Comments on Working group 4

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

The California Community Choice Association (CalCCA) appreciates the opportunity to comment on the California Independent System Operator’s (CAISO) Price Formation Enhancements Working Group Session #4. CalCCA also appreciates the CAISO’s confirmation in the Revised Price Formation Enhancements Overview that “the topic of ‘determining whether to apply BAA-level market power mitigation to the EDAM is NOT in scope for the Price Formation Enhancements initiative, as it is part of the approved EDAM policy.”[1] Balancing authority areas (BAA) -level market power mitigation (MPM) was adopted for the Western Energy Imbalance Market (WEIM) after concerns were raised about potential BAA-wide market power and the Department of Market Monitoring (DMM) could not conclude WEIM participants were structurally competitive. As with the WEIM, there is a risk for BAA-wide market power to be exerted within the Extended Day-Ahead Market (EDAM) without MPM, especially by vertically integrated BAAs that own a large portion of the generation within their footprint.

With the question of whether to apply BAA-level MPM to EDAM out of the way, this initiative can now focus on other important questions, including how to group BAAs when performing the dynamic competitive path assessments to improve the existing BAA-level MPM approach. The CAISO should develop a BAA-level MPM methodology that includes both the CAISO and other BAAs participating in the WEIM or EDAM. The DMM’s annual report consistently shows there are hours when the CAISO market is not structurally competitive.[2] If there are hours that are not structurally competitive, the CAISO should have a mechanism to mitigate against the exercise of market power. MPM is set up to mitigate only those uncompetitive hours, not every hour, so there is little risk of over-mitigation by including CAISO in BAA-level MPM. Additionally, when the CAISO does mitigate bids, it mitigates them to default bids negotiated with the DMM to ensure that the mitigated resource still recovers its costs. At worst, the mitigated bid will cover all costs of providing the energy in the market and if the market clearing price is higher, the resources will still receive the market rents.

[1]             Revised Price Formation Overview (Sept.13, 2023) at 1: http://www.caiso.com/InitiativeDocuments/Revised-Price-Formation-Enhancements-Overview.pdf.

[2]             2022 Annual Report on Market Issues and Performance at 55: http://www.caiso.com/Documents/2022-Annual-Report-on-Market-Issues-and-Performance-Jul-11-2023.pdf.

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

The highest priority at this stage should be for the CAISO to demonstrate with analysis that the existing Scarcity Pricing mechanisms are insufficient to send the right price signals during periods of scarcity to incent resource availability. This analysis should focus on whether existing Scarcity Pricing mechanisms incentivize existing resources to be available and cover the marginal resources’ costs.

Modifications to Scarcity Pricing are not needed to send a price signal to build new resources; those price signals already exist. Resource Adequacy (RA) prices are signaling that capacity is scarce. Between September 2019 and September 2021, the weighted average price for September RA increased by over 100 percent from $4.08/ kilowatt (kW) -month to $8.62/kW-month.[1] CalCCA’s analysis of FERC’s Electronic Quarterly Reports (EQR) show that the weighted-average price for capacity delivered to the CAISO system continued to rise in 2022. The highest observed prices rose from $17/kW-month in September 2020 to over $60/kW-month in September 2021 and over $40/kW-month in September 2022.^[2]  The California Public Utilities Commission’s Integrated Resource Plan process has ordered over 18,000 megawatts (MW) of new resources to come online between now and 2028. The California Energy Commission’s Senate Bill (SB) 100 scenarios signal that over 7,000 MW of new resources will need to come online every year between now and 2045 to meet SB 100 goals. All of these signals to build new capacity have worked. Now the CAISO has an overloaded interconnection queue that CAISO must improve to interconnect those resources as quickly as possible. Increasing scarcity prices will not result in more capacity interconnecting any more quickly than they already would have given existing market signals.

Modifications to Scarcity Pricing could be needed if the existing Scarcity Pricing mechanisms do not incentivize existing resources to be available to the market at the right times during times of scarcity. However, this need has not yet been fully demonstrated. The next phase of this initiative should be for the CAISO to demonstrate with analysis that the existing Scarcity Pricing mechanisms do not do this. Then, the CAISO and stakeholders could develop solutions that target the shortcomings of the existing approach.

Assuming the CAISO does produce data indicating a need for Scarcity Pricing to attract existing resources, then CalCCA ranks the priorities as follows:

• The triggering mechanism and timing (both start and end) of Scarcity Pricing: Prices should rise as supply becomes scarce and prices should remain high during scarce conditions to ensure the market sends the right price signals during periods of scarcity to attract supply and encourage generator performance and to ensure the market allows for cost recovery of the marginal unit. If the CAISO’s analysis demonstrates the existing Scarcity Pricing mechanisms do not accomplish this, the Price Formation Enhancements stakeholder process should develop policies targeted toward these outcomes.

• Scarcity Pricing’s competitiveness with bi-lateral markets/Compatibility with pricing and RA in the broader West and other markets to signal voluntary supply: CalCCA has grouped these themes together due to their interrelatedness. Scarcity Pricing will affect the bi-lateral markets, including the RA markets and the bi-lateral energy markets. Bi-lateral markets already account for scarcity (see California RA market prices for example) and if CAISO market prices increase due to Scarcity Pricing, so too will bi-lateral market prices.

This stakeholder process should recognize the inherent differences between the CAISO BAA and the rest of the western interconnection. A key difference between the CAISO and other western BAAs is that the CAISO operates a wholesale energy market with a market clearing price that all generators are paid based upon the bid price of the marginal resource. Other BAAs, outside of their participation in Western Energy Imbalance Market (WEIM) or a future Extended Day-Ahead Market (EDAM), do not have market clearing prices, and can therefore pay the next generator more during times of scarcity without having to pay all the other generators it transacted with the same price.

Resources internal to the CAISO can bid to export if the price outside of CAISO is higher.  RA resources that cannot export out of CAISO because they are delivering energy to CAISO through their RA must offer obligations receive RA capacity payments to compensate them for dedicating that energy to California.  An external to CA resource can make similar choices, sell to CAISO or sell outside of CAISO depending on the price.  

Given the CAISO has a market clearing price and other BAAs can pay the next unit more without paying all prior units the same price (i.e. the market clearing price), out-of-market actions taken by the CAISO during times of scarcity can put the CAISO on a level playing field with other BAAs. The CAISO can take out-of-market actions to purchase from individual suppliers without upsetting the market clearing price; the same decision that other BAAs can make when they procure energy bi-laterally. This puts CAISO on an even playing field. If the entire CAISO market gets paid the market clearing price, the CAISO can no longer be competitive with other BAAs that only need to pay the next unit when trying to attract supply.  

• How to reflect the value of reliability in prices during scarce conditions: CalCCA understands the CAISO’s desire to ensure the market sends the right price signals during periods of scarcity to attract supply and encourage generator performance. Scarcity pricing should not, however, incentivize resources to bid above marginal costs or bid in a manner that triggers Scarcity Pricing. As CalCCA outlined in its last working group comments,[3] the CAISO should not presume Scarcity Pricing should be set based on the value of lost load rather than resources’ marginal costs. Demand response resources bid at their value of lost load, otherwise it would not make financial sense for them to participate in demand response programs. During times of scarcity, demand response resources are typically the marginal unit and therefore set the price at their value of lost load. Before proposing modifications to the existing Scarcity Pricing mechanisms, the CAISO should demonstrate through analysis that these mechanisms do not effectively accomplish this guiding principle and target solutions to address the specific shortcomings identified.

Out-of-Market actions’ impact to the CAISO market: CalCCA ranks this item last because out-of-market actions are necessary at times to support system reliability and as described above, put the CAISO on a level playing field with other BAAs. Moreover, the CAISO only undertakes out-of-market actions when the market fails to solve for the system needs.  The CAISO has cost recovery mechanisms in place for out-of-market actions so that resources that are dispatched in this manner will not operate at a loss. There does not appear to be a need to refine the current structure as it relates to out-of-market actions and their impact on the CAISO market.

[1]             California’s Constrained Resource Adequacy Market: Ratepayers Left Standing in a Game of Musical Chairs, CalCCA (Updated Sept. 15, 2023), at 8: https://cal-cca.org/wp-content/uploads/2023/09/CalCCA-Stack-Analysis-2023-2026-updated-9_15_23.pdf.

[2]             Id., at 9.

[3]             CalCCA Comments on Price Formation Enhancements Working Group (Submitted Aug. 10, 2023): https://stakeholdercenter.caiso.com/Common/DownloadFile/9638872c-4f7c-4759-bf88-dd54d5609244.

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

See response to question 2 above - The highest priority at this stage should be for the CAISO to demonstrate with analysis that the existing Scarcity Pricing mechanisms are insufficient to send the right price signals during periods of scarcity to incent resource availability.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups:

CalCCA has no additional comments at this time.

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

The text of DMM's full set of comments is pasted into this response to question #1.  A fully formatted version of the same comments is included as a pdf attachment below the final question.

Comments on Price Formation Enhancements September 14, 2023 Working Group

Department of Market Monitoring

October 4, 2023

The Department of Market Monitoring (DMM) appreciates the opportunity to comment on the Price Formation Enhancements September 14, 2023 Working Group.[1]

DMM continues to support enhancements to the balancing authority area (BAA)-level market power mitigation process that exists in the Western Imbalance Energy Market (WEIM), and which the ISO will implement in the Extended Day-Ahead Market (EDAM). BAA-level mitigation protects areas from the potential exercise of market power whenever transfer constraints bind and create local areas within the larger system. The two enhancements discussed include subjecting the CAISO balancing area to BAA-level mitigation and introducing a grouping mechanism for testing the competitiveness of groups of BAAs.

DMM supports treating the CAISO BAA similarly to other WEIM/EDAM BAAs by subjecting the CAISO to BAA-level mitigation if the CAISO BAA is deemed uncompetitive on its own, or as part of a group with other BAAs. Enhanced market power mitigation procedures should not assume the CAISO BAA is always structurally competitive. In 2022, there were 130 hours where the residual supply index in the CAISO day-ahead market was below one, indicating an uncompetitive level of supply.[2] While the CAISO BAA may not be structurally uncompetitive frequently, this can change over time depending on a number of conditions. For example, the competitiveness of the CAISO BAA may decrease as the amount of load served by major investor-owned utilities decreases more than the amount of generation controlled by these utilities. Thus, DMM supports enhancing market power mitigation mechanisms in order to address hours when supply in the CAISO BAA is uncompetitive.

DMM also supports implementing a grouping mechanism to test the competitiveness of groups of multiple BAAs. This would be an improvement over the current WEIM and EDAM policy of only testing each BAA individually. An individual BAA may be non-competitive when tested individually, but it may be part of a larger group of balancing areas which, when considered together, would be a competitive area. Testing BAAs together, rather than just individually, may reveal that the group as a whole is competitive and avoid unnecessarily subjecting individual non-competitive BAAs to mitigation.

The exact method of grouping for assessing and mitigating potential market power in groups of BAAs requires further discussion and evaluation. The ISO proposed a design in its July 2022 Price Formation Enhancements Issue Paper.[3] The ISO’s proposal groups BAAs in descending order of their power balance shadow prices and tests groups until a competitive group is found and deems all the remaining BAAs/group of BAAs with lower shadow prices as competitive. This method would allow significant gaps in the detection and mitigation of the exercise of market power.

One issue with this design is that if an area has competitive supply but significantly higher actual costs than other areas, supply in the rest of EDAM/WEIM could exercise market power up to the level of the high costs in that area. In addition, a dominant entity in a BAA may have incentive to take advantage of this design to undermine BAA-level mitigation in the rest of EDAM/WEIM. Specifically, under this design a vertically integrated utility deemed competitive on its own may have an incentive to inflate its own prices in order to eliminate mitigation in the other BAAs. This would in turn inflate average prices in the rest of EDAM/WEIM and increase the expectation for higher future prices. The marketer for the vertically integrated utility could profit from creating higher expected prices in other EDAM/WEIM areas by making bilateral export sales at the inflated expected prices. The exact details of how the ISO’s proposed design could allow the exercise of market power would depend on details such as what the ISO would consider supply of counterflow and how the design would treat non-transfer exports.[4]

In previous comments, DMM described a potential alternative grouping mechanism for BAA-level market power mitigation.[5] DMM recognizes that this potential alternative approach could result in potential over- or under-mitigation in some situations. However, it has some merits relative to the approach proposed in the ISO’s Issue Paper. DMM looks forward to discussions about alternatives to the ISO’s Issue Paper mitigation proposal, and hopes the alternative we described can contribute to those discussions.

[1] Price Formation Enhancements – Working Group Session #4, CAISO, September 14, 2023: http://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Sep14-2023.pdf

[2] 2022 Annual Report on Market Issues and Performance, July 11 2023, pp. 154-156: http://www.caiso.com/Documents/2022-Annual-Report-on-Market-Issues-and-Performance-Jul-11-2023.pdf

[3] Price Formation Enhancements – Issue Paper, CAISO, July 5, 2022, pp. 19-23: Issue-Paper-Price-Formation-Enhancements.pdf (caiso.com)

[4] DMM Comments on Price Formation Enhancements Issue Paper, August 11, 2022, pp. 4-6: http://www.caiso.com/Documents/DMM-Comments-Price-Formation-Enhancements-Issue-Paper-Aug-11-2022.pdf

[5] Ibid, pp. 7-9.

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

Please see DMM's complete set of comments in the attached pdf below.

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

Please see DMM's complete set of comments in the attached pdf below.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups:

Please see DMM's complete set of comments in the attached pdf below.

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

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 advocacy efforts to protect ratepayers include energy, water, and communications regulation. 

Cal Advocates appreciates the California Independent System Operator’s (CAISO) staff presentations during Working Group 4 and provides a few suggestions that could be helpful for stakeholders considering MPM.  First, Cal Advocates echoes feedback from the survey that it would be helpful to review the portfolio composition of other Balancing Authority Areas (BAA) that will be participating in the Extended Day Ahead Market (EDAM).[1]  Second, Cal Advocates highlights the Regional Issues Forum meeting on September 12, 2023 as a resource for understanding the background and issues surrounding MPM.[2]  In general, it would be helpful for the CAISO to provide a summary of resources or recommended reading for stakeholders ahead of working groups. 

Finally, Cal Advocates requests that the CAISO provide a real-world example of how MPM occurred in a typical Western Extended Imbalance Market solution.  Such an example could provide a narrative and map for stakeholders to better understand how MPM has functioned in practice, and how it has affected various BAAs.  While simplified and stylized examples are helpful, seeing an example in the context of a real-world example would also be instructive.

[1] Price Formation Enhancements Working Group #4 Poll Results, available at: https://www.caiso.com/InitiativeDocuments/Poll-Results-Price-Formation-Enhancements-Sep-14-2023.pdf.

[2] Presentation materials and video are available at: https://www.westerneim.com/Pages/Governance/RegionalIssuesForum.aspx.

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

Cal Advocates ranks the themes listed above as follows:

1. How to reflect the value of reliability in prices during scarce conditions;
2. The triggering mechanism and timing (both start and end) of Scarcity Pricing;
3. Scarcity Pricing’s competitiveness with bi-lateral markets;
4. Compatibility with pricing and RA in broader West and other markets to signal voluntary supply;
5. Out of Market action’s impact to CAISO market.

While the list above ranks “How to reflect the value of reliability in prices during scarce conditions” first, Cal Advocates clarifies that such an analysis needs to be rooted in principles of just and reasonable costs.  Specifically, carrying out a theoretical analysis of the Value of Lost Load (VOLL) may produce an average value to represent a social opportunity cost, but a single value masks substantial heterogeneity in the VOLL to different ratepayer segments. 

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

Cal Advocates recommends that the CAISO establish a working group to review existing incentives and penalties regarding resource availability, performance, and any existing tools used to attract real-time energy.  The review should include a discussion of existing settlement tools and mechanisms that may adjust payments for a resource that delivers less energy than the resource bid into the integrated forward market or real-time markets.  For example, the  Department of Market Monitoring (DMM) notes that the Resource Adequacy Availability Incentive Mechanism is not performance based; however, the full portfolio of tools and consequences that currently exist to incentivize resources to actually deliver their bid-in amount is unclear to Cal Advocates.[1]  A brief review of how the CAISO acquires additional real-time energy during periods of scarcity, such as on September 6, 2022, would also inform the working group of potential sources of additional energy that scarcity pricing may attract.

[1] CAISO, 2022 Annual Report on Market Issues & Performance, July 11, 2023 at 250.  Available at: http://www.caiso.com/Documents/2022-Annual-Report-on-Market-Issues-and-Performance-Jul-11-2023.pdf.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups:

Cal Advocates has no additional comments or feedback at this time.

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

PG&E appreciates CAISO’s presentation on the background and history of market power mitigation. In general, PG&E is supportive of the CAISO’s efforts to extend BAA-level market power mitigation and Scarcity Pricing and recommends that the CAISO focus on these efforts. 

Additionally, the CAISO must dedicate sufficient time in its timeline to explore the interactions that Price Formation Enhancements (PFE) will have within the Day-Ahead Market. For example, suppose PFE results in 1) Fast Start Pricing, 2) BAA-level market power mitigation, and 3) Scarcity Pricing. In order to properly understand how these potential changes impact the market, not only will the CAISO need to analyze, with data, how these three things interact with each other, but also how they will interact with other big changes looming in the Day-Ahead Market, i.e., EDAM and DAME.

In future working group sessions, PG&E recommends further discussions on scarcity pricing and BAA-level MPM mechanisms (see also themes listed in question 3 below).

Based on the MSC meeting of 9/24, PG&E expects more details from CAISO, the MSC, and the DMM on scarcity pricing and MPM in future working group sessions. For instance, the MSC could present their thoughts on scarcity pricing and MPM and share some good practices from other ISOs/RTOs. The DMM could present the specific issues to be considered in the CAISO markets when defining scarcity pricing and MPM (e.g., how to reflect Resource Adequacy values).

PG&E would also welcome the CAISO to provide a tentative timeline specifying when the policy development of BAA-level MPM procedures will happen and when the CAISO plans to implement the solutions.  PG&E believes this should be done by the time the first participant joins EDAM, at the latest.

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

PG&E proposes the following ranking of themes. PG&E also offers some comments on the themes that might not be fully supported or require further objectives discussions/clarifications.

1) How to reflect the value of reliability in prices during scarce conditions.

2) The triggering mechanism and timing (both start and end) of Scarcity Pricing.

3) Scarcity Pricing’s competitiveness with bi-lateral markets.

• PG&E does not entirely support this principle. Bi-lateral markets can be illiquid during scarcity events therefore their prices might not be just and reasonable.

4) Out of Market action’s impact to CAISO market.

• PG&E believes the discussion should focus on when scarcity pricing switches to administrative pricing because of lack of supply.

5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply.

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

1) Combination of scarcity pricing and MPM mechanisms: along the lines of the themes ranked in question 2, PG&E requests the CAISO to further discuss the interactions between scarcity pricing and BAA-level MPM, including aspects such as their triggering conditions, operating orders in the market, and impact on prices, and to consider those interactions in the design of their mechanisms. Additionally, this should explore the interactions with EDAM and DAME to continue the CAISO’s commitment to evaluate enhancements needed in robust future discussions.

2) Resource Sufficiency Evaluation (RSE), MPM and scarcity pricing interaction: at the working group session #4, the CAISO mentioned that MPM will be automatically triggered when a BAA fails the RSE test during a given market timeframe. PG&E requests that the CAISO further investigates the scenarios of interactions among RSE, MPM and scarcity pricing in the upcoming workshops (e.g., the market timeline of RSE results, MPM and scarcity pricing triggered; the interactive impacts of penalties of the Emergency Assistance Program, bids mitigation, and scarcity pricing on market prices).

3) Market parameters – Demand curves: in the DAME policy development, the CAISO deferred the refinements of Default Availability bids and demand curves of DAME products (i.e., Imbalance Reserves and Reliability Capacity) to be discussed in Price Formation. PG&E requests the CAISO to clarify whether those topics will still be addressed in the Price Formation initiative and if the timeline is feasibly aligned with the DAME and EDAM implementation timeline.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups:

No comments at this time.

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

PacifiCorp would like to thank the CAISO for presenting on the history of BAA-level MPM. The presentation will go a long way in ensuring that all stakeholders have a common level of understanding as the working group starts to consider whether improvements are needed to the current BAA-level MPM design. There are no specific topics that require further discussion to enter the Problem Statement creation phase at this time from PacifiCorp. To aid in future discussions on BAA-level MPM, PacifiCorp requests the CAISO provide data from the past year to stakeholders on how often BAA-level MPM is triggered in the WEIM, the impact it has on resources’ bids, and the types of resources that are mitigated most.

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

PacifiCorp believes the above themes can’t be discussed in isolation of each other but agrees that prioritizing the above themes is an adequate starting point for future discussions. As such, PacifiCorp ranks the themes as follows:

1. How to reflect the value of reliability in prices during scarce conditions
2. The triggering mechanism and timing (both start and end) of Scarcity pricing
3. Scarcity Pricing’s competitiveness with bi-lateral markets
4. Out of Market action’s impact to CAISO market
5. Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

 No comments.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups:

 No additional comments.

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

PGP appreciates the history and context provided at the Working Group Session #4 with regards to the introduction of the BAA-Level MPM for the WEIM, as well as the clarification that it is the starting place for the EDAM design per the approved final proposal. Given this is a starting point, it does feel beneficial to include this topic in the scope of the Price Formation Enhancements initiative to improve the Market Power Mitigation Framework. PGP believes that this process may provide an opportunity for the framework to address some regional concerns regarding the potential for over-mitigation, and to better align the Market Power Mitigation with PGP’s market design principles in this area, which are the following:

• Market power mitigation should result in energy prices that approximate prices that would occur in a competitive market.
• Market power mitigation should only be applied where the opportunity to exercise market power exists and should be effective at mitigating the exercise of market power.
• Mitigation methods should accept and provide for the complex and dynamic nature of hydropower systems, operational constraints, and opportunity costs.

PGP was largely aligned with the discussion on what additional information may be helpful to support further dialogue on this topic and to better articulate the problem statements. Given that additional competition can and should ultimately counteract the need for mitigation, PGP recommends further analysis looking at the competitive nature of the WEIM as it compares to the WEIM at inception, and as it compares to the potential supply and participation level in the EDAM. Further information that would be helpful includes the following:

• Analysis of structural power in the EIM now that such a significant portion of the WECC is participating in the EIM, to address the question of whether the issues from the first entrants to EIM is reduced through enhanced regional supply participation.
• Frequency of mitigation within the WEIM today, test of grouping methodology on WEIM data to see how it changes the results, and analysis of implications for EDAM which may include increased supply and enhanced transmission availability.
• Data on the number of independent generators/LSEs in each BAA if such data is available.
• More details on how grouping may or may not enhance the accuracy of mitigation/evaluation of market power, particularly additional scenarios to address the issue of how supply-only BAs may need to be addressed to avoid the potential for over-mitigation.

PGP also can offer general support for the scope items captured in the updated discussion paper in this topic area including (order does not indicate priority):

“1. Ensure design does not create over-mitigation impacting competitive market conditions for supply participation.

2. Benefits and costs of current BA-Level MPM construct and comparison to alternatives used in other markets

3. Mechanism to designate the grouping, and subsequent sequencing of, potential DCPA solution.

4. Ensuring potential group DCPA solution would not result in failures for a BAA that would not have occurred with today’s current design”

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

The effort to rank themes is a challenging one, as indicated by the lack of clear results in the online straw polling of this topic. PGP notes that ranking may support both an order and priority, and we have ranked them so that hopefully the earlier and easier to address concepts may minimize the problem statements and complexity introduced by the later and more challenging topics.

We recommend the following ranking and reasoning:

1. Out of market actions impact to CAISO market This seems to be where the most issues in price formation are arising as they relate to the CAISO BA vs MO role, the CAISO DA vs WEIM, and disconnects with the bilateral market. If this can be broken into simpler topics based on the cause or type of out of market actions, they may arise as more tangible “low hanging fruit”, reducing the topic size of the other themes. Topics that have been previously discussed that fit in this category include applicability of shortage pricing when DR or strategic reserves are activated, and examination of shortage pricing applicability when the ISO is using the load conformance mechanism.
2. The triggering and timing of scarcity pricing This is a theme that will likely be articulated in the above topic, and may include times for administrative pricing to align RT/WEIM pricing with the deployment of strategic reserves in the CAISO BA, or other triggers that can be aligned with the EDAM design framework. There seemed to be consensus in the meeting to focus on sending logical signals, perhaps defining what “illogical” signals are based on historical experience and examination of past reliability events can help us to better articulate the design intent.
3. Compatibility with pricing and RA in broader west and other markets to signal voluntary supply PGP recognizes that this is a challenging and potentially polarizing topic, that could benefit by concrete solutions under manageable condition scenarios and problem statements that will likely be addressed by the first two themes. Within this theme, it may make sense to include a level-setting exercise focused on penalty and non-compliance mechanisms in the two regional RA programs that may have participants within the EDAM. If participants can agree on how these programs and pricing should relate to the shorter duration signals in the market, it may support development of the appropriate way to reflect this in the market. This exercise may also help to highlight the benefits of planning to consistent regional standards even across RA programs. If products are compatible, and obligations align, pricing should naturally follow due to competition/trade between/across the programs.
4. Reflecting the value of reliability PGP suggests that this topic may become “philosophical” very quickly, without leading to concrete design solutions, hence the low ranking.
5. Competitiveness with bilateral markets While an important topic, this should be addressed by concrete solutions in the first three themes that are focused more on the EDAM and EIM design. We also recognize that markets are developing rapidly and this topic may be becoming more of a transitional issue, rather than one that is suited for long-term and durable design.

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

N/A

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups:

PGP found the background and level-set to be a worthwhile exercise, and we recommend that the historical framing and “how we got here” be included more regularly in these discussions to enhance appropriate scope management and shared understanding as the region seeks to tackle difficult issues.

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

The Salt River Project Agricultural Improvement and Power District (SRP) appreciates the opportunity to provide feedback on the Working Group (WG) Session #4 regarding the History and Level Set of BAA-Level Market Power Mitigation (MPM). The information presented was beneficial and provided further understanding on the existing MPM process. SRP values the discussions facilitated by the CAISO and has identified remaining inquiries which have been summarized in question #3.

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

SRP’s priority for further discussion of themes is as follows: is to discuss the themes in the following order:

1) How to reflect the value of reliability in prices during scarce conditions.

2) The triggering mechanism and timing (both start and end) of Scarcity Pricing. 

3) Out of Market action’s impact to the CAISO market.   

4) Scarcity Pricing’s competitiveness with bi-lateral markets. 

5) Compatibility with pricing and Resource Adequacy (RA) in the broader West and other markets to signal voluntary supply. 

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

SRP expresses keen interest in an educational session dedicated to the MPM test. Although the testing process was briefly alluded to during the last WG meeting, specific details were deferred. SRP encourages the CAISO to provide comprehensive information to foster a better understanding of the test process prior to contemplating any potential modifications.

Additionally, SRP seeks more information on the changes in how the Marginal Cost of Congestion (MCC) is or is not adjusted due to MPM being triggered if an entity is participating in just WEIM versus both EDAM and WEIM. The CAISO verbally explained during the WG session that the MCC accounts for marginal energy price differentials in BAs other than CAISO when MPM is triggered for WEIM participants. SRP would like to better understand this price component and any settlements charge codes that may also offset this type of congestion.

Within the Framework of EDAM, its SRP ‘s understanding that entities will have their own marginal energy cost, alongside a distinct transfer revenue charge code inteded to incoporate price disparities among BAs. SRP seeks further information regarding this charge code and any related offsets to this charged code.

Within EDAM, it is SRP’s understanding from the WG session that entities will have their own marginal energy cost, and there will be a separate transfer revenue charge code that incorporates price differences between BAs. SRP would like more information on this charge code and any other offsets that are related to this charge code. 

SRP encourages the CAISO to provide a comprehensive overview of the differences in WEIM and EDAM concerning MPM, pricing, and settlements in either a working group or a reference document.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups:

During the WG meeting, CAISO proposed the testing of BAs for market power as a group rather than individually. SRP is concerned that even if a small BA passes the test independently, they may still fail when assessed as part of a group containing BAs with larger deficits. Should the CAISO opt for testing BAs collectively, SRP requests clarification regarding whether a BA could pass as an individual entity on their own or as part of a group. SRP is interested in exploring this topic in more detail and encourages the CAISO to facilitate further discussion(s).

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

SDG&E appreciates the opportunity to comment on the Price Formation Initiative.

The background information given on Market Power Mitigation (MPM) was helpful and informative. SDG&E requests more information on the MPM grouping approach presented to better understand how this will work and how many participants are needed to join Extended Day Ahead Market (EDAM) for this approach to be effective.

Scarcity pricing is also in scope for this initiative, so a similar presentation could be made on this topic to better inform our feedback.

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

SDG&E has ranked the themes below accordingly:

1) How to reflect the value of reliability in prices during scarce conditions;

2) The triggering mechanism and timing (both start and end) of Scarcity Pricing;

3) Out of Market action’s impact to CAISO market;

4) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

5) Scarcity Pricing’s competitiveness with bi-lateral markets;

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

Regarding the guiding principle identified below, SDG&E questions whether batteries will be subject to the $2000 per MW bid cap in tight system conditions.

• Energy storage resource bids/DEBs are limited to a bid cap of $1000/MWh, which may not reflect opportunity costs in tight system conditions when the bid cap is raised to $2000/MWh.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups:

Questions remain about the timing and in scope items of this initiative. SDG&E suggests CAISO set parameters around implementation dates as it relates to EDAM and Day Ahead Market Enhancement (DAME) since these initiatives are closely aligned. CAISO should also identify which products are in scope and out of scope covered in this initiative. For example, whether the new DAME products, imbalance reserves up imbalance reserves down and Reliability Capacity down Reliability Capacity up settlement and implementation will be in scope for this initiative. As these products will be implemented in in conjunction with DAME and EDAM. 

1. Please provide your feedback on the History and Level Set of BAA-Level (or Structural) Market Power Mitigation (MPM) provided in Working Group Session #4. Were there any specific topics that require further information/discussion in order to enter the Problem Statement creation for BAA-Level MPM?

WPTF applauds the CAISO for providing history and level-setting information on existing and proposed EDAM market power mitigation measures. The information was provided at a level of detail that achieved the right balance between educating stakeholders on the processes while avoiding the complex details of the actual mechanics and formulations. This provides for a natural transition into identifying and quantifying problem statements that this effort is intended to address.

2. Please provide your ranking of the following themes to further discuss in order from highest to lowest priority:

1) How to reflect the value of reliability in prices during scarce conditions; 2) The triggering mechanism and timing (both start and end) of Scarcity Pricing; 3) Out of Market action’s impact to CAISO market; 4) Scarcity Pricing’s competitiveness with bi-lateral markets; 5) Compatibility with pricing and RA in broader West and other markets to signal voluntary supply

WPTF appreciates the CAISO identifying themes to discuss as we move through this effort in a way to organize the conversation. However, these themes are all interrelated and we are not quite sure how productive it will be to completely isolate the conversations based on priority order. We would envision an organized discussion with a flow based on the topics above but not having the various conversations in isolation from one another.

Given that, WPTF believes that starting off at the more fundamental item makes the most sense and then working our way through some of the more nuanced elements/details of a scarcity pricing design. With that in mind, we believe it makes sense to start with #1 and focus on how prices should value reliability as supply starts to tighten and then ultimately reaching scarce conditions. From there, moving to #2 and talking about the various mechanisms that can be used to support the discussion of #1, focusing on conditions/actions that occur within the market. This then naturally leads into #3 as more of a nuance/detail element of item #2 – ensuring that out of market actions are also part of the triggering mechanism(s) discussed in item #2, including specific conversations around deploying SRR for CAISO system conditions and non-CAISO system conditions (see response to #3 below). 

3. Please provide your organization's feedback on other themes you believe should be discussed in an upcoming dedicated Working Group session:

WPTF appreciates the CAISO’s recognition that within the scarcity pricing discussions we need to also consider the impact to the market and price signals when SRR is triggered. Ideally this discussion would fold into the topic of triggering mechanisms (theme #2 above) and incorporating out of market actions (theme #3 above). Within that conversation it is also imperative that stakeholders discuss the potential impact to the market and market prices if SRR is triggered to address non-CAISO BAA conditions.

4. Please provide any additional comments or feedback on the Price Formation Enhancements Working Groups: