Comments on Working group session 15 - Storage/FERC 831

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

BPA greatly appreciates the CAISO’s attention to this issue and its desire to find a solution together with the Stakeholder Community.  BPA believes it is critical that hydro resources, Proxy Demand Response (PDR), and storage resources (e.g. resources modelled as non-generator resources) be allowed to bid above $1,000/MWh under FERC Order 831 conditions.  Price Formation Enhancement Working Group discussions indicate reasonable solutions are available for evaluation and implementable before summer 2024.  BPA recognizes any solution may need to be interim in nature and that not all affected resources may be addressed at this time, as more thorough design exploration may be necessary before implementation.  Ultimately, CAISO will need to share their perspective on solution feasibility and the required implementation period.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

BPA supports the stakeholder calls for urgency in having a solution in place by summer 2024.  This timeline may only support those solutions that are readily implementable, but possibly not robust enough to endure as a long-term solution.  BPA has reviewed several approaches put forth by other stakeholders that appear to balance both effectiveness in addressing the issue, along with having the means of a relatively quick and simple implementation process.  WPTF and CESA have articulated similar thoughtful solutions. 

Allowing for NGR resources to bid above $1000/MWh during FERC 831 conditions is essential in planning for and managing the Federal Columbia River Hydroelectric System operation that is consistent with an energy limited resource. Bidding rules must support the optimal flow management of a cascading hydroelectric system, with a planning horizon beginning months in advance of a delivery day or hour.  BPA’s bid curve management should reflect intra-day opportunity costs, enabling optimal use of our resources while preserving the planned operation as best as possible.  If that opportunity cost is greater than $1000/MWh, but our resource bids remained capped under existing rules, a less-than-optimal dispatch of the BPA hydro is inevitable.  As a result, our energy limited resource may not be available for dispatch in the critical load hours when most needed to balance loads.  Further, Bonneville would likely have financial exposure to energy replacement costs and those costs would likely exceed the award our resource received when limited to the existing cap.

The simplest solution may be to allow hydro and storage resources (NGRs or those subject to the $1,000/MWh cap) to bid up to $2,000/MWh in the WEIM, acknowledging the intra-day opportunity costs for this class of resources.  Alternatively, allowing a modification of hydro and storage DEBs could include a recognition of either a Market Import Bid Price or an already cost-verified offer greater than $1000/MWh.  A hydro or storage bid, when mitigated, may then be limited to say the higher of these two price points, for example.  The cost verification process would automatically recognize these prices as replacement costs for these energy limited resources. Potentially, this formula could also include an adder to better ensure the appropriate bid stack placement for these resources.  The pros/cons of either of these possible solutions should be discussed in an upcoming PFE Working Group meeting.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

4. Please provide any additional feedback.

Although a short-term solution may be defined and implemented through the PFE initiative, Bonneville encourages CAISO to plan for a more thorough initiative to develop a robust and durable solution.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

The California Community Choice Association (CalCCA) shares concerns expressed by working group participants around the $1000/ megawatt-hour (MWh) bid cap limitation on storage resources when the bid cap for other resources is raised to $2000/MWh. The result of this limitation may be storage capacity dispatching too early, leading to a potential shortage later if storage is unavailable in later hours when conditions tighten. Specifically, when prices go above $1,000, storage resources could make a profit, and the system could still benefit from charging at $1,000 per MWh and discharging at something higher than $1,000 MWh, but they are unable to do so under current rules.

By limiting storage resources to $1,000 per MWh when other resources can bid above $1,000 per MWh, the CAISO is preventing storage resources from operating in a manner that best serves grid reliability and market efficiency. The CAISO should, therefore, allow energy storage and other resources with opportunity costs to bid above $1,000 per MWh when the bid cap is raised to $2,000 per MWh through an opportunity cost-based default energy bid that considers conditions when bids rise above $1,000 per MW/h.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

See response in section 1.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

CalCCA has no comments at this time.

4. Please provide any additional feedback.

CalCCA has no additional comments at this time. 

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

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

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

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

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

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

4. Please provide any additional feedback.

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

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

Thank you for the opportunity to provide comments.

Calpine shares the concerns expressed by CAISO and the stakeholder community that the ability of Battery Storage resources to submit offers above the soft offer cap ensures parity across biddable resources, but more importantly, this ability is paramount to reflecting appropriate market prices without much reliance on out of market operator actions especially during very tight conditions.

Given the limited time frame that CAISO has to work with for solution identification and evaluation, software enhancements, testing, FERC filing, market training and implementation before Summer 2024, Calpine recommends a narrow and interim approach focusing only on energy storage resources. Hydro and other resources should be considered as well but reflect different characteristics that need to be evaluated in more detail.    

We urge CAISO to continue the discussions with stakeholders, soon after implementation of a fix for battery storage resources, to ensure that lessons learned on the interim solution will be taken into consideration or expand on that solution for a more permanent approach that can be applied across other resources that have duration and/or use limitations.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

First, there are two interwoven issues that must be addressed for battery storage resources– the offer cap and the calculation of Default Energy Bid (DEB)/Reference level for local power mitigation. 

Battery storage resources do not have commitment costs, but the replacement cost is driven by the cost of the next marginal resource (which are typically fossil fuel resources) in the grid (i.e. charging cost).  Because there is opportunity cost to discharge prematurely and the likelihood that battery storage resources would have to charge at a time when prices are high, then battery storage resources should be allowed to reflect the appropriate replacement cost similar to any other resources.  Hence, to be consistent with Order 831 (that is, for the offer cap to rise from $1000 to $2000), there should be an objective mechanism to reflect any opportunity costs for future conditions.   The challenge will be identifying when these conditions are triggered, and how the calculation of Reference Levels/DEB will appropriately reflect opportunity cost to be optimized across DA and RT markets for all 24-hours.

Generally, the overarching thought process presented in the workshop, is to provide a solution that leverages on existing automated process for reference level updates (rather than the manual alternative).  Two ideas for automated DEB/Reference Level calculations were brought forth during the 3/12 discussions:

1. MIBP
2. Highest offer submitted

Calpine agrees that leveraging on existing solutions to the extent possible is an efficient way to achieve the most impact for a limited amount of time until a more permanent solution can be in place.

The MIBP is a viable approach for the IFM given that it is based on bilateral DA indices.  The discussion suggested that the CAISO could use the same triggers for offer cap in RT and related DEB/Reference Level calculation, use some index in RT or look to RT historical pricing plus an adder.  Calpine believes these alternatives might be reasonable and should be further explored.

The proposal of “highest offer submitted” in the DA/RT market seems simple and doable as well. Presumably, this proposed approach is referencing “Validated” status before MPM, rather than “Submitted” status. At any rate, this approach should be further explored and clarified to determine if it will be the basis for calculating the opportunity cost embedded in DEB/reference levels or whether it will simply be the basis for the hourly offer cap or both.  In theory, this looks to be a simple approach for either.  While simple can be very effective, there should be guardrails.  Perhaps the use of “highest offer submitted” approach is only when offers rise above $1000 soft offer cap by a non-NGR (or fossil fuel resources), and limited to highest cost verified offer of such fossil fuel resources.

Additionally, CAISO suggested during the workshop that the CAISO also has to consider codifying the required documentation for offers above $1000 soft offer cap pursuant to Order 831.  However, this requirement should only be limited to verifiable elements, and the idea is that opportunity cost justifications would be unnecessary for an independent calculation performed by CAISO.  Therefore, Market Participants and other stakeholders can only place reliance on CAISO market systems to properly calculate reference levels based on the opportunity cost methodology selected for this interim solution.

Finally, there were a lot of comments from stakeholders suggesting that the CAISO should “protect DA schedules” for storage systems.  This sentiment partly reflects the fact that the short RT market horizon can dispatch battery storage in a manner that is sub-optimal ex post.  We agree and believe that a longer time-horizon for the RT market could be part of a long-term solution.  However, Calpine recognizes that there are clear trade-offs with extending the market horizon.  In any regard, this would be much too complicated to address and resolve prior to this summer.  Nevertheless, the CAISO should not apply a solution that simply constrains or arbitrarily restricts any RT re-optimization to protect DA schedules of specific classes of resources.  Not only would this be discriminatory but would render the RT market ineffective in producing market prices that is reflective of actual system conditions.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

None at this time.

4. Please provide any additional feedback.

No additional comment.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

The California Energy Storage Alliance (CESA) appreciates the opportunity to provide comments on the Price Formation Enhancements Working Group Session 15.

CAISO should focus implementation efforts on addressing the inability of resources (storage and certain hydro systems) with intraday opportunity costs to be submit energy bids during high-priced conditions that reflect the potential replacement cost of modifying day-ahead or base schedules.  The current Order No. 831 implementation limits non-generator resources energy offer to $1,000/MWh during high-priced conditions when the energy offer cap is increased to $2,000/MWh.  This rule results in storage resources being placed lower in the bid stack than other resources, such as gas generators, that do not have an intraday opportunity cost.  While this issue exists in the day-ahead market, the impact is minimized because the day-ahead market optimizes over the 24-hour horizon and does consider the cost in all hours when optimally scheduling storage resources over the horizon.  The proposed solution below is only needed for the real-time market for Summer 2024 implementation if including in the day-ahead market increases implementation risk.

The appropriate intraday opportunity cost is the cost exposure of not being able to meet a day-ahead energy schedule later in the day because the storage resource is discharged or not charged in the current operating hour.  However, determining the intraday opportunity cost will be complex in the real-time market because the market horizon does not cover the balance of the operating day.  For Summer 2024, Also, CAISO staff at the workshop expressed concerns that if there is a possibility of $2,000 prices later in the day, this could allow energy bids at $2,000 for the full day.  Rather than debate this position, CESA recommends a practical approach which will at a minimum ensure that resources with an intraday opportunity cost are positioned higher in the bid stack than current rules.  CESA recommends calculating the potential replacement cost based on the current operating hour.  This allows CAISO to have all available information necessary to utilize the automated reference level change request process to update a resource-specific reasonableness threshold.  While the approach may under/overstate actual intraday opportunity costs, the approach does enable storage resources to be positioned higher in the energy bid stack which will reduce the potential for discharging or not charging the resource in the current operating hour.  This enables the storage resource to be available later in the operating day.

CESA believes that changes to address demand response resources with intraday opportunity costs for Summer 2024 implementation will provide limited benefits.  Current CPUC rules require proxy demand response (PDR) resources in CAISO to bid no greater than $949 with no distinction between routine conditions and high-priced conditions.  In addition, CAISO already implemented changes to reliability demand response resources (RDRR) during high-price conditions which automatically doubles energy offers so that RDDR remains at the top of the bid curve between $1,900 and $2,000/MWh.  If a demand response resource does have different marginal costs between routine conditions and high-priced conditions, the resource could consider registering as an RDRR.  Since the proposed solution may exist beyond Summer 2024, PDR resources with intraday opportunity costs should have the same bidding opportunities as the other resource types with intraday opportunity costs even if changes cannot be implemented prior to Summer 2024.  This would eliminate the need for a subsequent expedited initiative if the CPUC rules are modified.

CESA believes changes to the bidding rules, which allow offers up to $2,000/MWh in high-priced conditions, for non-resource specific non-resource adequacy imports, economic exports, and low-priority exports are out-of-scope for Summer 2024.  The CAISO should monitor the bidding behavior of non-resource specific non-resource adequacy imports which bid above the CAISO calculated maximum import bid price (MIBP) in the hour-ahead scheduling process (HASP) to buy back day-ahead schedules.  Assuming the MIBP is correct, there should not be an incentive for non-resource specific non-resource adequacy imports to bid above this price.  However, this assumption cannot be made in all situations and should be addressed as part of the scarcity pricing market design by allowing prices to gradually rise above the marginal cost as system conditions grow tighter.  With regards to economic exports and low-priority exports, CAISO operators should take manual actions to curtail these schedules in the event HASP overly relies on discharging storage resources to clear the exports.

In summary, CESA believes the proposed solution is narrow for the following reasons:

• Prioritizes addressing storage and hydro resources with intraday opportunity costs,
• Prioritizes the real-time market during high-priced conditions,
• Calculates an opportunity cost based on replacement cost in the current operating hour,
• Leverages automated reference level change request currently implemented for non-resource specific resource adequacy imports.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

The implementation of Order No. 831 has comingled many concepts:  offer caps, reasonableness thresholds, reference level adjustments and default energy bids.  Based on material presented by CAISO at the workshop, it appears that the offer caps and default energy bids are tightly coupled for resources during high-priced conditions.  The proposed solution assumes default energy bids are adjusted equal to a higher reasonableness threshold has automatically been determined by CAISO.

For Summer 2024, CAISO should apply the same reasonableness threshold allowed for non-resource specific resource adequacy resources.  For storage resources, a minor adjustment is needed to reflect the roundtrip efficiency of the resource.  For hydro resources, the reasonableness threshold should replace the short-term component of the default energy bid.  Storage and hydro resources are not allowed to make a manual reference level change request.

Storage

Reasonableness Threshold = (MAX (MIBP, Highest-Priced Cost Verified Bid) / Round Trip Efficiency) x 110%

During high-priced conditions storage resources can bid up to $2,000/MWh. SIBR will reduce the storage energy bid to lower of the resource’s energy bid or reasonableness threshold.

Hydro with Intraday Opportunity Cost 

Update the short-term component of the hydro default energy bid with the following reasonableness threshold.

Short-Term Component = MAX (MIPC, Highest-Priced Cost Verified Bid) x 110%

During high-priced conditions hydro resources with an intraday opportunity cost can bid up to $2,000/MWh. SIBR will reduce the hydro resource energy bid to lower of the resource’s energy bid or default energy bid.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

Since the offer caps and default energy bids are presumed to be tightly coupled, CESA anticipates that the proposed solution above will require FERC approval.  This would also require Board of Governor and WEIM Governing Body approval.  The next joint session is currently scheduled for May 22, 2024.  The CAISO must hold a special joint session within the month of April for any hope of receiving FERC approval to implement the proposed solution prior to July. 

This highlights the urgency for CAISO to quickly assess the level of effort and development timeline to implement the proposed change.  There is broad consensus across the stakeholder community that the during high-priced conditions resources with intraday opportunity costs (storage, hydro, PDR) are being placed too low in the bid stack.  This consensus was expressed as early as February 20 in comments following the January 24 Price Formation Enhancements Working Group Session 12 and most recently at the March 18 Regional Issues Forum.

Summer 2024 is rapidly approaching.  CAISO must expeditiously provide an implementation proposal and plan.  CESA is seeking a practical approach to address the narrow issue regarding the bid stack during high-priced conditions. The development of the scarcity pricing design will afford the time to discuss philosophical positions.

4. Please provide any additional feedback.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

Given the constrained timeframe for testing and implementation, PG&E recommends that the limited scope should include a solution allowing storage resources to bid above $1,000/MWh in limited circumstances as per FERC Order 831, applicable solely to the real-time market (RTM). In parallel, CAISO should collaborate with stakeholders to develop a comprehensive and robust solution for the long-term application. Any modifications to the storage Default Energy Bid (DEB) calculation should be excluded from the summer 2024 solution and reserved for the broader policy initiative.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

PG&E proposes modelling the energy bid cap details for storage after RA non-resource specific system resources (e.g. RA imports). One key advantage of this approach is that once the energy bid cap is raised, these resources are allowed to bid up to the greater of the maximum import bid price (MIBP) or the highest priced cost-verified bid. Additionally, there is an existing process in SIBR that automatically reduces bids priced higher than $1,000/MWh to the greater of the MIBP or the highest priced cost-verified bid. Bids for storage resources, if determined to have local market power for certain intervals, will still be mitigated to their DEB in accordance with current CAISO systems and tariff obligations. This proposal is the most reasonable solution to the problem given the abbreviated implementation timeline.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

PG&E requests additional information and examples regarding the use of automated reference level change requests in the RTM. Attachment O of the BPM for Market Instruments[1] describes how manual reference level change requests are processed around 8AM on the trading day and revised reference levels become active typically from HE12 onwards. However, the timing of revised reference levels becoming active in response to automated reference level change requests remains unclear. The details regarding timing are important given that (a) storage resources are not fuel-based and have a limited state of charge, and (b) any automated solution to the FERC 831 issue must be aligned with the automated reference level change request process.

[1] https://bpmcm.caiso.com/BPM%20Document%20Library/Market%20Instruments/BPM_for_Market%20Instruments_V84_Clean.doc

4. Please provide any additional feedback.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

PacifiCorp appreciates the robust discussion that took place in working group session 15 and understands the urgency in finding solutions that can be implemented before the summer. To better understand what can be implemented this summer, PacifiCorp asks the CAISO to comment on what may be feasible. There were a few different ideas from stakeholders in the meeting, all which could be potential solutions worth exploring. However, if the CAISO determines that one potential solution cannot be feasibly implemented this summer, then the working group should be made aware so discussions can focus on feasible solutions.

PacifiCorp also asks the CAISO to provide their perspectives on how solutions would change operations during FERC Order 831 conditions compared to past summers. PacifiCorp requests the CAISO comment in the next working group meeting on hydro and storage bidding on whether the potential solutions:

• Will lead to more efficient dispatch of resources over peak net load intervals relative to the last two summers. If so, what does the ideal dispatch look like in the CAISO’s opinion?
• Potentially decrease the need for manual interventions by CAISO and WEIM operators to maintain state of charge or fuel limitations.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

In PacifiCorp’s opinion, any solutions for this summer should be narrowly focused to ensure that resources can reflect their costs when the soft offer cap is raised using processes that already exist. Furthermore, PacifiCorp has concerns that changes to how hydro and storage resources can bid will lead to situations where energy prices spike anytime FERC Order 831 conditions are triggered, potentially creating challenges for gas resources. If hydro and storage resources can bid to the hard offer cap, it seems to PacifiCorp that energy prices will also rise to the cap if hydro and storage resources bid to protect their day-ahead or base schedules. This may then create problems for gas resources that have default energy bids and reasonableness thresholds that are bound by gas index prices. Gas resources that end up lower on the bid stack may have difficulties managing their gas burn limits over the course of a day, like how some hydro resources had challenges managing their reservoir levels through bids during the January 2024 winter storm. PacifiCorp believes more discussion on opportunity costs for different resource types is a good path forward for the working group because changes to the opportunity costs will maintain the CAISO’s current processes for verifying resource costs.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

PacifiCorp asks for more information on why the hydro default energy bid or reasonableness threshold for non-gas generators may be insufficient for allowing hydro resources to reflect their costs in bids during FERC Order 831 conditions. To PacifiCorp, it seems as though the gas floor calculation in the hydro default energy bid option could allow hydro resources to bid over $1,000/MWh, but past discussions lead PacifiCorp to believe hydro resource bids are being capped at $1,000/MWh when the offer cap is raised.

PacifiCorp also asks the CAISO to detail where market participants can find the maximum import bid price on OASIS, if it is there.

4. Please provide any additional feedback.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

Portland General Electric appreciates CAISO’s engagement with stakeholders as it relates to FERC 831 and to provide feedback on capability to bid appropriate opportunity costs on energy storage resources.

Portland General Electrics is supportive of focusing on solutions that would allow intraday opportunity costs submitted during high priced events of storage and hydro resources that exhibit storage capability with a target implementation of July 2024. Intraday opportunity cost bidding would allow entities with energy storage including hydro resources with storage a mechanism to ensure those resources are available later in operating days and are not exhausting their capabilities in unwanted periods. Real Time market horizons do not allow for a balance of operating day to account for cost exposure for not meeting scheduling obligations later in the day therefore determining an intraday opportunity cost will have its limitations initially.

Portland General Electric suggests intraday bidding of hydro and storage resources is foremost priority with a target date of Summer 2024. Following this priority, additional efforts in the Price Scarcity track of Price Formation should expand to include Proxy Demand Resources, discussions around a more robust intraday opportunity cost mechanism to allow bidding up to the $2000 for energy storage, hydro and proxy demand resources with the potential all three resource types have their own unique requirements.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

Storage

Reasonableness Threshold = (MAX (MIBP, Highest Priced Cost Verified Bid)/Round Trip Efficiency) x 110%

During high priced conditions storage resources can bid up to $2000/MWh. SIBR will reduce the storage energy bid to lower of the resource’s energy bid or reasonableness threshold.

Hydro resources with Intraday opportunity costs

Update the short-term component of the hydro default energy bid with the following reasonableness threshold.

Short-Term Component = MAX (MIPC, Highest Priced Cost Verified Bid) x 110%

During high priced conditions hydro resources with an intraday opportunity cost can bid up to $2000/MWh. SIBR will reduce the hydro resource energy bid to lower of the resource’s energy bid or default energy bid.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

Portland General Electric would like CAISO’s assessment of effort and timeline required to implement these changes by 2024.

4. Please provide any additional feedback.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

Given the critical and growing role of intra-day storage resources within the CAISO markets, PGP agrees with other stakeholders that expressed the goal of implementing a narrow solution to the issue discussed at working group 15 by this summer if possible. This could reduce the reliability risk that exists based on the current design while the PFE works on related design features. The ideal solution would be one that could still function if later changes to the 831 Implementation or scarcity design come out of the Price Formation Enhancements efforts, or could be added on to in ways that address outstanding issues/concerns. The resource types under discussion should include any resource with intra-day opportunity costs, including NGRs such as batteries and flexible hydro, and qualifying hydro resources with storage who are not providing AS. While a broader goal of capturing a forward-looking view of opportunity cost would be ideal, PGP recognizes that the objective in the immediate solution is to maintain the storage resource’s location at the top of the supply stack between DA and RT in tight system conditions, so that they are not dispatched prematurely in these conditions, and appropriately capture and automatically verify the replacement cost of “fuel” during 831 conditions. Competitive supply will still have the ability to offer below these costs to clear in the market, but should no longer be restricted from the ability to offer above the soft cap.

PGP supports further dialogue on the CESA proposal to update the automated reference level adjustment for resources with intra-day storage by assuming that the resource-specific reasonableness threshold for hydro and storage resources can be considered “verified” using existing calculations that are considered cost-justified in the market: the Maximum Import Bid Price and the highest cost-verified bid in the region. This narrow adjustment should address the operational challenges experienced by some participants in the recent cold event, and position storage to participate more effectively in summer operations.

While we support a narrow solution at this time, support for this concept should also leave room for additional dialogue and proposals on scarcity and BA-level MPM, 831 MIBP calculations, potential updates to the DEBs in these conditions, and implications for market seams and broader pricing signals in the market. These concepts and others prioritized in the PFE efforts should be maintained as scope items to follow the narrow solution set proposed for Summer 2024 implementation.

For immediate implementation, PGP supports the goals and principles outlined in the March 12^th meeting, specifically as they relate to creating a level playing field between resource types in the soft cap group, while recognizing the unique nature of opportunity cost resources from a pricing and energy perspective. For now, we recommend that the problem statement be narrowed to reflect “within hour replacement costs for intra-day storage resources” rather than focusing on true “opportunity cost” which is a broader and very complex topic that is beyond the computational capability and scope of the current solution set that is available. Instead, the current objective is to reduce the risk for these resources being dispatched prematurely vs the ideal schedule, to enable greater control to those offering this supply to competitively offer in appropriate relation to the verifiable values the system already sees, and to improve visibility and supply stack integrity in times of system stress.  

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

PGP supports further dialogue on the CESA proposal below:

For Summer 2024, CAISO should consider applying the same reasonableness threshold allowed for non-resource specific resource adequacy resources.  For storage resources, a minor adjustment is needed to reflect the roundtrip efficiency of the resource.  For hydro resources, the reasonableness threshold could replace the short-term component of the default energy bid.  Storage and hydro resources are not allowed to make a manual reference level change request, nor would this be an ideal solution.

Hydro with Intraday Opportunity Cost 

Update the short-term component of the hydro default energy bid with the following reasonableness threshold:

Short-Term Component = MAX (MIPC, Highest-Priced Cost Verified Bid) x 110%

During high-priced conditions hydro resources with an intraday opportunity cost can bid up to $2,000/MWh. SIBR will reduce the hydro resource energy bid to the lower of the resource’s energy bid or default energy bid.

Storage

Reasonableness Threshold = (MAX (MIBP, Highest-Priced Cost Verified Bid) / Round Trip Efficiency) x 110%

During high-priced conditions storage resources can bid up to $2,000/MWh. SIBR will reduce the storage energy bid to lower of the resource’s energy bid or reasonableness threshold.

From PGP’s perspective, this should qualify as appropriate cost-verification, as there is no new information that requires additional verification. This uses values the CAISO is already calculating for MIBs or the reference level adjustments for Gas, so this should be completely automatable and hourly, and should avoid the manual processes that would not be workable from an implementation perspective. In our view, this proposal achieves the objective of maintaining these resources in the proper stack location to avoid or mitigate the impact of dispatching limited “fuel” at an inopportune time. We reiterate that opportunity cost in this calculation is limited to within hour opportunity cost, and that this does not holistically solve the broader problem statement documented by the CAISO in the March 12 session.  From a competition standpoint, resources can always offer below this value, but will not be forced to offer at an inaccurate location in the bid stack in Real-Time. From an implementation perspective, this may provide a durable solution even in the event of changes to the MIBP or other elements of the 831 Implementation logic.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

Recognizing that this may require FERC approval, PGP believes the narrow scope of this proposal should make that manageable for this summer, but would appreciate CAISO’s perspective on this.

It was unclear from the presentation if the automatic reference level adjustment also automatically adjusts the DEBs, or if this just enables offers above the cap but mitigation would default to the regular DEB calculation (ie, does it update the DEB or just serve as a new cap for the DEB which defaults to other parameters, in this case the typical short term component calculation). An ideal solution would use this as the cost-verified solution for a reference level adjustment and translate back to an adjustment for the DEBs in these conditions. If the CAISO could clarify the role of the automatic reference level adjustment when resources are mitigated it would help our understanding of the durability of this solution.

Additionally, given the locational aspects of mitigation procedures in the extended market or the WEIM, PGP recommends additional dialogue for how to appropriately map this to locational factors that align with the broader mechanisms already in place and structured into the DEB and MIB calculations.

Finally, PGP still has concerns about the relationship between the hard cap group and this group, and wants to ensure that BAs are on a level playing field in regards to soft offer group resources firming up economy exports.  Further tradeoffs and additional designs to address this situation should be discussed with the group. 

4. Please provide any additional feedback.

PGP appreciates the working group taking the time to dive in on this issue in response to stakeholder feedback. Agility in seeking a solution may save additional time/effort later by working within limited parameters, and may avoid the need for a broader stakeholder initiative focused on this topic. For now, we believe this solution has the potential to solve a reliability risk and further reduce the need for out of market action on behalf of BAs or the MO. As such, we are supportive of a narrow scope at this time to enable speedy implementation, while leaving space for deeper dive discussions on the broader topics or an alternate long-term solution for elsewhere in the Price Formation Enhancements initiative scope. This solution works for battery storage and hydro, both critical resource segments to the reliability of the system.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

REV Renewables (REV) recommends that CAISO narrow its focus to address the inability of resources (non-generator resources at a minimum) to reflect intraday opportunity costs in real-time energy bids during high-priced conditions. This will enable these resources to better meet their day ahead schedules and not be inadvertently dispatched prior to net peak demand time periods when needed most.

CAISO should pursue at least an interim solution to be effective for Summer 2024 implementation. If CAISO thinks a more expansive permanent solution is needed, it could continue stakeholder discussions and aim for a permanent solution for Summer 2025 and beyond. However, this does not need to preclude a temporary, limited solution for non-generator resources for Summer 2024.

REV further supports CESA’s comments and proposed solutions.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

REV supports CESA’s proposed solution to address this issue.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

4. Please provide any additional feedback.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

Salt River Project Agricultural Improvement and Power District (SRP) appreciates the opportunity to submit comments on Working group (WG) session 15.  SRP agrees with the CAISO and stakeholders that resources subject to the soft offer cap should be able to accurately reflect costs in the market when they rise above $1000/MWh.  While addressing storage resources may be the most impactful, SRP recommends reviewing all resources that do not have a mechanism to bid above $1000/MWh, as indicated on slide 15.  It would be beneficial to include hydro resources as part of the discussion.  While the approach used to calculate a DEB might be different for each type of resource, addressing these as a group would likely be the best way to ensure these resources are treated impartially.  SRP recommends aspects that impact or relate to other working groups or initiatives be brought to those respective groups.

SRP encourages as part of this WG, the CAISO revisit the Reference Level Adjustment process as a whole to ensure it is workable and consistent for both gas and non-gas resources.

SRP agrees with a next step to enhance the storage DEB, which may be lacking the ability to account for real costs.  SRP requests information on how this may or may not apply to hybrid resources (battery plus solar, for example).

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

SRP agrees with an automated mechanism to adjust DEBs when they are cost justified to bid above $1000/MWh.  SRP recommends considering comments provided as part of the Gas Management WG when designing a process so that it does not create undue burden on participants to collect and submit data manually or through SIBR.  The current Reference Level Adjustment process is infeasible for participants with a large gas fleet, and if a similar process is implemented for adjusting storage resources, it will be unmanageable.  A process for adjusting the DEB should require as little stakeholder input as possible and should apply to all resources of a similar type to the extent possible.  Additionally, this process should align with the electric or gas day as applicable for each type of DEB.  The current Manual Reference Level Adjustment process timing would need to change to capture more of the pricing impacts in the Real Time horizon.

SRP encourages the CAISO to explore various options available for cost justification for storage resources, such as the highest current bid or the Maximum Import Bid Price (MIBP).

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

SRP appreciates the information provided by the CAISO on the current policies around FERC 831 and reference levels.  SRP recommends providing a concise table by resource type that includes the DEB registration options (or lack thereof), whether the resource type is subject to Market Power Mitigation, and whether there is currently a mechanism to bid above $1000/MWh.  Providing this information may help stakeholders narrow down the resources to focus on.  SRP encourages the CAISO provide options for cost justification methods in this table for discussion, if available.  Once options are identified, SRP requests that numerical examples are provided for review. 

4. Please provide any additional feedback.

No additional comments at this time.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

Seattle City Light (City Light) supports including all resource types with opportunity cost logic in their DEB and resources with intra-day opportunity cost (including NGRs, such as batteries and flexible hydro, and qualifying hydro resources with storage who are not providing AS) in scope for this solution.

City Light also supports providing a narrow solution that can be implemented by summer of 2024 and simultaneously keeping the door open to investigating the need for a longer-term solution.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

City Light agrees with CESA’s comments, stating, “the appropriate intraday opportunity cost is the cost exposure of not being able to meet a day-ahead energy schedule later in the day because the storage resource is discharged or not charged in the current operating hour.” Understanding that developing a method to reflect this dynamic would be complex, City Light supports CESA’s proposed solution of calculating the potential replacement cost based on the current operating hour. This method would be implementable, as CAISO has access to the information necessary and sufficient for appropriate cost-verification, and CAISO can utilize the existing automated reference level change request process to update a resource-specific reasonableness threshold. This solution would only apply to the Real-Time market during high-priced conditions.

For hydro resources, City Light supports the reasonableness threshold replacing the short-term component of the default energy bid with the following:

Short-Term Component = MAX (MIPC, Highest-Priced Cost Verified Bid) x 110%

During high-priced conditions, this would allow hydro resources with an intraday opportunity cost to be able to bid up to $2,000/MWh. This solution should qualify as appropriate cost-verification, as there is no new information that requires additional verification.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

Fleshing out the viability of this proposed narrow solution would help City Light assess if it is sufficient to fully address bid-cap related issues or if a more durable long-term fix is needed.

4. Please provide any additional feedback.

City Light is a member of the Public Generating Pool (PGP), and supports its comments submitted on this matter.

We appreciate CAISO’s responsiveness to this issue and its willingness to consider near-term solutions, and the recognition that there are impacts to all storage resources, including hydro. 

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

The Six Cities agree with two principles discussed during the March 12, 2024 Working Group meeting: (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.  The Six Cities also agree that it is important, perhaps critical, to implement enhancements to bidding rules for storage resources consistent with the foregoing objectives prior to the 2024 summer period.  The Six Cities provide input on proposed solutions under Item 2 below.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

Participants in the March 12^th Working Group meeting and in the discussion during the Western Energy Imbalance Market Regional Issues Forum meeting on March 18, 2024 suggested two possible solutions to address concerns with inefficient discharge of storage resources during high price conditions.  One possible solution would be to allow storage resources to self-schedule in Real-Time to follow their Day-Ahead Market awards.  The second suggested solution would be to revise the bid cap for storage resources based on the highest accepted bid (i.e., the highest bid eligible to set the market clearing price) for non-storage resources.  Because charging costs for storage resources generally follow market prices, allowing storage resources to submit bids based on accepted non-storage resource bids appears consistent with the FERC’s requirement in Order No. 831 that bids greater than $1,000/MWh reflect costs. 

Both of the solutions described above appear relatively straight-forward and likely to move market outcomes closer to the objectives described in Item 1 above.  Further, the two suggested solutions do not appear to be mutually exclusive.  The Six Cities support prompt and focused consideration on both of the suggested solutions for potential implementation by the summer period this year.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

In the discussions thus far, the CAISO has not identified any substantial barriers to implementation of the proposed solutions described in Item 2 above or concerns with potential unintended negative consequences.  Recognizing that changes to market design rules can give rise to unanticipated negative consequences, the Six Cities recommend that the CAISO attempt to identify any concerns with adoption of the proposed solutions, request prompt input from the Department of Market Monitoring and the Market Surveillance Committee, and request that the WEIM Governing Body seek input from the WEIM Market Expert.

4. Please provide any additional feedback.

As discussed above, it appears to the Six Cities that the two suggested solutions described in Item 2 above could be implemented promptly and could result in immediate enhancements to efficiency of scheduling storage resources during high price periods.  It may be appropriate, in addition, to consider in future phases other potential modifications to the market rules applicable to storage resources if it appears that further enhancements may be beneficial and cost effective to implement.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

NERC BAL-001-2 is central to the CAISO’s Order 831 approach, which emphasizes the need to focus on the RT needs of the entire EIM system[1]. Further, ESDER 4 was a thorough initiative that did allow for DA prices to inform the RT DEB[2]. If the CAISO wishes to explore further storage DEB enhancements, it can propose them in a future stakeholder initiative.

SCE supports other stakeholders in their call for an expedited solution from the CAISO to address the unfair treatment of storage resources in RT. The CAISO should immediately prioritize implementing a solution that allows storage resources to bid above $1000/MWh as is allowed for other resources.

[1] Pages 15 onwards, http://www.caiso.com/InitiativeDocuments/RevisedFinalProposal-FERCOrder831-ImportBidding-MarketParameters.pdf

[2] Page 40, https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Mar12-2024.pdf

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

First and foremost, CAISO should focus on an expedited solution for Summer of 2024. CAISO should consider proposals that are simple and have the highest probability of being approved by the Board, Governing Body, and FERC.  Although solutions offered might not solve all issues, any changes that allow storage to be bid above the soft offer cap of $1000 are an improvement to the status quo.  It would also ensure that energy storage resources are appropriately priced at levels that would preserve the resource to be utilized during peak demand and hours when flexible ramping needs are at their highest. 

In the 2023 Draft Policy Initiatives Catalog and Annual Roadmap comments, SCE proposed that CAISO leverage existing functionality used for the Reliability Demand Response Resources[1]. This would allow for a faster approval process and implementation since regulators are already familiar with the details of the enhancements and the functionality in the market has already been built.

[1] See Southern California Edison comments under question #3, section titled “Energy Storage Bid Cap Not Aligned with FERC Order 831” at https://stakeholdercenter.caiso.com/Comments/AllComments/bcd87223-1d5f-4818-8973-95aa1bef8ac7#org-54f6b2f0-92ff-4b6b-a43a-2c0c5700fb8e

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

CAISO has received recommendations from multiple stakeholders for an expedited solution.  Some stakeholders have even proposed solutions to explore for Summer 2024.  SCE recommends that CAISO capture these suggestions and evaluate the pros and cons of each proposal.  The evaluation should capture the impacts it has on the market and the complexities of implementation.   

4. Please provide any additional feedback.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

Terra-Gen, LLC (“Terra-Gen”) appreciates the opportunity to comment on the issues identified in the Price Formation Enhancements Storage and FERC Order No. 831 Working Group session. The storage bidding rules under scarcity conditions is a significant issue impacting storage resources and is especially important to Terra-Gen, which is one of the largest independent renewable and storage resource owner/operators in California.

Terra-Gen strongly recommends that CAISO provide a solution for storage prior to Summer 2024.

Terra-Gen recommends that CAISO should concentrate its implementation efforts on resolving the challenge faced by storage resources with intraday opportunity costs in submitting energy bids that reflect potential replacement costs during high-priced conditions, as stipulated by Order No. 831. Presently, the CAISO's implementation limits storage resource energy offers to $1,000/MWh during high-priced conditions, resulting in storage resources being prioritized lower in the bid stack compared to other resources like gas generators without intraday opportunity costs. While this issue is less pronounced in the day-ahead market due to its 24-hour optimization horizon, it persists in the real-time market. To provide resolution for Summer 2024 implementation, it's essential to ensure that resources with intraday opportunity costs are positioned higher in the bid stack than current rules allow.

Terra-Gen acknowledges that determining the appropriate intraday opportunity cost is complex, especially in the real-time market where the horizon doesn't cover the entire operating day. Rather than attempting to determine a quick solution to calculate a true intraday opportunity cost, CAISO should focus on approaches that would be implementable prior to Summer 2024. Terra-Gen suggests a reasonable approach to address the need for cost verification is for CAISO to calculate the potential replacement cost based on the current operating hour. This would enable CAISO to utilize the automated reference level change request process to adjust a resource-specific reasonableness threshold. While this approach may not precisely reflect actual intraday opportunity costs, it would elevate storage resources in the energy bid stack, reducing the risk of discharging or not charging the resource in the current operating hour and ensuring availability later in the day.

Additional work to address related issues may be needed but should be deferred for now to avoid delaying a quick resolution on the most pressing issue of them all - Ensuring that resources with intraday opportunity costs are positioned higher in the bid stack than current rules allow, prior to Summer 2024. CAISO has acknowledged the concern and need to fix the bid stack under Order 831 scarcity pricing conditions, and it should not be distracted from providing the requested relief as soon as possible.

Terra-Gen requests CAISO respond as quickly as possible to adequately address the concerns that it has been identifying publicly within the PFE process since the CAISO January 10, 2024, PFE Scarcity Pricing Sprint #1 Working Group session. Terra-Gen highlights that in addition to Terra-Gen’s requests for relief to date, CAISO was also notified in writing regarding the shortcomings regarding its implementation of Order 831 bid cap provisions for storage resources as early as March of 2023. [1]  After over a full year of dismissing the issue as a “known implementation gap that the CAISO was working to address”, it’s clear that CAISO has not even begun work to address these important concerns. As discussions and review of these concerns and solutions continue to drag on time runs short to find an implementable resolution prior to the upcoming Summer 2024.

Terra-Gen admonishes CAISO that its approach regarding this issue has delayed progress in finding a resolution and has resulted in the inefficient and premature dispatch of storage resources during high-priced scarcity conditions, which also negatively impacts storage resources financially.  Terra-Gen’s storage and hybrid resource fleet has been harmfully affected by this issue and will continue to be impacted negatively if CAISO fails to address the concerns prior to this coming Summer 2024 when high temperatures and loads will likely result in a high probability of experiencing scarcity conditions once again triggering CAISO’s Order 831 increased bid cap. Broad consensus across the stakeholder community has been expressed that during high-priced conditions resources with intraday opportunity costs including storage and hydro resources are being placed too low in the bid stack and that CAISO’s current policy implementation risks the inefficient and premature dispatch of these critical use limited resources.[2] 

[1] CAISO Final 2023 Policy Initiative Catalog at pp. 8, https://www.caiso.com/InitiativeDocuments/final2023PolicyInitiativesCatalog.pdf.

[2] See Price Formation Enhancements Working Group Session 12, Scarcity Pricing Sprint 3 stakeholder comments, and CAISO’s Annual Policy Initiatives Roadmap Process 2024 Catalog submissions.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

Terra-Gen recommends CAISO’s implementation of Order No. 831 should be modified for storage resources as soon as possible. For Summer 2024, CAISO should apply the same reasonableness threshold permitted for non-resource-specific resource adequacy resources, with a slight adjustment for storage resources to account for their roundtrip efficiency.

During periods of high prices triggering the Order 831 bid cap increases, storage resources should be allowed to bid up to $2,000/MWh. The CAISO’s SIBR system can be utilized to automatically adjust the storage energy bid to the lower of the resource’s energy bid or the reasonableness threshold calculation below.

For storage resources, CAISO should set the Reasonableness Threshold equal to the maximum of the Maximum Import Bid Price (MIBP) or the Highest-Priced Cost Verified Bid divided by Round Trip Efficiency and add a 10% adder for individual resource characteristic differences.[1]

[1] Reasonableness Threshold = (MAX (MIBP, Highest-Priced Cost Verified Bid) / Round Trip Efficiency) x 110%.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

4. Please provide any additional feedback.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

Vistra has submitted scope descriptions into the 2024 Policy Roadmap. We resubmit these comments in response to the price formation working group discussion. There are currently two major issues undermining the ability of storage to reflect prevailing market conditions’ opportunity costs in its offers.

The first issue is that currently, energy storage resources are only able to bid up to the soft bid cap of $1,000 MWh, unless mitigated under the Local Market Power Mitigation (LMPM) functionality to a Default Energy Bid (DEB) based on day-ahead prices. FERC Order No. 831 raises the soft bid cap of $1,000/MWh to a hard bid cap of up to $2,000/MWh when cost-based offers can be verified above $1,000/MWh or when the Max Import Bid Price is above $1,000/MWh. CAISO allows non-resource specific system resources to bid up to $2,000/MWh without cost-verification based on opportunity costs to sell the import energy or buy the export energy. Storage assets cannot bid at a level high-enough to show its State of Charge (SOC) should be preserved over export bids given its offers are limited to $1,000/MWh and the export bid can bid $2,000/MWh for the energy out of CAISO system. In this instance, analysis has shown that storage is being discharged earlier than it is needed to support CAISO Balancing Authority Area (BAA) needs to support the exports out of the system and put in the position to have to pay scarcity prices to charge to provide energy during BAA system needs while also exacerbating reliability conditions by adding load in periods nearing shortage conditions. Further, even under normal conditions the opportunity cost component of the storage DEB is set to only value its use beginning in the fourth highest hour failing to sufficiently allow managing its use to be available for the highest need.

The second issue is that under normal and stressed conditions storage resources are subject to dynamic Local Market Power Mitigation and may also be subject to Balancing Authority Area-level mitigation depending on its location within a non-CAISO WEIM BAA. The existing storage DEB includes a higher of cost or Opportunity Cost methodology using prices from the Market Power Mitigation run for day-ahead and Integrated Forward Market run for real-time. It is critical to recognize that neither the MPM prices nor the IFM prices when used to estimate day-ahead or real-time Opportunity Cost are perfectly accurate, or even accurate on average, and as such adopting an approach to estimate future conditions using the fourth highest hour’s price for the opportunity cost of discharge introduces error and risk of premature usage. Setting the opportunity cost component of the storage DEB to value its use beginning the fourth highest hour fails to sufficiently allow managing its use to be available for the highest need.

To address the first issue, CAISO should allow storage to offer bids at least at the same level that export bids can be offered to ensure at a minimum the market is indifferent to supporting the export energy versus holding the storage’s SOC for the BAA’s expected needs. This change is urgent for summer 2024.

To address the second issue, CAISO should enhance its storage mitigation rules to better ensure when mitigated its use limitation is appropriately being valued in the mitigated energy price (Default Energy Bid or if adjusted its Reference Level Adjustment. Solutions could include:

• Revising mitigation of storage on all-days so that the opportunity cost component of its storage DEB is based on an estimate of the discharge cost at the highest hour’s expected price from the MPM or IFM as applicable to set opportunity cost for the day-ahead or real-time markets respectively so it represents the opportunity cost of its  last use not its first use during its first or second full cycle.
• Revising mitigation on scarce days to value storage resources’ opportunity cost used in its storage DEB based on the prevailing scarcity conditions and its opportunity cost of being discharged for internal purposes or to support off-system sales. One method could be to leverage the maximum import bid prices to establish the prevailing opportunity costs.
• Adding the ability to request an energy reference level adjustments for its DEB to update the Opportunity Cost component of the storage DEB to a real-time opportunity cost when the real-time market prices diverge significantly from the day-ahead prices so that the storage can better manage its SOC across the day given the contemporaneous conditions on the grid.

The potential solution to the accuracy of the DEB and the ability to request reference level adjustment are also urgent and should be implemented ideally by summer 2024, or soon thereafter. Vistra wants to emphasize this issue exists on both all-days and scarce days as described above and any solution should be implemented to address the overmitigation concerns across all days.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

See above.

3. Is there additional information that would be helpful for your organization to understand the topic/issues better?

See above.

4. Please provide any additional feedback.

These issues are urgent and should be addressed by summer 2024.

1. Please provide your organizations feedback on definition of the scope of potential solutions and next steps? Are any of the scope items able to be separated into a narrow solution, while others require a broader approach?

WPTF appreciates CAISO being extremely responsive to stakeholders and wanting to find a solution to enable storage, and potentially other resource types, to bid above $1,000/MWh under FERC Order 831 conditions. We believe that storage, PDR, and hydro resources should be fast-tracked such that solutions can be in place by summer 2024. We understand that this may require an interim solution in the event the CAISO and stakeholders agree the optimal solution will require more than 3-4 months from policy to implementation. Thus, WPTF outlines below what we believe is a workable pathway towards enabling these resources to accurately reflect costs under FERC Order 831.

2. Please provide your organization’s perspective on proposed solutions to address the issues above.

WPTF stresses the urgency of having a solution in place by the summer of 2024 and urges CAISO to consider options that strike a balance between effectiveness and ease of implementation. We propose three options for consideration, with potential trade-offs between them, and encourage thorough discussions among stakeholders to guide the solution pathway. Additionally, we provide a pathway forward for consideration in the event the stakeholders and CAISO believe the optimal solution requires more than 4 months to implement and an interim solution is initially implemented as discussions continue. Lastly, we suggest exploring whether different resource types (storage, hydro, and PDR) require distinct approaches. It could be that case that one option may be best suited for PDR while another for Storage and Hydro.

There are two aspects to any solution that WPTF believes should be incorporated. First, there needs to be consistency between bidding rules under the day-ahead and real-time markets. While we understand that most of the impact will be in the real-time market (especially for storage) we have to ensure that the day-ahead and real-time markets are aligned as much as possible. The market overall is more efficient when the day-ahead market can set resources up in a way to best address real-time conditions; if the two markets have drastically different bids due to discrepancies in bidding rules, this inherently will create discrepancies in market outcomes and ultimately reduce overall market efficiencies. To be clear, we are not saying that we need to revisit when the bid cap is increased in the day-ahead and real-time markets – that was established during the FERC Order 831 policy effort - but rather if resources are allowed to bid above $1,000/MWh under certain conditions in real-time then they should also be allowed to bid above $1,000/MWh in day-ahead if the same/similar conditions hold true. Second, we need to ensure that market power mitigation, both local and BAA-level, does not contradict the intent of allowing resources to bid in costs above $1,000/MWh. It is our understanding that the mitigated bids (i.e., DEBs) are capped at $1,000/MWh even if the opportunity cost in the storage and hydro DEBs are greater than $1,000/MWh. This means that absent aligning the DEB cap with the higher bid cap, mitigation will force resources to have offers in the market below marginal costs. Take for example a storage resource that per FERC Order 831 has marginal costs of $1,400/MWh. If that resource is subject to market power mitigation it will have its offer lowered to at least $1,000/MWh simply due to the current cap on the DEB even though we have recognized that their actual marginal costs are greater than $1,000/MWh. This would have the impact of completely unwinding the change this policy process is trying to accomplish. In other words, if we are thinking about where in the bid stack resources are, applying mitigation with a $1,000/MWh cap will essentially take storage and hydro resources from a place in the bid stack that represents their marginal costs and place them towards the bottom of the bid stack. We must ensure the market allows the resource to reflect the true cost (e.g., $1,400/MWh in this example) even when subject to market power mitigation because this reflects true marginal costs and allows the issue this effort is trying to address to remain addressed.

Additionally, WPTF strongly believes that this process should also consider ways in which PDR resources can bid above $1,000/MWh. While we understand the CPUC recently adopted a rule whereby PDR resources cannot bid above $949/MWh we still believe it’s imperative to address PDR now for a few reasons. First, the bid cap of $949/MWh does not apply to all PDR resources. The CPUC does not represent 100% of load in the CAISO market therefore there very well may be some PDR resources that are not under CPUC jurisdiction and thus do not have to bid at or below $949/MWh. Second, it also is our understanding that there may be some PDR resources in non-CAISO EIM and non-CAISO EDAM BAAs that are not subject to the CPUC bidding rule. Thus, it does not make sense to not address PDR given that only one LRA has opted to adopt a more restrictive bidding rule. Third, the CPUC’s decision adopting the $949/MWh bid cap does not apply to all CPUC jurisdictional PDR for 2024. Per the CPUC’s Decision, “[the bid cap] requirement will take effect for the 2024 RA compliance year and will apply to all PDRs procured for RA and in all months, with the exception of DRAM resources contracted for the 2024 RA delivery year (emphasis added).”  The DRAM resources represent a significant portion of the over PDR fleet, thus even for summer of 2024 these resource types are not limited to $949/MWh, after which (per a recent CPUC propose decision), DRAM will be ending. Also, the bid cap is only applied to PDR resources providing RA, thus to the extent there are non-RA PDR resources in the market (which could also include EDAM/EIM PDR), they are not subject to the cap. Finally, and probably most importantly, the CPUC has left the door open to revisit the bid cap^[1] and there could very well be the situation that if the CAISO market allows for PDR to bid above $1,000/MWh in certain conditions the CPUC will consider rules to align PDR bidding. If PDR resources are unable to bid above $1,000/MWh when the bid cap is increased to $2,000/MWh these resources will likely be dispatched well before the optimal time in which the resource should be utilized by the market, creating not only market inefficiencies but also customer fatigue of those programs such that they will hit their limitations prematurely and then not be available to the market when truly needed. We saw this occur in recent summer events, thus should take the opportunity to address it before it becomes an issue again.

Potential Solutions

WPTF provides a description of three potential solutions listed below followed by a discussion of a potential pathway forward in the event the CAISO and stakeholders believe a more complex solution is warranted but not obtainable by Summer 2024. To reiterate, we believe at a minimum, an interim solution is feasible and warranted by Summer 2024. Furthermore, this is not necessarily a one size fits all solution – it could be the case that one option lends itself more towards addressing PDR, for example, while another is better suited for storage and hydro. At this point, WPTF believes option #2 strikes the best balance while also recognizing PDR may be best addressed by either option #1 or #2.

1. When the bid cap is raised to $2,000/MWh, allow resources to bid up to $2,000/MWh
2. When the bid cap is raised to $2,000/MWh, allow resources to bid up to the higher of the highest Maximum Import Bid Price (MIBP) and highest cost verified offer received/calculated over the entire day
3. When the bid cap is raised to $2,000/MWh, allow resources to bid up to the higher of the MIBP and cost verified offer received/calculated in that hour (i.e., apply same treatment as non-resource specific RA imports)

Storage, hydro, and PDR resources are energy limited resources and unable to be dispatched 24x7. From an economic perspective, the way to ensure such resources are optimally utilized across the day is to reflect intraday opportunity costs in the energy offers, which have been acknowledged by FERC as true short-run marginal costs that can be reflected in incremental energy offers. Thus, to the extent the opportunity cost is greater than $1,000/MWh these resources need to be able to reflect the higher cost in the market to help ensure optimal use. The following options are based on the premise that these resource types should be able to reflect intraday opportunity costs such that they are dispatched in the hours most valuable to the market and available when needed most. 

Option #1: $2,000/MWh bid cap

One proposed approach is to permit resources to bid up to $2,000/MWh. While this would be straightforward to implement, CAISO has expressed apprehensions about potential repercussions. There's a concern that this allowance might result in storage, hydro, and PDR consistently bidding at the maximum rate of $2,000/MWh across all hours where the bid cap applies. On the other hand, this strategy could have beneficial implications for market dynamics, particularly in instances where bidding less than $2,000/MWh may result in energy-limited resources being dispatched to serve off-system sales and then unavailable in later hours to serve internal load requirements when needed most. Keep in mind that virtuals and exports can bid up to $2,000/MWh under FERC Order 831 conditions. Thus, if energy limited resources cannot bid up to the same cap, the market may find it optimal to dispatch an energy limited resource in a given hour to support an export (for example) that bid $2,000/MWh. This then could result in the energy limited resource not being available to serve load within the market footprint during tighter supply conditions later on in the day. WPTF believes this is a market dynamic that warrants discussion with stakeholders to evaluate the pros and cons of this market outcome.

Option #2: Highest MIBP or cost-verified bid across the day

This option considers allowing the resources to bid up to the highest of the hourly Maximum Import Bid Prices (MIBP) or cost verified offers that were calculated/received under FERC Order 831 conditions in that day. In practice, this would set the bid cap at the same level in all hours of the day (and applicable market) when FERC Order 831 conditions trigger allowing bids above $1,000/MWh and keep the bid cap at $1,000/MWh in the other hours. While this may not be the perfect calculation of an intraday opportunity cost, we believe it’s a reasonable approximation that should be considered especially given the ease of implementation. Allowing the resources to bid up to the highest MIBP of all hours or cost verified offers helps enable the market to ensure it’s not dispatched prematurely, which is especially a concern for the real-time market given its shorter optimization horizon. Take for example a resource that can discharge in one hour across the day and the bid cap is based on the MIBP in each hour (Option #3 discussed below) rather than the highest MIBP across the day (Option #2). Assume the bid cap is $1,200/MWh, $1,200/MWh, $1,400/MWh, and $1,300/MWh for HE 18 – HE 21 respectively and market prices align with the bid caps (e.g., highest in HE 20). The optimal use of that resource would be to dispatch in HE 20 however because the real-time does not see all hours when making decisions for HE18, the resource may be dispatched in HE18 becuase it could only bid up to $1,200/MWh in that hour and thus not available for HE20. Had the resource been able to bid up to $1,400/MWh in all hours (the highest MIBP of the day), the market would have been able to use the resource when needed most. Option #2 preserves the ability for the market to dispatch the resource when needed most and allows storage resources to better manage their ability to meet day-ahead schedules in real-time.

The cost verification would be the CAISO’s MIBPs and cost verified offers greater than $1,000/MWh. Given that these are CAISO calculated and approved values, WPTF is unclear at this point what documentation if any should be provided to CAISO in the event an offer is submitted above $1,000/MWh especially if this is just an interim solution. Additionally, if the CAISO is applying rules to lower offers down to the cap, it’s unclear to CAISO what additional information is needed to support the offer. Thus, it would be helpful for the CAISO to confirm what bid cap information is disseminated to market participants today through CMRI and SIBR and the timing of when that information is available.

From an implementation perspective, this option seems relatively straightforward and should not require significant implementation effort. The CAISO calculates the MIBPs for both the day-ahead and real-time markets well before bids are due, so this information is readily available for use in the market. Additionally, any cost-verified bids will be known to CAISO by the time bids are used in the market run. Thus, when the bid cap is raised to $2,000/MWh, the resources can submit bids up to $2,000/MWh. Then the CAISO can simply lower any offers from these resources down to the cap through SIBR. This addresses the concern that participants may not have all of the necessary information in sufficient time to submit bids within the bid cap limits and is an automated process using CAISO calculated values.

Option #3: Non-resource specific RA import treatment

This option would simply treat resources like non-resource specific RA imports which are allowed to bid up to the higher of the MIBP or cost-verified bid for that hour. The cost justification/verification would be the CAISO calculated MIBP and cost-verified bids to approximate the intra-day opportunity cost of these resources. The main difference between this option and Option #2 is that because this option sets the cap in each hour based on the MIBP and cost verified offers in that hour, it may still result in storage, hydro, and PDR resources being dispatched earlier on and unable to meet day-ahead schedules (absent charging at expectedly higher prices for storage) as discussed in Option #2. Furthermore, this may still result in storage resources being unable to meet their day-ahead schedule. Using the same example set up as in Option #2 above, if the resource is only able to bid up to $1,200/MWh in HE 18-19 and has a day-ahead schedule in HE 20, it may very well be dispatched in either HE18 or 19 and then unable to meet its day-ahead schedule in HE 20 because it was restricted to bid at $1,200/MWh instead of $1,400/MWh.

From an implementation perspective, option #3 is also straightforward like option #1 and #2 and should not require significant implementation effort. The CAISO already has the functionality in place since it is applying the same logic and bidding rules to non-resource specific RA imports.

Pathway Forward

To the extent the CAISO and stakeholders believe options #1 - #3 are best suited as interim solutions, WPTF believes there is pathway forward to work towards a more sophisticated solution that leverages much of the same functionality as the existing automated reference level adjustment process. To be clear, WPTF is not presupposing the options #1-#3 above are solely interim solutions; one very well may be the ideal solution after more discussions with stakeholders and CAISO that take into account the trade-offs of all options.

WPTF believes the CAISO and stakeholders could consider, under FERC Order 831 conditions, folding the MIBPs into the opportunity cost component of the DEB and not capping the DEB at $1,000/MWh. A simplified example would be if the MIBP in the IFM was $1,500/MWh for HE18-HE21, the resource would then submit a reference level adjustment request setting the reference level to $1,500/MWh based on the 4th highest MIBP. Although some discussion is warranted around how to set the opportunity cost component in the event there are hours with MIBP, or cost verified offers greater than $1,000/MWh but less than 4 hours. The supporting documents for cost verification could just be a screen shot of the MIBPs for that trading day.  Alternatively, the CAISO itself could recalculate the DEBs using the MIBPs for that trade date and if the resource submits an offer above the recalculated DEB, the CAISO will lower the offer down to the DEB. Additional implementation details will need to be vetted with stakeholders and the CAISO, but WPTF believes that there is a feasible pathway to leveraging the MIBPs in recalculating the DEBs (or recognizing MIBPs as the opportunity cost value in submitting reference level adjustments to the extent market participants have the entire set of calculated hourly MIBPs well in advance of when requests are due) to allow for offers from these resources to reflect marginal costs above $1,000/MWh.

[1]“We do, however, intend to revisit this requirement as needed and as more information is gathered on PDR bidding behavior and dispatch.” Pg 86 of Track 3 Decision

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