Comments on Issue paper and stakeholder recommendations

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

BPA recognizes the intent of both the automated and manual Reference Level Change Request processes.  However, unless the Reasonableness Threshold or cost verification process utilized for an adjusted Hydro DEB calculation reflects non-resource specific intra-day opportunity costs, BPA’s EIM bids will be limited to the CAISO soft cap during FERC 831 conditions, which does not address the problem statement.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

BPA believes this a reasonable interim solution and can be easily implemented.  Recommendation 2 is preferrable if the capping logic reflects the higher of the soft cap, the DEB or the highest MBIP multiplied by 110%, to best preserve the dispatch of energy limited resources in the highest demand hour(s). Recommendation 2 is preferable to recommendation 1 as it would provide a more predictable value throughout the day by which to manage the hydro system and ensure it meets operational constraints. However, BPA has some concerns about this approach in the long run as it would not lead to an adjusted DEB and therefore the NGR resources may still be subject to mitigation based on the existing DEB.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

BPA resources are only modeled in the ISO as EIM resources and thus Approach 2 is not applicable and would not resolve concerns for BPA.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

BPA believes this also is a reasonable interim solution, although recognizes that it may be more challenging to implement than Approach 1.  Similar to our response in Question 1 for altering the cap, this solution would update the Reasonableness Threshold for the Short-Term Component of the Hydro DEB, as represented by the formula shown in the Issue Paper:  Short-Term Component = MAX (MIBP, Highest Cost Verified Bid) x 110%.  Scheduling Coordinators would submit an automated RLCR for DEB adjustment. In the longer run, this Approach is preferred as it includes an adjustment to the DEB.

5. Additional comments:

BPA appreciates the attention CAISO has provided on this issue and working with stakeholders in developing short and long-term solutions. Current cost verification processes are insufficient to reflect large hydro storage opportunity costs, and BPA aligns with any effort that treats hydro fairly and equally to other resource types when offering energy and flexibility to the market during extremely tight conditions. However, an interim solution implementation window of late August, early September has little room for flexibility if these actions are to address the summer period.  BPA urges CAISO to seek ways to reduce the timeline, including pursuing expedited FERC review, such that the implementation period may target the beginning of summer rather than the end of summer.

In the next steps of this process, Bonneville recommends that CAISO provide an assessment of the feasibility of implementing the proposed approaches, including CAISO’s assessment of the level of risk of (1) FERC acceptance of the proposed change and (2) CAISO’s ability to implement the change on the proposed timeline.

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

Please see the attached Comments from the Department of Market Monitoring.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

Please see the attached Comments from the Department of Market Monitoring.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

Please see the attached Comments from the Department of Market Monitoring.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Please see the attached Comments from the Department of Market Monitoring.

5. Additional comments:

Please see the attached Comments from the Department of Market Monitoring.

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

The Public Advocates Office at the California Public Utilities Commission (Cal Advocates) is the state-appointed 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.  Our efforts to protect ratepayers include energy, water, and communications regulation advocacy. 

The four problem statements presented in the California Independent System Operator (CAISO) Price Formation Enhancements: Rules for bidding above the soft offer cap: Issue Paper of April 12, 2024 (Issue Paper),[1] focus on resource day-ahead and real-time bids and default energy bids (DEB).[2]  As stakeholders and the CAISO gain operational experience with energy storage bidding inefficiencies and managing availability constraints against times of need, the stakeholder process should seek to develop solutions to the problem statements.

However, an expedited and interim solution to be implemented by August or September 2024 is unwarranted.[3]  Existing market tools and protocols designed to ensure energy storage resources are available for reliability needs and will be used as needed during Summer 2024.  These tools include the end-of-hour state of charge (SOC) tool[4] referred to in Approach 2 Recommendation 1,[5] and the use of exceptional dispatch decisions to benefit reliability while also compensating a resource for opportunity costs.[6] 

The new stakeholder-recommended solutions that enable storage and other use-limited resources to bid higher than conventional resource limits and/or to increase the DEB for use-limited resources may expose ratepayers to costs that have not been sufficiently evaluated.  Potential unintended consequences, like gaming the under-evaluated options, should also give the CAISO pause in rushing to adopt a solution where proven tools to maintain reliability already exist.

[1] Available at: https://www.caiso.com/InitiativeDocuments/IssuePaper-StakeholderRecommendations-PriceFormationEnhancements-Rules-BiddingAboveSoftOfferCap.pdf.

[2] Issue Paper at 11.

[3] The CAISO proposes a tentative schedule for an interim solution implemented by August-September 2024.  Issue Paper at 2.

[4] The end-of-hour SOC tool is an optional bid parameter that can allow a scheduling coordinator to limit real-time dispatch of a storage resource and can facilitate availability during higher-priced and higher-need hours later in the day.  For more information, see: Department of Market Monitoring (DMM), Special Report on Battery Storage, July 7, 2023 at 6.  Available at:  https://www.caiso.com/Documents/2022-Special-Report-on-Battery-Storage-Jul-7-2023.pdf.

[5] Issue Paper at 15.

[6] These are the same exceptional dispatches which the DMM recommends be used in the immediate future (Issue Paper at 17).  See also: CAISO, Energy Storage Enhancements: Final Proposal, October 27, 2022 at 15-20.  Available at:  http://www.caiso.com/InitiativeDocuments/FinalProposal-EnergyStorageEnhancements.pdf.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

The Approach 1 recommendations include not applying the soft offer cap of $1000/MWh to storage, hydro, or proxy demand response (PDR) bids or DEBs.[1]  Every CAISO resource except for unspecified RA imports is currently subject to the soft offer cap.[2]  Solutions that enable certain resources to exceed that cap to account for opportunity costs would increase ratepayer costs without  demonstrated benefits to ratepayers over the status quo.  Energy storage and hydro are pivotal resources needed during summer loads, accounting for over 22 gigawatts of net dependable capacity.[3]  Removing or adjusting the existing soft offer cap for such a substantial portion of the CAISO grid’s fleet carries substantial risk of price increases and thus warrants substantial stakeholder development.

Enabling use-limited resources to bid above the current soft offer cap would also effectively treat those resources as emergency resources.  PDR currently has a bid cap of $949/MWh, a value that explicitly respects the Reliability Demand Response Resource (RDRR) trigger of $950/MWh.[4]  RDRR is an emergency resource intended to be dispatched during emergency conditions.[5]  Although non-emergency resources can bid up to the $1000/MWh soft offer cap today, extending that to $2000/MWh would enable impacted use-limited resources to grossly exceed existing price caps during non-emergency periods.  Given the volumes of storage and hydro on the grid today, Cal Advocates is concerned that increasing access for non-emergency resources to prices reached typically only in emergency conditions creates significant cost risks to ratepayers.

[1] Issue Paper at 14-15.

[2] Issue Paper at 14.

[3] Not including non-participating units.  CAISO OASIS Master Control Area Generating Capability List as of April 15, 2024.

[4] CPUC Decision 23-06-029, Decision Adopting Local Capacity Obligations for 2024-2026, Flexible Capacity Obligations for 2024, and Program Refinements, June 29, 2023 at 81 and 85; issued in Rulemaking (R.) 21-10-002, Order Instituting Rulemaking to Oversee the Resource Adequacy Program, Consider Program Reforms and Refinements, and Establish Forward Resource Adequacy Procurement Obligations.  Available at: https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M513/K132/513132432.PDF.

[5] See the CPUC’s clarification and CAISO’s support of that clarification:  Opening Comments of the California Independent System Operator Corporation on the Proposed Decision Adopting Local Capacity Obligations for 2024-2026, Flexible Capacity Obligations for 2024, and Program Refinements, June 14, 2023 at 7; filed in R.21-10-002.  Available at: https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M511/K485/511485180.PDF.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

The Approach 2 recommendations rely on existing tools, including the use of the end-of-hour SOC tool and exceptional dispatch functions developed to prevent undesirable storage discharges.  Employing existing tools in the Summer of 2024 would avoid hasty implementation of the new solutions proposed in the other approaches without first considering the potential risks and uncertain efficiency of those untested solutions.  Cal Advocates echoes the DMM’s recommendation that the CAISO use existing tools, such as exceptional dispatch, and consider new policies after a development process has allowed appropriate consideration of the potential benefits and risks alternative solutions.[1]

[1] Issue Paper at 17.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Approach 3 includes recommendations to modify the DEB calculation used for hydro and/or storage resources.[1]  Resources may be bid above the soft offer cap if their bid has been cost-verified by the CAISO, which may utilize the resource’s DEB.[2]  Similar to Approach 1, these recommendations would enable storage or hydro resources to bid beyond the $1000/MWh soft price cap.  Cal Advocates opposes the recommended solutions in Approach 3 for the same reasons it opposes Approach 1; please see Cal Advocates’ response to Question 2.

[1] Issue Paper at 16-17.

[2] Issue Paper at 3 and 7.

5. Additional comments:

Cal Advocates has no additional comments at this time.

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

The California Energy Storage Alliance (CESA) appreciates the opportunity to provide comments on the Price Formation Enhancements: Rules for Bidding Above the Soft Offer Cap Issue Paper which was posted late in the afternoon on April 12, 2024.  CESA is disappointed that CAISO continues to be unwilling to discuss implementation feasibility prior to Summer 2024.  This issue has been discussed in the stakeholder process since January 2024 and CAISO has been aware of the market design flaw for over a year.  CAISO publishing an issue paper at this point demonstrates a lack of urgency in addressing this market design flaw.  CESA questions the value stakeholder comments will provide on the three approaches listed below since the primary determination of which approach should be taken depends on what can be implemented prior to Summer 2024.  CAISO has provided no information on implementation feasibility.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

CESA notes that this approach was initially proposed during the January working group to allow storage resources to bid up to $2,000/MWh during high priced conditions.  However, at the March working group CAISO stated that they were concerned that this could result in $2,000 prices across multiple hours.  To address this concern CESA modified its proposal to Approach 3 in written comments.  CESA notes that it can be argued that $2,000 is the correct cap since other resources can bid up to $2,000 in any hour during high priced conditions. If Approach 3 cannot be implemented, then Approach 1 should be considered.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

The recommendations in this approach are not consistent with positioning resources in the bid stack.  In fact, (1) manage SOC through the existing end-of-hour state-of-charge tool, (2) self-schedule day-ahead schedules in real-time, and (3) exceptional dispatch functionality, perform the opposite function of removing these resources from the bid stack.  Approach 2 should not be considered as it does not address the issue. 

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Consistent with CESA’s March 22 comments, CAISO should utilize the current automated reference level change request process.  CESA developed this proposal based upon limited feedback provided by CAISO at the March 12 working group.  The proposal addressed CAISO concerns that energy bid could be submitted up to $2,000 in all hours and that an automated process was needed versus a manual process.  In particular, an automated process under which a storage resource is permitted to bid up to $2,000/MWh and CAISO subsequently adjusts the resource’s bid is helpful to storage market participants that would otherwise have to continuously restructure their offers based on a dynamic and non-transparent offer cap during tight supply conditions.  In addition, as CAISO notes in the Issue Paper, this approach affords an additional degree of protection for storage market participants compared to other proposed approaches that would not necessarily enable storage to recover its costs when mitigated during tight supply conditions.   CESA’s preference is that CAISO implement prior to Summer 2024 the proposed modifications in our March 22 written comments.   

5. Additional comments:

CESA looks forward to discussing implementation during the working group on April 23. 

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

Please see “additional comments” below.  

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

Please see “additional comments” below.  

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

Please see “additional comments” below.  

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Please see “additional comments” below.  

5. Additional comments:

NCPA supports the Market Monitor’s suggestion that “the ISO could continue to rely on the new exceptional dispatch functionality for storage as needed for reliability purposes, and defer implementing a new policy until it can be given the necessary care/consideration.”[1] NCPA is concerned that that current proposals have not been vetted sufficiently enough to fast track for a late summer release. For example, NCPA believes the Maximum Import Bid Price methodology should be reviewed, in light of observed illiquidity at reference hubs, prior to being applied to storage bids. Further, a late summer release may not be soon enough to benefit the market during stressed system conditions. NCPA tentatively supports Approach 2: Leverage existing tools to position resources in the bid stack. NCPA understands the existing out of market tools are not optimal so NCPA supports breaking this out into an independent initiative with an April 1, 2025 go live target in order to ensure the right options are selected and thoroughly vetted and tested in order to ensure successful implementation. 

[1] http://www.caiso.com/InitiativeDocuments/IssuePaper-StakeholderRecommendations-PriceFormationEnhancements-Rules-BiddingAboveSoftOfferCap.pdf p. 17

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

The CAISO’s Issue Paper adeptly describes the issues and opportunities related to raising the energy bid cap for storage resources. One area that requires further exploration is the implementation complexity of the proposed solutions. As a next procedural step, PG&E recommends that the CAISO rank the various approaches according to ease of implementation. If some proposals are infeasible given the tight implementation timeline, the CAISO should state this explicitly. The CAISO should also clarify the underlying assumptions of the proposed solutions as they relate to the project scope. For example, PG&E requests the CAISO clarify if their proposal is considering raising the energy bid cap for storage resources in the both the day-ahead market (DAM) and real-time market (RTM) or just the RTM. PG&E assumes that implementing a solution for both markets is a heavier lift than limiting the scope to the RTM only.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

PG&E’s proposal to model the storage bid cap after non-resource specific system resources (e.g. RA imports) remains PG&E’s preferred approach, compared to other recommendations, with the caveat that two key assumptions are missing from the CAISO’s summary: (1) the proposal should only apply to the RTM and (2) the proposal should only apply when the RT energy bid cap has been raised via the maximum import bid price (MIBP) or when cost-verified bids exceed $1,000/MWh.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

PG&E would like to point out that recommendations 1 and 3 involve manual actions by either scheduling coordinators (SCs) or the CAISO. PG&E has concerns with any solution involving manual actions since the CAISO and stakeholders agreed that an automated solution is preferable. PG&E also has concerns with recommendation 2 since self-scheduling a storage resource’s day-ahead schedule in real-time is inefficient from an economic perspective and may limit dispatchability that could support reliability and RA obligations.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

While PG&E agrees with stakeholders that storage default energy bids (DEBs) should eventually be modified to reflect intra-day opportunity costs, this issue needs adequate time to develop/test and therefore should be reserved for the longer-term stakeholder discussion. The summer 2024 timeline is too tight to make informed decisions regarding changes to the storage DEB.  

5. Additional comments:

Once a proposed solution (or shortlist of solutions) is selected, the CAISO should provide examples of how the energy bid cap would be raised for a given hour, or set of hours, in the RTM. Understanding the implementation details, such as timing of automated reference level change requests (RLCRs), will help inform the discussion on which approach is best for both the CAISO and market participants. 

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

PacifiCorp appreciates the CAISO’s urgency in evaluating stakeholder comments and releasing the Issue Paper. PacifiCorp believes the reference level change request process could be used for an interim solution to improve bidding rules for hydro and storage resources when the bid cap is raised to $2,000/MWh. In PacifiCorp’s opinion, any proposed solution that fundamentally changes existing tools and processes should be evaluated in a full stakeholder initiative after the upcoming summer.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

PacifiCorp has concerns with using a pre-determined cap for hydro and storage resources for the following reasons:

• Resources will not be subject to cost verification, which may create FERC risk.
• Resources subject to market power mitigation will still have bids mitigated to a default energy bid (DEB) that may not be accurately reflecting opportunity costs.

As CAISO stated in the Issue Paper, FERC Order 831 requires offers above $1,000/MWh to be cost-verified to ensure bids reasonably reflect a resource’s actual or expected costs. In the CAISO markets, only resources that cannot practically be cost-verified, like demand and virtual bids, are a part of the hard offer cap group and therefore aren’t cost-verified for bids over the soft offer cap. In PacifiCorp’s opinion, hydro and storage bids can be cost-verified and so should be part of the soft offer cap group. Furthermore, sales of energy priced over $1,000/MWh in the bilateral market need to be cost-verified at FERC without any exceptions based on resource type. If hydro and storage resources are subject to FERC cost-verification in the bilateral market, PacifiCorp believes hydro and storage resource bids in the CAISO markets likely need to be cost-verified to be in compliance with FERC Order 831.

From PacifiCorp’s understanding of the stakeholder recommended solutions detailed in the Issue Paper, PacifiCorp believes that bids up to a pre-determined cap could still be mitigated to the resource’s default energy bid. Therefore, the resource could be dispatched based on a bid that does not accurately reflect that resource’s costs. To prevent this from happening, PacifiCorp believes that any changes to bidding rules for hydro and storage would need to change the default energy bids as well.

PacifiCorp does not have concerns with using pre-determined cap for PDR resources, like what is used today for reliability demand response resources (RDRR). Since PDR resources do not have default energy bids (DEBs), there currently is no process in the CAISO markets to cost verify bids from PDR resources.  

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

PacifiCorp believes the existing tools described in the Issue Paper will be important for managing storage resources this summer but do not satisfy many of the concerns raised by stakeholders. For example, exceptional dispatch of storage resources may be a valuable tool, but it does not fix the issue of storage resources not being able to reflect opportunity costs in bids. PacifiCorp prefers an approach that addresses the issue of storage resources not being able to reflect intraday opportunity costs in their bids.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

PacifiCorp prefers stakeholder recommendation 1 to change the reasonableness threshold for storage and hydro resources when the hard offer cap is in place. PacifiCorp views this as the best option for the following reasons:

• The current automated reference level change request process for cost-verifying bids is maintained.
• Resources subject to market power mitigation will not have bids lowered such that their costs are not reflected in bids.

PacifiCorp believes that extending the current process for cost-verifying gas resource bids above $1,000/MWh to hydro and storage resources will decrease implementation challenges, reduce FERC risk, and maintain consistency across resource types. First, the use of an existing process will likely require less technology changes than implementing something new because CAISO already has the technology necessary to verify adjusted default energy bids. There is no information in the Issue Paper on if the CAISO believes this change is implementable, so PacifiCorp requests clarification from the CAISO on if this is a feasible solution. Second, the CAISO tariff already describes the cost-verification method through the reference level change process. In PacifiCorp’s opinion, extending this process to hydro and storage decreases the risk of FERC finding the process unjust and unreasonable compared to cost-verifying hydro and storage bids in a different or new process. Since stakeholders are looking for changes to bidding rules to be implemented this summer, any FERC delays seem likely to make implementation this summer infeasible. Lastly, PacifiCorp prefers to have a consistent process in place for gas, hydro and storage resources to bid above $1,000/MWh so that scheduling coordinators can use the same process for all their resources. Furthermore, a consistent process allows equitable opportunity for gas, hydro and storage resources to adjust their DEBs to bid above the soft offer cap.

In past working group meetings stakeholders have expressed concerns that new bidding rules for hydro and storage resources that allow them to bid above the soft offer cap could be undone if the resource is subject to market power mitigation. PacifiCorp believes changing the reasonableness threshold for hydro and storage resources would negate these concerns because the reference level change process can adjust the DEB subject to a reasonableness threshold reflective of intraday opportunity costs. Therefore, if the resource’s bid is mitigated, its bid is only lowered to the revised DEB, which should reflect a resource’s costs including intraday opportunity costs.

PacifiCorp does not have concerns with using the MIBP or highest cost verified bid for the reasonableness thresholds for hydro and storage resources as PacifiCorp believes they sufficiently approximate the opportunity costs faced by hydro and storage resources.

5. Additional comments:

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

Portland General Electri appreciates the opportunity to supply feedback on CAISO issue paper and stakeholder recommendations.  PGE is strongly supportive of an expedited interim solution that would allow for bidding of hydro and storage resources above the $1000 price cap and could be implemented by July 1, 2024.  

PGE therefore is supportive of continued conversations and stakeholder meetings upon completion of an interim solution for this summer.  Kicking off discussions following an interim solution with a goal of a more comprehensive solution taking effect in summer of 2025.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

Portland General Electric acknowledges that a solution capable of meeting expedited timelines must carefully balance complexity with operational demand.  PGE identifies approach one as the optimal strategy for achieving the interim solutions, while considering approach three as a more comprehensive solution that could serve as a subsequent phase. 

Portland General Electric believes a simplified strategy offers the greatest possibility for implementation in the summer of 2024.  PGE would be willing to adopt a more immediate, albeit less comprehensive, focus on the short term to enhance our ability to better manage our hydro resources in the summer of 2024.  The approach is aimed at managing constraints and mitigating the risks associated with early dispatch in a day due to the Real Time market’s lack of forward-looking capabilities.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

Portland General Electric does not have any interest in pursuing Approach 2 in the short term.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Portland General Electric recognizes Approach 3 as the more complete solution and the appropriate process to evaluate following the interim solution.   Referring the CAISO Issue Paper, PGE is supportive of Stakeholder recommendation 2, Modify the default energy bid for hydro resources.

5. Additional comments:

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

PGP agrees with CAISO staff and other stakeholders that manual updates and verification processes are not a viable solution at this phase and that any immediate solution needs to be automated to effectively address the large number of resources that are impacted by this issue. PGP also agrees with some of the bigger picture/sustainability challenges raised by the DMM when considering the ideal approach to calculating intra-day opportunity costs including the need for more granular price signals and concerns around the longer-term liquidity and viability of bilateral hub prices for inputs to market processes; however, these evolving structural issues should not prohibit the CAISO and stakeholders from finding an interim solution that addresses the immediate risks of the current approach until such a time that the longer-term solution can be designed. We recommend that instead it is reasonable to consider the path towards further modifications when evaluating the approaches considered below.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

PGP has concerns with any solution that does not update the resource (Default Energy Bids) DEBs, particularly in advance of the modifications of the Balancing Authority Market Power Mitigation changes (the grouping approach) that are being discussed under this broader Price Formation Enhancement initiative. During tight conditions, BAs are likely to be import constrained and subject to mitigation, which would leave this solution open to invalidation/correction through the mitigation process as noted in the issue paper. Changing the cap does not solve the root problem of finding a method for verification of bids above the soft cap and could create unpredictable outcomes, lack of transparency, and volatility similar to the current design. If the DEB does not update, this raises a reliability issue for the WEIM because resources may exit to avoid exposure to the discrepancy between cost and mitigated offer price. This proposal also does not preserve the merit order of resources as outlined in the problem statements, and feels much more like an interim solution than something that could translate to a durable design. While recognizing that Approach 3 may result in similar outcomes to Approach 1 under some conditions, it is more aligned with addressing the problem statements outlined by stakeholders and CAISO staff.

Although we prefer Approach 3 as a more durable solution, if there is a way to implement Approach 1 that addresses the DEB issue and can demonstrate cost verification, it may be reasonable to pursue as an interim solution for summer 2024 if required due to ease of implementation. Approach 1, recommendation 3, may be one way to achieve this objective, while also facilitating ease of implementation for market participants, and may warrant a further discussion of tradeoffs as compared to Approach 3 in terms of its ability to resolve the problem statements and work for all resource types in scope. This approach may introduce risks to the extent that the existing DEB calculation becomes inconsistent with the opportunity cost in the market during these conditions. PGP also recommends further documentation/discussion on the FERC filing and implementation strategy and for whichever approach moves into straw proposal phase.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

 PGP’s market design principles seek market design that can accommodate participation and management of fuel limited resources to maximize system benefits. We also seek a solution that encompasses the full suite of resources that fall under the scope of this issue, which as outlined by the ISO in the issue paper include Hydro with Intra-day storage, Batteries, and Proxy DR resources. Approach 2 does not meet these objectives and design principles for the following reasons:

Recommendation 1: Managing the state of charge through end-of-hour state of charge rules is only a solution for battery resources and does not apply an equitable and durable solution for all resource types in scope. It also does not address the objective of representing actual costs in the bids under these conditions, which would be the replacement cost of charging under the current market conditions if dispatched prematurely.

Recommendation 2: Forcing resources to self-schedule to match DA schedules is unlikely to maximize system benefits, and as others have noted, conflicts with Flex RA obligations to offer economically. This also does not solve challenges with EIM resources managing limited fuel or intra-day opportunity cost. Resources need to be able to maintain their merit order from the day-ahead but still be flexible to respond to changes between DA and RT and dispatch to the hours of highest need. Self-scheduling to DA does not enable these desired market features, and may reduce reliability if conditions change to make DA schedules no longer feasible in real time, or when additional redispatch in RT is required due to other changing conditions on the system.

Recommendation 3: Use of the exceptional dispatch functionality to provide a reliability backstop raises equity, transparency, and efficiency concerns, particularly in a multi-BA market such as the one contemplated EDAM. We disagree with the DMM that this should be pursued as an interim approach or that the lack of a solution to other issues justifies this as the only viable solution. This solution is also in direct conflict with the CAISO’s strategic objective of reducing market operator interventions. This is not a solution that would likely meet complex operational objectives of hydro resource management.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

PGP continues to propose that this is the most appropriate approach under consideration, and recommends stakeholders and staff seek to further refine this starting place to meet desired objectives and address outstanding concerns. To the extent that resources have opportunity cost and are competing with the Maximum Import Bid Price from bilateral markets, or competing in the market with other resources with verifiable bids using other existing tools, these metrics should be sufficient to rely on for cost verification for Hydro and Storage. The purchase cost to buy back when dispatched prematurely is represented by these existing market metrics and is therefore a viable cost to consider when calculating the reasonableness threshold. PGP generally agrees with the problem statements outlined in the issue paper, and this solution set should be able to address problem statements 1 through 3, while remaining compatible with potential design solutions to address problem statement 4. Resources who want to be dispatched and compete will still have the flexibility and incentive to offer below this in the interim to reflect intra-day costs. This solution also aligns with the objectives of

1. Automation- should be able to be automatically incorporated through the RLCR process
2. Ease of approval from FERC and WEIM GB given that it relies on existing metrics that are considered cost-verified
3. Compatibility with current design and tools- because this updates the DEBs, while the intent is very similar to Approach 1, it does not run the same risk of being unwound due to mitigation. Regardless of the solution for the 831 issue, PGP supports also moving forward with the BA grouping approach to improve competition, access, and accuracy of MPM to only apply when true market power exists.
4. Alignment with future design- if a longer-term solution contemplates changes to the cost verification or calculation of other resource types that drive the opportunity cost for intra-day storage resources, here signaled as the Maximum Import Bid Price or verified Gas Resource costs, improvements to the granularity of the DEBs or offer caps, or other modeling enhancements, this design should still function with the use of these reference prices. This makes it a more durable interim solution than the other approaches referenced, and should enable flexibility to address other stakeholder concerns with these price signals later.  

Further discussion of this approach should seek to address applicability to Proxy Demand Response Resources, clear implementation guidelines for market participants and compatibility with existing tools, compatibility with EIM and later EDAM, and documentation of any market power concerns and mitigation features that may be related or should be addressed in the broader stakeholder initiative, such as the MPM grouping approach already under consideration. 

5. Additional comments:

The Issue Paper is a thoughtful and thorough representation of the design components, issues, concerns, and potential solutions discussed to date and provides enough narrowing of the discussion to move toward a straw proposal for immediate implementation. PGP appreciates the CAISO’s responsiveness to stakeholder feedback on this issue and the inclusion of Hydro with Intraday storage and Proxy DR in the issue scope, given the importance of these resources to various stakeholders. Immediate response to this issue with a durable and adaptable interim solution in place by Summer 2024 will enable and facilitate further dialogue on the bigger picture issues raised by the DMM, while immediately addressing stakeholder concerns raised within this process and the broader discretionary initiatives process. PGP is supportive of the Joint Authority designation and recommends thorough consideration of WEIM impacts in the design rather than just impacts on the CAISO BA and internal fleet of battery storage resources, and careful consideration of equity issues across BAs, participation models, and resource types in any design. We recommend that any straw proposal be accompanied by an outline of a FERC approval path and implementation strategy that may enable action on this important issue in advance of Summer 2024.

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

The Public Power Council (PPC) agrees with many of the perspectives shared by stakeholders and CAISO staff.  PPC supports seeking an immediate solution that does not rely on manual updates and verification but rather is automated to address the potentially large volume of resources effected by the issue.  PPC also supports an expedited timeline for an interim solution that can be implemented prior to this summer and pursuing a more durable and comprehensive approach at a later time.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

As explained in detail below, PPC’s preferred approach is “Approach 3”, however “Approach 1” may be a workable solution if it includes updates to resource Default Energy Bids.  PPC expects during the conditions where prices can rise above the soft-cap, there is a higher likelihood of resources being subject to market power mitigation.  Therefore, any alternative needs to address the issues identified in the issue paper related to mitigated offers not being able to accurately reflect system conditions and resource costs. PPC believes this is a key outcome for any interim solution that would go into place this summer.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

PPC does not support the recommendations outlined under approach 2.  PPC has concerns that recommendation 1 would not find a workable solution for all resource types in scope.  Recommendation 1 would also not allow for the representation of actual costs in bids which undermines price signals produced by the market.  Recommendation 2 has the potential to undermine the optimization benefits the market is capable of providing in real time.  Also, as noted by other stakeholders, matching DA schedules conflicts with Flex RA obligations.  PPC also believes Recommendation 3 is not appropriate as it furthers the ISO reliance on out-of-market actions that create equity, market efficiency, and market transparency concerns.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

PPC believes “Approach 3” is the most appropriate path forward.  “Approach 3” best reflects resource opportunity costs and is a reasonable mechanism to allow resources to most effectively participate in the market during high-stressed conditions.  PPC expects this approach should be able to be automatically incorporated through the RLCR process and is potentially likely to be approved by various decision-making bodies because of its reliance on existing approved metrics.

5. Additional comments:

appreciates the responsiveness of the CAISO to stakeholder concerns and the thoughtful approaches and considerations outlined in the issue paper.

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

REV appreciates CAISO addressing the rules for bidding above the soft offer cap. Many stakeholders agree that there is an urgent need to fix this issue before summer 2024 to ensure a well-functioning market while maintaining grid reliability.

REV looks forward to CAISO providing information on the implementation feasibility of each approach, as that will be helpful in focusing on specific approaches. Absent that information, REV suggests pursuing Approach 3, though Approach 1 could also be an interim solution. REV does not recommend Approach 2 as it does not help position the resources in the bid stack.

REV encourages CAISO to ask FERC for an expedited order to facilitate implementing the solution before August so that it can be tested prior to potential heat wave events. REV understands that any near-term solution may be interim and more stakeholder discussions may be necessary for a longer-term fix.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

REV supports pursuing this approach and it seems to be the most feasible near-term solution (though REV requests CAISO feedback on implementation feasibility). REV also supports considering ways to address market power concerns with this approach, such as lifting the Default Energy Bid (DEB) cap or discussing how to leverage the reference level adjustment process to modify the DEB.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

CAISO should not pursue Approach 2. While options under this approach may help resources to meet their day-ahead schedule, it does nothing to actually position the resource properly in the bid stack, and actually removes them from the bid stack to rely on manual processes. Approaches 1 and 3 are viable options that should be pursued instead.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

REV supports pursuing this approach as well, and if feasible to implement this summer, could be a better way to address market power concerns. Further, REV supports CESA’s proposed solution under this approach.

5. Additional comments:

REV does not have further comments at this time.

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

The Salt River Project Agricultural Improvement and Power District (SRP) appreciates the opportunity to submit comments on the rules for bidding above the soft offer cap issue paper and summarizes as follows:

• FERC Order 831 imposes a soft cap on bids of $1,000 per MWh without verification.
• CAISO imposes a hard cap on resources which may not verify of $2,000 per MWh
• CAISO imposes a soft cap on resource which may verify of DEB and $1,000 subject to change by Reference Level Change Request (RLCR):
  • Manual RLCR – Where SC submits actual or expected fuel costs to the ISO for approval to recalculate DEB.
  • Automatic RLCR – Where SC submits recalculated reference levels in SIBR.  If values meet reasonableness (10 to 25% additional scalar over resource’s fuel) threshold they are accepted and used in the next applicable run.  Otherwise, it will be capped at the reasonableness threshold. 

SRP notes that the current RLCR (both manual and automatic) can be cumbersome for participants with a large fleet that is impacted by a changing fuel price.  Any changes in how RLCR are submitted for resources in discussion should be designed to minimize actions taken by participants to accurately reflect their resource costs in the market. 

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

SRP agrees with additional stakeholders the predetermined cap methodology may:

• Not properly reflect the resource costs in the market causing improper dispatch.
• Not properly maintain the SOC of storage resources in the market.
• Not allow for necessary redispatch of internal systems when prices exceed $1,000 per MWh.

SRP supports selecting the highest cap of $2,000 per MWh and removing the soft cap of $1,000 per MWh on the DEB values.  This option would allow participants to bid up to the true costs as defined by the DEB without the extra step of submitting a RLCR.  SRP requests clarification if this would apply to all resources or just resources that do not have a fuel price that can be verified.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

SRP considers leveraging of existing tools as an intermediary step to an overall solution and has concerns with the recommendations made in Approach 2.  SRP understands the specified leverage to consist of:

• Manage SOC through existing end of hour state of charge tool.
• Self-schedule day ahead schedules in real time.
• Exceptional Dispatch functionality.

The options provided in Approach 2 appear to be in opposition to the standard functionality of the system and would result in excessive work by stakeholder operations.  This exceptional operation will be prone to error and suboptimal optimization which SRP does not support exposing itself or the system to via their own actions or those of additional stakeholders.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

SRP supports the recommendations provided in Approach 3 listed as:

• Modify reasonableness threshold of RLCR process.
• Modify DEB for hydro resources.
• Utilize look ahead horizon for intra-day opportunity costs on storage DEB

SRP agrees with Approach 3 and the Market Monitor recommendation of allowing the resources to bid up to $2,000 per MWh with a revised DEB and reasonableness threshold.  SRP also agrees with the Market Monitor that existing tools would suffice in the short term if additional time is warranted to develop the best policy.

5. Additional comments:

No additional comments at this time.

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

No comment at this time.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

SDG&E believes Approach 1 could be a relatively simple path forward for storage resources to bid above the $1000/MWh soft offer cap. While we have not yet made a determination on which of the three stakeholder recommendations is the most favorable and will need further details before doing so, SDG&E believes this approach would result in a significant improvement from status quo for the summer. As a part of any future assessment of stakeholder-recommended solutions, we encourage CAISO rank each option by how difficult it might be to implement.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

While SDG&E prefers the options outlined in Approach 1 at this initial stage, we believe that Approach 2 could also be pursued as an interim solution for Summer 2024. In general, we believe that there are benefits to making more tools available to battery operators to flexibly manage real-time schedules. Enabling the optionality to manage SOC through the existing end-of-hour charging tool or via the ability to self-schedule day-ahead schedules in real-time could mitigate sub-optimal dispatches that can occur in real-time. However, we would like to confirm that these would be optional tools that will be deployed as needed. In addition to this clarification, we also note that it will be important that any enhancements do not put resources in jeopardy of complying with their flex RA obligations. Finally, we would like to ask the CAISO if they are contemplating implementing multiple approaches concurrently (i.e., adjust the cap and make these tools available).

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Given the ambitious timeline, SDG&E does not believe that Approach 3 will be a feasible path forward for developing an interim solution for the summer. However, we agree that this approach should be considered in a more holistic policy discussion and support evaluation of these recommendations as longer-term solutions.

5. Additional comments:

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

City Light appreciates CAISO’s exploration of how existing tools might be leveraged to address the near-term needs of storage, hydro, and PDR resources in scarcity situations in which the soft bid cap results in uneconomic dispatch. While the existing tools do not provide a path to address the issue of uneconomic dispatch of hydro in a meaningful way, as discussed below, City Light believes other options proposed by stakeholders could provide a near-term solution.

City Light recognizes that full resolution of these issues that would yield a level playing field for all resources is likely to require a longer timeframe. At this time, CAISO should place the greatest emphasis on potential interim solutions that can be implemented as quickly as possible in order to be in effect in Summer 2024. An interim solution might not completely solve the problem statements, but it should improve the way resources will be dispatch in tight system conditions. In the long term, City Light supports development of a process for hydro, storage, and PDRs to update their DEBs in real time. Future stakeholder work should also include exploration of potential uneven results of MPM as applied to resources that can use the RLCR process and resources that cannot.  

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

Approach 1, Recommendation 1(1.1): Increase the bid cap for soft offer cap resources to the same cap currently applied to the bids of non-resource-specific system resource that are RA.

This appears to be the simplest way to allow all resources to bid up to the same level when the soft offer cap is lifted. While not a complete solution, implementing this change by the summer would be an improvement over the status quo. However, only making this change would still lead to uneconomic dispatch of hydro, storage, and PDR resources, because any MPM would mitigate the resource back down to their unadjusted DEB, which still cannot exceed $1000/MWh. As a result, resources could still be dispatched inappropriately early in tight conditions. Hydro resources would have to be aware of the actual pre-determined cap and the logic that could trigger MPM and bid with this in mind. In these scenarios, in order to avoid uneconomic dispatch, those resources may need to be removed from the market in tight conditions to ensure resources can meet their obligations in future hours.  If CAISO pursues this option, City Light suggests pairing it with Recommendation 1.3, removing the soft offer cap from DEBs.

Approach 1, Recommendation 2 (1.2): Modify the existing bid cap logic to cap bids by a single, higher static value over the full operating day.

The addition of a 10% buffer to the offer cap gives a small amount of leeway for planning for higher prices in future hours but could still result in uneconomic dispatch with resources being used up before peak demand. Additionally, MPM risk remains the same under this recommendation.  If CAISO pursues this option, City Light suggests pairing it with Recommendation 1.3, removing the soft offer cap from DEBs.

Approach 1, Recommendation 3 (1.3): Remove the $1,000/MWh soft offer cap from DEBs.

City Light supports implementing this option simultaneously with either Recommendation 1.1 or 1.2. This suggestion prevents the benefits of a higher cap from being unwound by any MPM. Removing the cap on DEBs that cannot submit RLCRs is justified the same way that lifting the soft offer cap is justified and makes the effects of MPM fair among different resource types.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

City Light does not see a way to leverage existing tools that yields a benefit to hydro resources or that allows for hydro to be positioned in the bid stack.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Approach 3, Recommendation 2(3.2)

Recommendation 3.2 (modify the DEB for hydro resources) is City Light’s preferred solution, particularly because this would address problem statement 3. Additionally, City Light supports expanding the RLCR process and the reasonableness threshold to include hydro DEBs. This approach would improve the status quo by limiting the risk of MPM below $1000/MWh.

While City Light supports Recommendation 3.2, we recognize it does not fully address the issue of reflecting intra-day opportunity costs (problem statement 4), thus, it is likely that issue would need to be explored in a longer-term solution, as suggested for Recommendation 3.3 (Explore using a look-ahead horizon to inform intra-day opportunity costs for storage DEBs). City Light supports this recommendation; this is a key component of allowing hydro and battery resources the ability to preserve planned operation. However, we agree this is a complex task that will need additional discussion and is best developed in a longer-term policy initiative. City Light supports continuing to explore solutions around this issue while shorter term solutions are in the process of being implemented.

5. Additional comments:

City Light appreciates the urgency that this issue is being given and further urges the CAISO to move as quickly as possible in order to support a change earlier in the summer if possible. The timeline proposed contemplates an August-September implementation; actions that can be taken to move this up in time are highly encouraged.  City Light supports the ask from WPTF that CAISO seek an expedited order from FERC to facilitate earlier implementation, which would ensure any stressed system conditions that occur between June and September 2024 benefit from a more optimal and reliable dispatch of storage, PDR, and hydro resources.

As mentioned above, in addition to short term fixes that are being considered, City Light supports a longer-term policy initiative, either under the PFE umbrella or a separate Scarcity Pricing Initiative, to holistically address this important issue for hydro and other storage resources.  

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

As discussed in their comments on the March 12, 2024, Working Group meeting, the Six Cities agree that: (1) storage resources should be permitted to recover charging and opportunity costs when the market is accepting bids greater than $1,000 MWh; and (2) bidding rules for storage resources and the market optimization should seek to ensure that storage resources are available for the four hours of highest need during a day and are not scheduled to discharge prematurely.  At the same time, the Six Cities agree with comments by the CAISO staff during the March 12^th working group meeting that measures intended to ensure that storage resources can reflect their opportunity costs and are positioned correctly in the bid stack should not operate as a driver of market prices, and that all of the solutions under consideration should be evaluated for unintended impacts. 

The Six Cities also agree that it is important to consider enhancements to bidding rules for storage resources consistent with the foregoing objectives for the 2024 summer period and support the CAISO’s expedited efforts to address stakeholder concerns, as discussed during the course of this initiative and at the Western EIM Regional Issues Forum on March 18th.  As to all of the identified approaches in the Issue Paper, the Six Cities encourage the CAISO to complete its assessment of the feasibility of different options as soon as possible.  The ability of a solution to be implemented in time for summer is a critical piece of information that is necessary for the CAISO and stakeholders to meaningfully evaluate approaches. 

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

 At this time, Approach 1, Recommendation 2 appears to present a viable option for an interim solution in time for peak conditions in summer 2024, subject to confirmation from the CAISO that summer implementation of this approach is indeed feasible.  Under Recommendation 2, the existing bid cap would be revised by a static value that would be applicable over the operating day.  As noted by the CAISO, Recommendation 2 would appear to address the main deficiency of Recommendation 1 by mitigating the likelihood that resources subject to the soft-offer cap (including storage, hydroelectric, and proxy demand response (“PDR”) resources) could be dispatched too early in the day.  The Six Cities acknowledge that stakeholders have provided input on options for establishing the static cap and suggest that these be discussed in more detail through the stakeholder process.  The Six Cities do not support Recommendation 3 as an interim solution, because this approach would eliminate the need for reference-level change requests for default energy bids (“DEBs”).  As a consequence, bids in the market may not be reflective of prevailing conditions, which could produce distortionary effects on market pricing.  This recommendation may also entail additional complexity that would make implementation this summer more challenging.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

Approach 2 appears to enable positioning of storage resources so they are dispatched during the times of greatest need during the day.  However, it is not clear that reliance on these tools alone provides a sufficient opportunity for resources to recover their intraday opportunity costs, which is a concern market participants have raised.  If the CAISO has insight on the ability of these tools to address this issue, either in whole or in part, the Six Cities request additional input from the CAISO.  As these were not extensively discussed during the March 12^th working group meeting, there is merit in covering these options during the upcoming working group meeting on April 23^rd.  There would be value in weighing these tools against the Approach 1 recommendations, and also considering whether and how these tools would be used in connection with any of the Approach 1 options. 

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

This approach and the included recommendations involve more comprehensive changes that should be considered as a permanent solution set, rather than an interim fix for this summer.  For this reason, the Six Cities support establishing a separate track of this initiative to consider longer-term options.

5. Additional comments:

One concern raised by a member of the CAISO staff during the March 12^th stakeholder meeting related to whether enabling storage resources to bid at levels above the soft-offer cap would in increase or change the likelihood of resources within the CAISO potentially being utilized to support low priority exports from the CAISO region during high priced conditions.  A stakeholder representing the storage community suggested that CAISO operators would have the ability to issue curtailments to low priority export schedules to manage this if appropriate.  The Six Cities request that this concern be explored in more detail during the April 23^rd meeting. 

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

Tacoma Power (TPWR) appreciates the recognition by CAISO and stakeholders that certain resources, including hydro resources, should have a mechanism to submit supply offers representing intra-day opportunity costs. We also acknowledge that many of the issues and challenges raised by stakeholders warrant continuing stakeholder processes, and we support an interim solution that will make meaningful progress toward fuller recognition of opportunity costs. The interim nature of a “next step” does not mean, though, that the step should not be durable. Future options should build on an interim solution, not replace it. Accordingly, TPWR supports a proposed interim solution that recognizes opportunity costs in a durable way.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

TPWR recognizes the positive outcomes that could result from bid cap modifications and appreciates that it would represent an improvement over the present circumstance. However, we believe that a durable long-term approach needs to also include modifications to the default energy bid framework for hydro resources.  

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

TWPR believes each of the three recommendations within this approach would increase market complexity without providing meaningful progress toward transparent opportunity cost verification. TPWR would look forward to continued stakeholder processes about how those recommendations might supplement an interim approach in the future but does not support their implementation at this time.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

TPWR believes that enhancement of resources’ ability to verify costs provides an interim solution that meaningfully addresses many aspects of the problem statements while carrying a high likelihood of remaining part of any future paradigm. Specifically, TPWR supports the proposed formula to modify the default energy bid for hydro resources. That formula provides an objective and transparent path to better verify opportunity costs. TPWR also agrees with the Public Generating Pool that this option meets other objectives including automation, ease of approval, compatibility with current design and tools, and alignment with future design.  

5. Additional comments:

TPWR expresses its gratitude for the opportunity to comment on the Issue Paper and the straightforward way CAISO has responded to stakeholder concerns on this issue. TPWR also appreciates and supports the comments submitted by the Public Generating Pool of which TPWR is a member. TPWR agrees with the Joint Authority designation and looks forward to continued discussion and progress.  

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

Terra-Gen, LLC (Terra-Gen) provides the following feedback on CAISO’s PFE rules for bidding above the soft offer cap issue paper.

Terra-Gen disagrees with any use of current out-of-market tools or operator actions as an attempted approach to resolve the stated concerns and CAISO’s problem statement. Terra-Gen emphasizes that this problem is a prominent bidding rule concern that is a CAISO policy flaw. Terra-Gen observes that simply continuing to rely on the use of out-of-market actions to address the premature dispatch of resources will fall short of allowing just and reasonable participation for storage resources in its markets.

Terra-Gen acknowledges that while these command-and-control approaches may enable CAISO operators to maintain reliability, it is also clear that they will undoubtedly result in inefficient market outcomes and financial impacts for storage resources. Such inefficient outcomes will ultimately flow through to affect end use customers/ratepayer costs even if they do not result in reliability challenges. Therefore, Terra-Gen requests that CAISO forego any further focus on the broad use of these existing options for out-of-market actions to attempt to resolve the concerns and instead put all its efforts towards finding a resolution of the bidding issue directly.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

Terra-Gen views this approach as the easiest and fastest path to resolving the bidding rule flaw. Terra-Gen previously recommended that CAISO allow storage resources to bid at the $2,000/MWh hard offer cap when scarcity conditions trigger the CAISO’s bidding cap to be increased above the $1,000 soft offer cap. Terra-Gen acknowledges CAISO’s verbal feedback during the March 12 working group noting its concerns that the approach may result in a concern of more frequent or extended periods of $2,000/MWh pricing. In response, Terra-Gen revises its suggested approach for an interim solution that can be easily implemented and now recommends that CAISO adopt a solution that allows storage resources to bid up to the greater of (1) the Maximum Import Bid Price (MIBP), or (2) the Highest-Priced Cost Verified Bid. CAISO’s systems can calculate the bid cap for storage resources based on the highest MIBP and cost-verified offer across the day, which will also set the reasonableness threshold for storage resources. Terra-Gen understands that this may require reference level adjustment submissions by resource Scheduling Coordinators (SCs) and CAISO should indicate if the automated process for reference level adjustments could updated to reflect the bidding rule changes above and achieve implemented in time for this coming summer season (prior to July 2024).

Terra-Gen also notes this approach can be filed in a manner that will have a high likelihood of being viewed by FERC as comporting with its Order 831 cost verification requirements that CAISO has highlighted as an important consideration in this process. Under the above recommended approach, the required cost verification could be met by CAISO’s MIBP, or cost verified offers greater than $1,000/MWh, which are each calculated by CAISO.  Such an approach allows a CAISO calculated offer cap to as the cost verification for these use-limited storage resources that would face the potential for intra-day replacement energy costs of up to $2,000/MWh due to the concerns expressed above regarding the risk that exports bidding at $2,000 to be supported by the dispatch of energy storage resources. Terra-Gen urges CAISO to avoid letting any concerns regarding the cost verification requirement hinder or otherwise undermine its focus on adopting an expedited solution. This solution is straightforward and will meet the FERC cost verification requirement and CAISO should be confident that quickly solving the problem in this manner will result in better alignment with the true intent of FERC Order 831 to provide appropriate price formation during scarcity conditions. Terra-Gen asserts that CAISO should not allow its fears over the Order 831 cost verification requirement to overshadow the need to make these imperative bidding rule enhancements as soon as possible.

Terra-Gen also notes that virtuals and non-RA imports and exports can bid up to $2,000/MWh under FERC Order 831 conditions. Due to this aspect of the current Order 831 implementation, the compromise recommendation noted above, while certainly could be considered an incremental improvement, will still result in some risk that CAISO’s market may find it optimal to dispatch an energy limited resource in a given hour to support an export or that bid $2,000/MWh if energy limited resources cannot bid up to the same cap. Terra-Gen agrees with stakeholders observations in prior feedback that such an outcome could result in the energy limited resource not being available to serve load within the market footprint during tighter supply conditions later in the day. Therefore, Terra-Gen would still prefer the ability for storage to bid up to the $2,000 hard offer cap but understands if CAISO would prefer the above noted compromise solution. This aspect suggests that the above approach should be considered an interim measure that would require further refinements.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

Terra-Gen opposes the continued use of existing out-of-market tools as an approach for CAISO to try to respond to the concerns raised in the process and believes that such an approach would be a failure of CAISO to meet its 2022-2026 strategic plan element to enable new technologies through efficient market rules, as well as CAISO’s strategic framework vision to operate a cost-effective market. 

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Terra-Gen concurs with the California Energy Storage Alliance’s (CESA) March 22 comments recommending that CAISO should utilize the current automated reference level change request process to ensure that resources with intra-day opportunity costs would be dispatched in an efficient and reliable manner. Terra-Gen also acknowledges that there is a high likelihood that attempting to accurately determine a resource’s actual intraday opportunity costs would be a difficult endeavor to undertake even with adequate time, thus we suggest that CAISO focus its efforts on the approach 1 comments recommended above and continue to work on refinements to this more robust option further in the future.

5. Additional comments:

Terra-Gen recognizes the opportunity to provide comments on CAISO’s PFE rules for bidding above the soft offer cap issue paper as an important step towards helping CAISO solve the ongoing concern of storage bidding under Order 831 conditions. However, the process to get to this point has simply taken too long and now risks failing to find a proper resolution prior to this summer.

Beyond the specific feedback noted in response to CAISO’s issue paper stakeholder solutions discussed above, Terra-Gen also takes this opportunity to express frustration and disappointment that CAISO has been aware of the problem related to its bidding rules for storage resources barring them from bidding above the soft offer cap for over a year, yet CAISO has not acted as expeditiously as necessary to provide an appropriate resolution of the issue in a timely manner. Terra-Gen would have preferred to see an actual CAISO proposal issued sooner, with implementation feasibility assessment discussion included. Instead, CAISO’s choice to release an issue paper at this juncture causes further delay in moving towards quick resolution. Terra-Gen is concerned this approach has placed CAISO’s ability for implementing even an interim prior to the upcoming summer in jeopardy. 

Terra-Gen recommends that CAISO determine a path towards expedited resolution in advance of July 2024. Terra-Gen strongly urges CAISO to seek an emergency order from FERC to enable implementation prior July 2024. CAISO’s currently proposed schedule would lead to an interim solution being implemented between August and September 2024 and any stressed system conditions occurring between June and September 2024 that trigger Order 831 bid cap increases will almost certainly result in sub-optimal and inefficient dispatch of storage and hydro resources. An expedited FERC filing following the May Board of Governors meeting gives CAISO the best chance of achieving implementation by July 2024 is feasible, especially if the interim solution entails a straightforward implementation.  CAISO should take the need to resolve this issue as soon as possible with the utmost seriousness and strive to provide a timely resolution, even if it is an interim solution. CAISO has made emergency FERC filings on pressing issues of significant concern such as this in the past.[1] Terra-Gen urges and CAISO to consider all expedient options for resolving this market design flaw prior to this summer, even if interim measures are required. Any interim solution(s) can be further refined on a more standard stakeholder initiative process timeline.

[1] https://www.caiso.com/Documents/Sep19-2022-TariffAmendment-EnergyStorageBidCostRecovery-ER22-2881.pdf

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

The Energy Authority (TEA) strongly supports and appreciates the CAISO’s commitment to addressing the current implementation gap regarding bidding rules for Storage and Hydro resources, as well as Proxy Demand Resources, during higher-price conditions. TEA understands that this gap created significant operational and market challenges for Pacific Northwest hydro resources participating in the WEIM during the January 2024 cold-snap. Without timely implementation of the solutions being discussed, similar issues will likely be experienced again this summer by the same resources should a heat-event materialize, particularly given the below-normal water conditions the region is facing and the constraints such brings for the regions’ hydro resources. TEA therefore joins WPTF and others in requesting the CAISO do whatever it can to fast-track the tariff development and approval process, and target implementing interim enhancements no later than July 1, 2024. TEA believes that the market efficiency and reliability risks inherent in maintaining the status-quo bidding rules framework for these resources any longer than absolutely necessary far outweighs any concerns regarding market price formation or cost-verification feasibility.

Regarding the technical solutions offered in the Issue Paper, TEA fully supports the direction suggested by the Western Power Trading Forum (WPTF) in its comments, which can be summarized as follows:

• Address Proxy Demand Resource issues using Option 2 as a preferred path, which maintains the bid-stack order for these resources relative to Reliability Demand Response Resources, but with Options 1 and 3 as acceptable alternatives.
• Address Storage and Hydro resource issues using a combination of Approaches 1 and 3 from the Issue Paper, which WPTF puts forward as their Option 1, where Storage and Hydro resources would be permitted to bid up to a single higher static value for all hours of an operating day when the $2,000/MWh bid cap is in effect and where CAISO would redefine the reasonableness threshold applied to these resource types based on that higher static value.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

See above.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

See above.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

See above.

5. Additional comments:

Looking beyond the immediate need for an interim solution for specific resources, TEA continues to request a comprehensive, workshop-based review of the CAISO’s Order 831 policies and implementation approaches. As a SC active in CAISO’s internal and intertie markets, scheduling storage resources as well as hourly-block interchange, TEA has experienced challenges and inefficiencies in the CAISO’s process for establishing and communicating the hours in which the soft-offer cap is lifted. TEA expects that these challenges will be further exacerbated over the next few years by changes coming through a combination of entities moving more of their trading activity from the existing intertie market to the EDAM for a subset of CAISO interfaces, persistent disconnects in the CAISO offer-cap relative to the bilateral market conventions under the WECC soft-offer cap, and the presence of alternative offer-cap policies of adjacent developing markets that CAISO will be managing market seams with (e.g., SPP’s Markets+ and RTO-West markets). TEA understands that the current Order 831 approach was developed in the context of the market(s) that existed at the time and in light of the implementation and timeline constraints that were faced when the initiative was active. Put simply, that landscape has changed and will continue to change in the coming years, and there are lessons to be learned at this point from how this policy has worked in practice through multiple tight-system condition and higher-price events occurring during different seasons and across different regions within the CAISO and WEIM’s broad footprint. TEA has previously suggested the policy and implementation choices be reviewed through the stakeholder catalog process and is simply reiterating the importance here given the relevance.

__________________________

About TEA: The Energy Authority is a public power-owned, nonprofit corporation that as a national energy marketing company, evaluates challenges, manages risks, and executes solutions to help its clients maximize the value of their assets and respond competitively in the changing energy markets. TEA partners with over 60 public power clients, managing approximately 30,000 MW of peak load and 24,000 MW of generation in North America’s organized and bilateral wholesale energy markets. TEA’s Western Interconnect partners are directly engaged in and impacted by the CAISO’s existing and evolving day-ahead and real-time energy markets. 

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

Vistra urges the CAISO to prioritize addressing urgent bidding limitations affecting storage and hydro resources by July 2024.

Vistra requests the CAISO propose and implement the following solutions by July 2024:

• Revise hydro and storage Default Energy Bid (DEB) Opportunity Cost components[1] to better reflect intra-day opportunity costs by setting opportunity costs based on the maximum of the current Opportunity Cost (OC) estimate, Maximum Import Bid Prices (MIBP), or highest cost-verified bid.
  • For storage DEB, this would change the opportunity cost value from the higher of n^th highest Integrated Forward Market (IFM) price to the maximum of the n^th highest IFM LMP, the n^th highest MIBP, or highest cost-verified bid. Where n is the duration of the storage asset assuming a full discharge cycle. In most cases n equals 4.
  • For hydro DEB, this would change the short-term component from the day-ahead peak price at the applicable electric price hub to the maximum of the day-ahead peak price, the 4^th highest MIBP, or highest cost-verified bid. The 4^th highest MIBP would be used for hydro to ensure the intra-day opportunity cost estimate is aligned across resources facing intra-day opportunity costs.
• Allow manual reference level change requests for storage and hydro DEB adjustments based on intra-day opportunity costs using the MIBPs or an approved cost-verified bid where the MIBP and CAISO approval of cost-verified bid would serve as supporting documentation for the requested hydro or storage DEB manual adjustments.
• Allow ex ante reference level change requests for storage and hydro DEB adjustments by adding reasonableness thresholds for storage and hydro DEBs. Reasonableness thresholds should be calculated by including a fuel-equivalent scalar to the existing DEB formulation on the cost element of the DEB expected to vary. For hydro and storage DEBs, the component with the risk of varying from the default value is the opportunity cost or short-term component, respectively.

Please see responses to questions #4 and #5 below for more details.

[1] For storage Default Energy Bid it is referred to as the “opportunity cost” component and for hydro Default Energy Bid it is called the short-term component.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

Approach #1 is most aligned with our limitation #5 described below. We believe changing the price-based bidding rules will require additional stakeholder vetting above and beyond what this fast-track process can accomplish. This is because while the idea of allowing price-based offers above $1,000/MWh without cost-verification seems appealing, there are sticky policy issues of allowing this bidding practice. CAISO will need to propose Tariff amendments to allow these resources to offer price-based offers above $1,000/MWh without cost-verification and would have to find that allowing price-based offers above $1,000/MWh is in the best interest of reliability like what it determined for Reliability Demand Response Resources in ER22-1431.

Vistra believes there is precedent in ER22-1431 that creates a path for CAISO to propose to FERC that resource types that have their costs impacted by intra-day opportunity costs may need to be able to bid without cost verification to ensure they are in the appropriate dispatch order, absent mitigation, and that it would not support reliability or price formation to have their offers limited in a way that suppresses market prices obfuscating that the market is in the midst of scarcity. However, we acknowledge the complexity of taking this stance and believe it merits a robust stakeholder process. Even if advanced, changing price-based bidding rules under this approach will not address the issue that storage, and hydro, will be in a lower position in the supply stack when mitigated due to the limitations on cost-based offers described below. If the real-time opportunity costs are not sufficiently represented in the mitigated bids then changes to price-based bidding will be ineffective to address the issues affecting hydro and storage assets.

Approach 1 addressing an issue on changing bidding flexibility for price-based offers to allow price-based offers above $1,000/MWh without cost verification. It should be excluded from scope of this fast-track effort. Cost verification can be adopted to facilitate cost-based offers through reference level adjustments and that should be the focus of this fast-track initiative. Please see suggestions below in #4 and #5 for input on how to move the cost-based offer changes forward.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

This approach is not within our inventory of issues. These are existing tools for managing uneconomic participation. The issue scope raised by stakeholders have been on CAISO’s bidding rule limitations surrounding the ability to economically offer the asset to fully provide its flexible Resource Adequacy (RA) attributes and ensure the flexible value of the assets are fully accessible to the market.

The end-of-hour state of charge tool or self-schedule are not an appropriate or desired tool to manage the availability of storage in real-time. This is because these tools both make the resource ineligible for bid cost recovery and the latter would also result in Resource Adequacy Availability Incentive Mechanism (RAAIM) penalties for any flexible Resource Adequacy (RA) storage.

Two targeted recommendations on need to hold sufficient State of Charge facilitated through exceptional dispatches that could be considered are:

• CAISO should create a process for a storage SC to request a specific storage resource have an exceptional dispatch sent to it if they are receiving schedules earlier in real-time that will threaten its ability to support demand needs later in the day. This issue could be taken up to improve ability to make sure hold ED are available when needed.
• CAISO should implement a market-based mechanism to procure State of Charge (SOC) through the market, produce a price signal for the need to hold SOC, and ensure storage that has its SOC reserved is compensated fairly through Bid Cost Recovery by adding to BCR the lost opportunity cost payments associated with procuring SOC reserves.[1] This issue is about improving the use of hold SOC and should not be in scope of this fast track issue but taken up in a future energy storage modeling enhancements initiative.

The two targeted recommendations above should not distract from or take resources away from addressing the issues needing urgent resolution discussed below.

[1] Vistra recognizes this is a new reserve product and would take a stakeholder initiative to explore and want to make sure CAISO is aware that the hold SOC exceptional dispatches must be relied on in the interim until CAISO implements a market product to do so. Stakeholders previously communicated their preference for a market-based product over exceptional dispatches.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

Approach #3 is closest aligned to the limitations #1-3 identified below. The previous recommendations summarized in the issue paper seemed to diverge from existing policies. We hope to have a solution feasible by July 2024. As such, Vistra focuses on proposing solutions that build on existing policies rather than deviating from existing DEB or reasonableness threshold policies.

Vistra believes the following three changes are needed on existing Energy Storage and Distributed Energy Resources (ESDER) 4 storage DEB and CCDEBE policies to address existing challenges:

1. CAISO should revise the real-time storage DEB's Opportunity Cost component so that it bases real-time opportunity cost off of the maximum of the n^th highest Integrated Forward Market prices, the Maximum Import Bid Prices, or cost-verified bid.[1] Since, ESDER 4 storage DEB policy set the Opportunity Cost of discharge at the n^th highest hour aligned with the duration of the storage resource, Vistra is willing to accept on an interim basis setting the real-time Opportunity Cost value at the maximum of the nth highest (i.e., 4^th highest) IFM, n^th highest MIBP, or highest cost-verified bid. While Vistra believes using the 4^th highest fails to leave room for error in case that price is closer to the 5^th highest instead, we can support CAISO making continuing to use 4^th highest hour approach in this fast-track effort until the policy can be reviewed in a more robust stakeholder process. In addition, there may be merit to adopting this approach for the day-ahead opportunity cost value as well if there are cost-verified offers in day-ahead.
2. CAISO should approve business practice manual changes that would allow manual reference level change requests to the storage DEB where the requested values could exceed $1,000/MWh if cost verified. Initially, CAISO should use the MIBP or highest cost-verified bid as the cost verification and allow for other reasonable documentation to be provided at its discretion.
3. CAISO should calculate a reasonableness threshold for cost verification of ex ante reference level change requests in both day-ahead and real-time that would apply the fuel equivalent scalar to the improved Opportunity Cost component. This is consistent with CCDEBE policy that applies a fuel-equivalent scalar on the component of the DEB expected to have a margin of error. Vistra found the reasonableness threshold method recommended by a stakeholder to be too far removed from existing reasonableness threshold policy. We urge the CAISO to move forward expeditiously with the existing CCDEBE policy. Under CCDEBE, the following would be the closest proposal for the storage DEB’s reasonableness threshold:
   Max[Max(Enδ/η,0+ρ),OC*Fuel Equivalent Scalar]*DEB Multiplier.

   For example, if the 4^th highest Max Import Bid Price as of the evening prior to the real-time market based on the next day power indices at the external interties is $1,250/MWh then the resulting reasonableness threshold would be $1,512.50/MWh.[4] This is because the reasonableness thresholds includes the headroom scalar, or DEB multiplier, and a fuel equivalent scalar on the element expected to have the margin of error driving the reference level change request.

On the hydro DEB and hydro reasonableness thresholds, Vistra’s position is that the value used for estimating the opportunity cost of dispatching these resources as opposed to reserving their uses should be the same value used for storage. Any proposed change to DEB or reasonableness thresholds should align the day-ahead and real-time intra-day opportunity cost estimates similarly across all opportunity cost-based offers.

[1] Using the maximum of CAISO BAA next day prices and intertie next day prices will ensure the opportunity costs associated with the storage’s dispatch is being more fully estimated between supporting internal sales versus off-system sales.

[2] The formula above assumes CAISO also makes the real-time OC change to use the maximum of the 4^th highest Integrated Forward Market, Max Import Bid Price, or highest cost-verified bid for the real-time OC component of the existing storage DEB.

[3] Since the OC component is the element that has the margin of error where the storage DEB may not be representing actual intra-day opportunity costs between dispatching storage versus reducing exports, the fuel-equivalent scalar envisioned under CCDEBE would be 110% on the real-time OC. This 110% value is consistent with CCDEBE’s non-gas reasonableness threshold where 110% is applied as the fuel-equivalent scalar to the incremental cost element of the DEB on all days.

[4] For example, assume the charging cost given the duration is $750/MWh and the negotiated variable operations and maintenance cost is $10/MWh. Further, assume the 4^th highest IFM price is $900/MWh and the next day power indices used in calculating the Max Import Bid Price result in the 4^th highest MIBP being $1,250/MWh. The following formula would be the CCDEBE approach to setting the reasonableness threshold: Max{[Max($750/MWh,0)+$10/MWh],max?($900/MWh,$1,250/MWh)*110%}*110% for a reasonableness threshold of $1,512.50/MWh.

5. Additional comments:

In response to CAISO’s first question above asking for confirmation on the limitations existing with the ability to manage resources exposed to intra-day opportunity costs, Vistra provides the below list of limitations under the existing bidding rules and suggested solutions.

1. Non-Generating Resources (NGR), both hydro and storage assets, cannot submit ex ante reference level adjustments under the current implementation approach of the CAISO because the CAISO is not calculating a reasonableness threshold for these resource classes. There was a proposal for reasonableness thresholds for non-gas resources under the Commitment Costs and Default Energy Bid Enhancements (CCDEBE), but CAISO amended in a way that only allows reasonableness thresholds to adjust DEBs calculated based on the variable cost option, even though hydro and storage DEB is a cost-based DEB. This limitation could be removed if CAISO would begin calculating a reasonableness threshold and allow ex ante reference level change requests subject to those thresholds. CAISO should apply the fuel-equivalent scalar in the hydro and storage DEBs’ opportunity cost components so a reasonableness threshold can be calculated allowing ex ante verification on reference level change requests. This requires Tariff changes and should be addressed in a proposal taken to the May Board meeting for July implementation.
2. Hydro, storage, and other non-gas resources are eligible to submit manual reference level change requests according to Section 30.11.4 of the CAISO Tariff since this Tariff section 30.11.4 refers to supporting these requests for “Default Energy Bids for non-natural gas resources”. However, Vistra does not believe CAISO has implemented a business practice to allow these requests to be manually submitted. The CAISO should make Business Practice Manual changes to clarify the non-natural gas manual requests allow variable cost option, hydro option, and storage option where it will accept requests for expected fuel-equivalent cost, i.e., opportunity cost, changes. Additionally, the BPM could initially use the Max Import Bid Price (MIBP) values as documentation for cost verification. This change does not require Tariff changes and should be advanced in the Proposed Revision Request process in May 2024 for July implementation.
3. Hydro and storage DEB’s opportunity cost elements are failing to capture intra-day opportunity costs of these resources under both normal and strained conditions. Given that MIBP is already used for cost-verification of intertie offers, CAISO should leverage this cost estimate to update its real-time Opportunity Cost (OC) value used in the hydro and storage DEBs. The real-time Opportunity Cost component should include an intra-day opportunity cost set to the higher of Integrated Forward Market or Max Import Bid Prices to ensure the opportunity cost of dispatching opportunity-cost based assets is set at the higher of the cost to serve CAISO internal load versus support off-system sales. This requires Tariff changes and should be addressed in a proposal taken to the May Board meeting for July implementation.
4. Proxy Demand Response (PDR) Resources are situated differently because they are not subject to mitigation and consequently do not have any DEB or reasonableness threshold. These resources should be considered separately from the hydro and storage resources because of this technical difference. This issue is likely to require additional policy discussion to ensure changes do not introduce the ability for PDR to submit price-based offers above $1,000/MWh without being subject to cost-verification as that would be counter to FERC Order 831. Allowing PDR to submit reference level change requests above $1,000/MWh will require establishing a method for the reasonableness threshold for these assets to submit opportunity cost-based offers above $1,000/MWh without the guidance of an existing DEB. Unlike hydro and storage DEB this class of assets does not have DEB to easily apply fuel-equivalent scalar to the fuel-equivalent cost at risk of varying under certain conditions. This issue is not the same issue as the need for hydro and storage resources to submit cost-offers above $1,000/MWh and should be excluded from scope.
5. Default Energy Bid (DEB) is limited to $1,000/MWh even when DEB would result in a greater than $1,000/MWh cost-based value. After having a reference level change approved, a SC would be allowed  to bid up to the value of the adjusted DEB at levels above $1,000/MWh. If the above changes to reference level request processes or Tariff rules are made, then SCs should be able to submit their cost-based offers above $1,000/MWh through reference level change requests. There are reasons that the current decision to limit increases to the soft energy offer cap above $1,000/MWh is triggered by submitting a reference level change request and changing this to remove the need to submit the request is a meaningful policy change. The rationale is that FERC Order 831 was to allow cost-based offers above $1,000/MWh and the energy offers in CAISO’s markets are price-based offers. Price-based energy offers up to a DEB that is above $1,000/MWh do not indicate that the unit’s expected costs exceed $1,000/MWh. Requiring the Scheduling Coordinator (SC) to submit a reference level change requests allows that SC to submit a cost-based energy offer, affirming its expected costs exceed $1,000/MWh, and be subject to compliance with FERC Order 831’s policy that offers above $1,000/MWh are for expected costs only. While this could be viewed as a limitation, it is also a policy decision meant to protect against price-based offers above $1,000/MWh. On the other hand, there is precedent to allow some resources to submit price-based offers above $1,000/MWh so that the market prices will (1) “ensure that real-time market RDRR bids will be dispatched after non-RDRR bids during system emergency conditions, consistent with RDRRs’ original intent and design”, and (2) “ensure… appropriate price signals will indicate scarcity and incentivize imports during tight supply conditions”.[1] Even if CAISO adopts this price-based bidding rule, this price-based bidding rule change will not address the fact that price-based offers will still need to be subject to dynamic local market power mitigation and when mitigated will not be able to reflect their expected intra-day opportunity costs. We believe any change to allow price-based offers above $1,000/MWh would need to be reviewed in a robust stakeholder process to see if it would be appropriate to also allow opportunity-cost based assets to submit price-based offers up to a higher cap for purposes of positioning in the bid stack and setting market prices.

[1] ER22-1431 at Paragraph 11.

1. Provide your organization's feedback on opportunities and limitations of current tools as solutions to problem statements described by stakeholders:

WPTF appreciates CAISO’s responsiveness to addressing this urgent matter prior to Summer 2024. We do believe that there is a feasible interim solution that will strike the appropriate balance between implementation complexity and improving market outcomes and reliability for Summer 2024. This would then allow the CAISO and stakeholders to further explore more comprehensive changes to the reference level adjustment process for summer of 2025 or 2026. WPTF also submitted this as a separate and urgent issue in the CAISO’s Policy Roadmap and Catalog process.

WPTF respectfully requests that the CAISO ask for a shortened comment period with an expedited order from FERC such that implementation by July 1, 2024 can be obtained. The CAISO’s proposed schedule would result in an interim solution being implemented sometime between August and September. While we appreciate the critical path, it is imperative that something is put in place prior to July 2024. Otherwise, any stressed system conditions that occur between June and September 2024 may not benefit from a more optimal and reliable dispatch of storage, PDR, and hydro resources. If the CAISO can file at FERC immediately following the May Board of Governors meeting and seek an expedited order from FERC, July 1, 2024, implementation is feasible especially if the interim solution is light from an implementation perspective.

2. Provide your organization's feedback on Approach 1: Allow resources to bid up to pre-determined cap:

WPTF strongly believes that (1) an interim solution should be the primary focus of this effort, (2) it should include storage, hydro, and PDR resources, and (3) should be implemented by July 1 2024. Given that PDR resources do not have a defined DEB because the underlying costs are challenging to estimate given its based on the value of customer load, it makes sense for PDR to have a different interim solution than storage and hydro resources. Thus, WPTF provides recommended interim pathways below for PDR resources here (response #2) and then storage and hydro resources in response to #5. Furthermore, the pathways for storage and hydro resources are a combination of recommendations outlined in the issue paper under Approach 1 and 3.

Because the pathway for storage and hydro resources are a combination of the CAISO’s proposed Approach 1 and 3, we have summarized the pathway in response to item #5 in these comments.

PDR Resources

WPTF strongly believes PDR resources should be included within scope of this effort and have an interim solution in place for Summer 2024. The CPUC’s rule restricting PDR bidding at $949/MWh does not apply to all PDR resources and furthermore, WPTF would strongly encourage the CPUC to reconsider the bidding rule as it applies to FERC Order 831 conditions.

PDR resources are comprised of underlying customer load whose underlying customers can vary over time, thus it’s extremely challenging to cost-verify, which is the main reason why a DEB does not exist for PDR resources. Because these resources are not subject to market power mitigation, simply increasing the bid cap rules as applied in SIBR should achieve the intended outcome.

WPTF believes that for PDR resources under FERC Order 81 conditions, CAISO should allow them to bid either:

1. Up to the hard energy bid cap,
2. Up to $1,900/MWh, or
3. Up to the higher of the MIBP or cost-verified offer for that hour

Option 1 is probably the easiest to implement but there may be some concern that PDR resources would then just offer at the cap whenever that rule is in effect. Option 2 allows for PDR resources to bid in a way that keeps them in a similar position in the bid stack as they would be under a $1,000/MWh bid cap while also keeping them right below RDRR[1]; this will help ensure RDRR are not dispatched prior to PDR. Option 3 applies similar treatment as non-resource specific RA imports but also may result in PDR being dispatched prior to non-RA imports.  WPTF supports Option 2 above as the recommended pathway but recognizes all three options will be an improvement over the status quo and thus a reasonable interim solution.

[1] The CPUC bidding rule of $949/MWh or below was based on the idea that PDR should be dispatched before RDRR, and RDRR are required to bid at least 95% of the bid cap (i.e., $950/MWh under normal conditions and $1,900/MWh under FERC Order 831 conditions). Thus, $1,900/MWh bid cap for PDR under FERC Order 831 conditions still aligns with the underlying CPUC bidding rule premise.

3. Provide your organization's feedback on Approach 2: Leverage existing tools to position resources in the bid stack:

While WPTF appreciates the thought work that went into evaluating how the current tools can help position resources in the bid stack appropriately, these rely primarily on out of market actions and/or additional market constraints that are suboptimal. We urge CAISO to focus its efforts on finding a feasible solution using a combination of recommendations under Approaches 1 and 3.

4. Provide your organization's feedback on Approach 3: Enhance resources’ ability to accurately identify and reflect costs:

As noted in response to #5, WPTF does believe that there is an interim solution that can be put in place by July 2024 that leverages the existing automated reference level adjustment process. However, we also understand that there may be a more robust solution that involves additional implementation complexity to fully align the bidding rules and practices with the existing automated and manual reference level adjustment processes. Any such changes and policy discussions that would need to be had will likely take additional time. Thus, we urge CAISO to continue such conversations in a longer stakeholder process but in the interim focus its efforts on what can be implemented for July 2024.

5. Additional comments:

Storage and Hydro Resources

WPTF believes that an interim solution for storage and hydro resources is feasible through a combination of recommended approaches that have been identified under Approach 1 and 3 in the CAISO’s issue paper. Below we provide two pathways that reflect the combined approach – Option 1 and Option 2 - but prefer Option 1.

Option 1: Allow Storage and Hydro resources to bid up to a single higher static value for all hours of an operating day when the $2,000/MWh bid cap is in effect by redefining the reasonableness threshold applied to these resource types based on that higher static value and accept reference level adjustement requests supported by the higher static value. The single higher static value should be based on the higher of the highest MIBP or highest cost-verified bid across the day. If it is based on the higher of the MIBP or cost-verified bid in that hour (rather than across the day), they may still be prematurely dispatched by the market because the market (1) may not see the higher priced hours due to a shorter optimization horizon and (2) may still find it economical to dispatch in that hour because the bid is lower in that hour relative to its bid in another hour with a higher cap. Allowing these resource types to bid up to the single higher static value by redefining the reasonableness threshold and having it based on the highest MIBP or cost-verified offer will allow the SCs to leverage the automated reference level adjustment process. Furthermore, WPTF believes that the higher of the highest MIBP or cost-verified bid across the day can be considered a reasonable estimate of the resource’s intra-day opportunity cost. This in turn would support a cost-based bid above $1,000/MWh based on those values. Lastly, since the automated reference level adjustment process uses the submitted and accept bid to supplant the capped DEB value, this would also address any concerns with market power mitigation unwinding bids above $1,000/MWh when subject to mitigation. WPTF does note that the CAISO would have to allow reference level adjustment requests from storage and hydro resouces to not be directly tied to the variable cost formulation. We do not believe this should be an issue since (1) for these resource types the intra-day opportunity costs are likely the main cost component and are not reflected anywhere in the variable cost formulation and (2) by creating hydro and storage specific DEBs, the CAISO has already acknowledged that the variable cost formulation is not appropriate for these resources.

From an implementation perspective, Option 1 seems to be a light lift. Here is an example of how an SC would go through this process. On days when the hard energy bid cap is in effect market participants are notified through SIBR which hours the higher bid cap is in effect. This is existing functionality. The CAISO systems will calculate the reasonableness threshold for storage and hydro resources in those hours based on the highest MIBP and cost-verified offer across the day. This would involve applying a different calculation of the reasonableness threshold for storage and hydro resources than the other resource types. For those hours, SCs wanting to reflect intra-day opportunity costs can then simply submit a reference level adjustment request through the automated process to reflect intra-day opportunity costs that may result in a bid anywhere between $1,000/MWh and $2,000/MWh. Recall that for the automated reference level adjustment process, SCs submit the total cost rather than just the fuel or fuel-equivalent cost component that is then used by the CAISO to recalculate the reference level based on the variable cost option.[1] Any offer submitted below the reasonableness threshold will be automatically accepted, used in the market, and supplant the resource’s capped DEB. This is existing functionality. Any offer above the reasonableness threshold will be capped at the reasonableness threshold, used in the market, and supplant the resource’s capped DEB. This is existing functionality. Because the accepted offer is based on the CAISO’s calculated value for costs, that can serve as the cost-verification needed per FERC Order 831. The only added functionality for this option is calculating a reasonableness threshold value for storage and hydro that differs from the other resource types.

Option 2: Uses the same bidding rule as option 1 above (allow bids up to a single higher static value based on the highest MIBP or cost-verified offer) but rather than redefining the reasonableness threshold, simply uncap the DEBs in those hours and raise the bid cap applied through SIBR. This option may be an easier implementation lift but still has the drawback of if a resource is subject to mitigation, it may have its offer lowered to a value below a bid that reflects intra-day opportunity cost if the uncapped DEB still falls short. However, by uncapping the DEB it’s still an improvement over what would be the case if the DEBs are still capped, thus could be considered a reasonable interim solution if Option 1 is not feasible from an implementation perspective. Furthermore, this option does not require changes to the reasonableness threshold applied to storage and hydro resources. The additional functionality needed for this option involves calculating a new bid cap for storage and hydro resources and uncapping the DEBs.

[1] WPTF understands that this may require additional Tariff language noting that under such circumstances the submitted reference level change request value for storage and hydro resources is not strictly based on the variable cost option calculation as that would be insufficient.