.1.2, Variable Operation and Maintenance Cost Under the Variable Cost Option.

[2] California ISO, Business Practice Manual, Market Instruments, Version 60, Section D.5.8, Page 260, https://bpmcm.caiso.com/BPM%20Document%20Library/Market%20Instruments/BPM_for_Market%20Instruments_V60_clean.doc.

[3] California ISO, Fifth Replacement Electronic Tariff, Section 39.7.1.1, Variable Cost Option.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

Vistra supports the CAISO’s update to its storage Default Energy Bid (DEB) proposal that removes the Opportunity Cost component from the day-ahead storage DEB formulation. Vistra understands the Opportunity Cost component is meant to represent opportunity cost for daily limitations, which can be optimized within the day-ahead market given its 24-hour optimization window. Since the daily limitation cannot be fully considered in the real-time market given that the longest real-time optimization window only captures 4.5 hours, Vistra believes it is appropriate that the Opportunity Cost component is in the real-time storage DEB formulation.

While we support the recent change, we do not believe the current method is the preferred approach for setting the Opportunity Cost (OC). Vistra believes the method for estimating the opportunity cost that the CAISO is proposing may undervalue the opportunity cost of the resource’s dispatches in real-time by using the 4th highest hour’s day-ahead energy price. If the day-ahead energy prices included perfect insight into the real-time market outcomes, then Vistra would be comfortable with adopting the use of the 4^th highest non-contiguous hour as the OC. However, there are deviations between day-ahead and real-time prices where there is the possibility that real-time prices may increase across more than four hours where the four highest hours in real-time are no longer aligned with the hours identified in the day-ahead process. For example, in the scenario where the four highest hours of integrated forward market locational marginal prices (LMP) are for HE17 at $100/MWh, HE18 at $115/MWh, HE19 at $250/MWh, and HE20 at $500/MWh, this would result in an OC of $100/MWh being included. An issue could arise if in real-time the LMPs increase to prices above $100/MWh over more hours than 4 such as LMPs for HE16 at $100/MWh, HE17 at $110/MWh, HE18 at $250/MWh, HE19 at $500/MWh, HE20 at $500/MWh, and HE21 at $1,000/MWh. Under this scenario, Vistra is concerned that there is the possibility of dispatching storage resources mitigated in real-time for HE16-HE19, which would result in the asset not being available for HE20 and HE21 when the CAISO grid has the greatest need for its energy. To mitigate this risk, Vistra requests the CAISO revise its proposal to set the OC based on the average of the four highest non-contiguous LMPs from the integrated forward market. While we believe there are arguments for using the highest hour, we think applying an average balances the interests to both set DEBs that mitigate market power and allow the daily limitation to be reserved for the highest hours in real-time even in scenarios where IFM undervalues those hours.

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

Vistra respectfully requests the CAISO consider not moving forward with its proposed update in Section 4, “Exemptions from mitigation for small resources”. We do not find it persuasive that “small resources may not have the ability to exercise market power” since our view is that this concern is more a commentary on whether the market power mitigation assessments are mitigating appropriately. Local market power mitigation (LMPM) has both a constraint and a resource test and Vistra believes if there is a concern with over-mitigating in the resource test for “small resources” that this concern is more appropriately handled in a project reviewing the local market power mitigation design than in this effort applying mitigation to storage resources. Further, Vistra views this proposal as imposing differential treatment on similarly situated resources since a 4 MW storage resource within a net supplier’s portfolio would be subject to mitigation whereas a 4 MW storage resource that is not within a net supplier’s portfolio would not be subject. While Vistra assumes this proposal was written this way because the CAISO is also trying to mitigate any incentive for a net supplier to exercise market power across its portfolio, Vistra continues to believe that is a broader concern with the CAISO’s existing market power mitigation mechanisms and not unique to storage assets. An additional example of different treatment comes between resources subject to mitigation that are below 5 MW of different technology types. We are not aware of the CAISO exempting other technologies from mitigation that are sized below 5 MW. We believe that to create two classes of storage resources for applying mitigation introduces asymmetry to the rules in a way that provides preferential participation rules to a specific class over another.

As an alternative, Vistra requests the CAISO clarify that storage resources – above and below 5 mw - are eligible for the Frequently Mitigate Unit (FMU) adder to be included in its storage DEB (as requested above). Vistra shares the concern that there is a risk that storage resources – both above and below 5 MW – may be frequently mitigated by the CAISO’s market power mitigation assessments and believes that if a resource is frequently mitigated so that it cannot appropriately manage its cost recovery or operational risks that the FMU is an existing mechanism to help mitigate this risk.

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

Vistra believes it is unclear how the process changes proposed in the Variable Operations and Maintenance (VOM) cost review stakeholder process scheduled for the November Board of Governors meeting and this ESDER storage DEB proposal for variable operating costs are expected to interact together. In the CAISO’s VOM cost review stakeholder process, the CAISO proposes that storage resources do not have default operations and maintenance costs for storage resources as shown in Table 1, proposed default O&M adder values and further the Nexant report includes battery storage units in the list of generating plants without variable operations costs. Where ESDER 4 storage DEB proposal provides considerable detail on examples of variable operating costs for storage, including cell degradation. We currently are assuming that the ESDER 4 storage DEB variable operating costs component policy is providing additional guidelines for the consultation for the custom O&M for storage resources, which would be adopted in existing custom O&M negotiations. We are also assuming that nothing within in the VOM cost review project precludes storage from seeking the existing custom O&M negotiation as discussed in our comments. Vistra respectfully asks the CAISO to clarify how these two initiatives interact together as well as its earlier request to confirm whether custom O&M is the vehicle for establishing the ESDER 4 variable operating cost values in Master File.

1. Please provide a summary of your organization’s comments on the draft final proposal:

Wellhead fully supports the CAISO's draft final proposal and appreciates the CAISO's leadership on this important issue.

2. Provide your organization’s comments on the updates to the day-ahead default energy bid formulation:

No further comments

3. Provide your organization’s comments on the exemptions from the mitigation for small resources:

No further comments

4. Provide any additional comments on the draft final proposal for the Storage Default Energy Bid and the changes proposed as a result of the Market Surveillance Committee opinion:

No further comments