Comments on Scarcity sprint

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

No comments

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

No comments

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

BPA believes each of these Problem Statements are important and worthy of evaluation when considering enhancements to the CAISO market.  BPA is very interested in Problem Statement (d).  The recent January cold snap event in the Pacific Northwest demonstrated the penalizing impact to BPA with generation assets classified as Non-Generator Resources (NGR) in the WEIM. 

Limiting NGR bid curve prices to $1000/MWh during scarce supply / high demand events (FERC 831 conditions) puts BPA at risk of unintended dispatch and increases real-time operational volatility while attempting to manage our hydro system.  During the mid-January weather event, when the CAISO price cap was raised to $2000/MWh, NGRs could not use economic bid curves to accurately manage the opportunity cost of their limited capacity and energy.  For BPA, the result destabilized our necessary ability to coordinate the dispatch and recharging our hydro system effectively across the event.  The increased magnitude of price volatility during the event exposed NGRs to increased volatility in generation dispatch, and for BPA, compounded the uncontrolled management of our coordinated hydro system. These situations make it near impossible for NGRs, including BPA, to plan for the real-time capability of serving peak load during extreme events.

The NGR price cap feature severely disadvantages those resources (hydro, batteries) that are highly valuable in resolving critical demand shortfalls for the CAISO market, while supporting grid reliability and ensuring appropriate price formation. The NGR price cap currently leaves BPA and other NGRs with few options beyond disconnection from WEIM in stress conditions when grid reliability becomes unmanageable.  For this reason, BPA encourages CAISO to address this issue as quickly as is feasible. 

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

BPA believes each of these Problem Statements are important and worthy of evaluation when considering potential enhancements to the CAISO market.  Developing, evaluating, and implementing an incremental solution for each Problem Statement would be a positive outcome and should be the goal for this Initiative.

1. High Priority
2. High Priority
3. High Priority
4. High Priority
5. Medium Priority

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

BPA would like to see a list or “catalog” of out of market actions, along with a brief description, documented for the Working Group.  Clear documentation of CAISO’s existing out of market actions will provide important context for discussions regarding future out of market actions.  Please also indicate where this information for each type of action is found on the CAISO website.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

No comments

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

Boston Energy believes the sprint approach provded to be effective and efficient.  

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

Boston Energy believes the ISO needs to reevaluate its approach for determining DEB's for storage resources.   Our experience since storage DEB's were implemented is that during tight conditions storage assets are consistently mitigated in the day-ahead market to provide energy.  Because of the RA MOO a storage resources only way to tell the market it would like to have some RT energy exposure is to price its curves accordingly in the day-ahead market.  The current DEB structure more often than not doesn't provide the storage asset the ability to participate in the real-time market. Boston Energy 100% support the scarcity pricing improvements being discussed, but what good is a scarcity pricing mechanism in the real-time market if all your fast and flexible storage resources are mitigated in the day-ahead market and fully scheduled to provide energy?

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

CAISO needs to ensure that its DEB process for storage doesn't prevent storage resources from participating in the real-time market during scarcity conditions.  As SC for numerous storage assets, on tight system condition days we consistently see day-ahead mitigation of our resources.  The most common result is the resources getting fully scheduled for energy in the day-ahead market.  Leaving no ability for the storage resource to participate in the real-time market.  The combination of the DEB approach and the RA MOO make it very challenging for storage resources to position the asset to have real-time exposure and manage SOC.  

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

As stated above, the entire DEB approach for storage resources needs to be reviewing by CAISO to ensure that storage resources can participate in the real-time market during scarcity events.  Not having your fast and flexible resources available to provide incremental generation during these periods would seem to be a detriment to system reliability. 

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

Boston Energy has no comments at this time. 

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

Boston Energy has no comments at this time. 

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

The California Community Choice Association (CalCCA) appreciates the opportunity to submit comments on the Price Formation Enhancements Scarcity Pricing Sprints. CalCCA has no comments on the Sprint Approach at this time.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

Before moving forward with any proposed solution, the California Independent System Operator Corporation (CAISO) must determine (1) whether existing market mechanisms are insufficient to send the right price signals during periods of scarcity to incent resource availability, and (2) whether the options to consider presented at the workshop would achieve the CAISO’s desired outcomes such as reliability, incentive alignment, and market efficiency.

The CAISO defines scarcity pricing conditions as those in which there is “no ‘marginal cost of production.’”[1] If it is the case that there is no marginal cost of production, it is difficult to see how modifications to scarcity pricing mechanisms would result in increased reliability through additional supply availability rather than simply increasing generator profits. It is also difficult to see how modifications would incentivize bidding at marginal cost or produce efficient market outcomes.

[1]             Sprint 1 Slide 9: https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Jan10-2024.pdf.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

The problem statements presented in the sprints focused on ensuring prices can rise during tight system conditions to reflect scarcity at the right times. 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. It is still not clear, however, that the existing market does not already accomplish these objectives by allowing supply to bid its marginal costs. The typical marginal resource, demand response, will bid at or near the bid cap to reflect its value of voluntary load curtailment. Market participants will be able to observe prices rising, signaling the importance of making sure supply is available and responsive to dispatch instructions. Before proposing modifications to the existing Scarcity Pricing mechanisms, the CAISO should explain why this framework is insufficient for ensuring supply is available during tight system conditions.

The Working Group reviewed several actions the CAISO can take in the event of a shortage, including (1) the dispatch of reliability use-limited resources like the strategic reliability reserves or reliability demand response resources, (2) the use of Emergency Load Reduction Program or other load modifying programs that do not participate in the CAISO market economically, and (3) operator actions like calling Flex Alerts, arming load, or conducting load shedding. The CAISO then posed a price floor and value of lost load as preliminary options to consider given these actions are not fully captured by price formation.

The CAISO should not adopt administratively set prices based upon the value of lost load. Rather, the CAISO should incentivize resource bidding at marginal costs. As the CAISO dispatches resources up the bid stack, prices could rise to a level to reflect the value of lost load. During times of scarcity, the marginal resource will likely be a demand response resource that will voluntarily curtail load when prices are high enough. Demand response resources can be expected to bid at their value of lost load, which is typically at or near the bid cap. Therefore, demand response resources are likely to be the last available supply to be dispatched. Once demand response has been fully utilized, whether or not consumers are willing to pay more to avoid involuntary demand curtailment, there is no additional supply to pay for and simply increasing prices would not result in more available supply.

Setting scarcity prices based upon demand’s willingness to pay to avoid involuntary load curtailments is problematic for the following reasons. First, it can compensate supply above the marginal resource’s costs at a cost to consumers. Setting scarcity prices this way would degrade the incentives for resources to bid at their costs and create perverse incentives for generators to artificially trigger scarcity pricing. Second, it will be extremely difficult to determine a value that adequately reflects consumers’ willingness to pay to avoid involuntary load curtailments while protecting consumers from excessively high prices when demand is inelastic and scarce conditions are present. Third, once there is no longer a marginal resource, continuing to increase prices will not make additional supply available. Fourth, it is not clear that simply increasing the price administratively will result in more supply output than what would have occurred at a lower administrative price or even at the market clearing price. Unless a supplier is taking a loss at a certain price, which the CAISO has measures to protect against, then the CAISO should not assume higher administrative prices will result in increased reliability. It will certainly cost consumers more for an unknown benefit.

Despite their potential impacts on prices, out-of-market actions are necessary at times to support system reliability. Moreover, the CAISO 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. Given these considerations, 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.

CalCCA agrees with the problem statement that limiting energy storage resource bids/Default Energy Bids to a bid cap of $1000/ megawatt-hour (MWh) may not reflect opportunity costs in tight system conditions when the bid cap is raised to $2000/MWh. CAISO should update its systems to allow storage to bid up to the cap that is in place at that point in time. Storage should be placed on a level playing field with all other resources that can bid up to $2000/MWh.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

While not an explicit problem statement identified above, CalCCA’s highest priority within this initiative is to maintain the incentive for supply to bid its marginal cost and refrain from creating incentives for supply to bid above marginal costs or bid in a manner that triggers scarcity pricing.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

See response to question 3.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

CalCCA has no additional comments at this time.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

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

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

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

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

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

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

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

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

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

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

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

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

Please see attachment. 

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

Please see attachment. 

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Please see attachment. 

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Please see attachment. 

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

Please see attachment. 

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

Please see attachment. 

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

The Public Advocates Office at the California Public Utilities Commission (Cal Advocates) is the state-appointed independent ratepayer advocate at the California Public Utilities Commission (CPUC).  Our goal is to ensure that California ratepayers have affordable, safe, and reliable utility services while advancing the state’s environmental goals.  Our efforts to protect ratepayers include energy, water, and communications regulation advocacy. 

Cal Advocates’ understanding of the California Independent System Operator’s (CAISO) new working group approach is that it is intended to develop principles and problem statements that would then inform a discussion paper and an action plan.  Those deliverables would lead to an initial straw proposal, and publishing the straw proposal would initiate the policy advocacy process.[1]  Cal Advocates appreciates the CAISO’s responsiveness to stakeholder feedback that led to the working group approach.  However, the distinction between background work and policy advocacy is unclear in the working group process.  Cal Advocates requests that the CAISO clarify where stakeholders are in the initiative development process now and what to expect going forward in the larger Price Formation Enhancements development process.

[1] CAISO, Price Formation Enhancements: Working Group Session #1, August 3, 2023 at 6-10.  Available at: https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Aug3-2023.pdf.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

Cal Advocates Requests Additional Definitional Clarity on Scarcity Conditions

During the January 24, 2024 Price Formation Enhancements (PFE) Working Group Session #13 (Session 13), Cal Advocates requested clarification about the differences between pre-scarcity, scarcity, shortage, and emergency events.[1]  The Western Power Trading Forum followed this comment with a request for a timeline of scarcity-related conditions.[2]  Codifying the varying scarcity definitions and explaining the timelines of how they interact would help identify the proper policy solutions for each condition.  For instance, if scarcity pricing is in fact intended to provide a stable price signal to generators about expected need prior to the realization of an energy shortage situation, this implies that scarcity pricing should be designed to focus on the periods prior to emergencies.  During emergency situations, the CAISO should take appropriate out-of-market actions that are needed and available to preserve reliability, such as accessing the State Reliability Reserve[3] and exercising Energy Emergency Alert (EEA) protocols.[4]  If CAISO operator actions impact price signals but successfully maintain reliability, the actions are justified.  Defining pre-scarcity, scarcity, shortage, and emergency events would help clarify problem statements and lead to solutions that appropriately consider and/or target specific events and conditions.

[1] Session 13 video, starting at 27:26.  Available at: https://youtu.be/3xet4FA3YSg?si=MfOOz9u1sItPwRT6&t=1646.

[2] Session 13 video, starting at 36:19.  Available at: https://youtu.be/3xet4FA3YSg?si=V7xUJSeyC1LwISmo&t=2179.

[3] The State Reliability Reserve includes two California Energy Commission supply and load-modifying resources and the Department of Water Resources’ generation capacity reserves.  For more information, see: https://www.energy.ca.gov/data-reports/california-energy-planning-library/reliability/strategic-reliability-reserve#:~:text=The%20Strategic%20Reliability%20Reserve%20(SRR,peak%20demand%20during%20extreme%20events.

[4] EEA protocols include demand response dispatch, public requests for conservation and load shedding.  https://www.caiso.com/Documents/Emergency-Notifications-Fact-Sheet.pdf.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Demand Response Resource Dispatches Should Not Trigger a Scarcity Price Increase

Problem statement c. states, “The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation.”[1]  “Reliability use-limited resources” include Reliability Demand Response Resources (RDRR) and paid retail demand response programs.[2]  Both types of demand response resources are used for Resource Adequacy (RA) in the CPUC’s RA program.  The CAISO states that deploying those demand response resources puts downward pressure on prices that “may confound the price signal indicating emergency conditions.”[3]

Cal Advocates acknowledges that a goal of this initiative is to ensure energy prices reflect scarce conditions and appropriately attract additional energy to meet demand.[4]  The initiative also seeks to address the absence of a CAISO market mechanism to prevent “significant non-market demand response” and other resources from creating inappropriate price signals to attract additional energy.[5]  Ensuring that the price formation of energy during scarce periods is able to attract sufficient bids is a worthy objective.

However, this initiative should not contemplate a mechanism that artificially increases the price of energy to address price formation effects caused by specific RA resources like demand response since those demand response resources are paid to address reliability needs and have predictable, prescribed dispatches.  RDRR in particular is intended to reduce load when supply scarcity is worsening,[6] supplementing scarcity pricing’s purpose to increase supply and reduce demand during tight system conditions.[7]

RDRR and other RA demand response resources include specific economic and/or event triggers that allow market operators to anticipate the resources’ dispatches. Ratepayers pay those demand response resources, like all RA resources,  to follow CAISO dispatch instructions including specific mechanisms to mitigate emergencies.  Increasing the wholesale cost of energy due to the predictable dispatch of an RA resource creates an unreasonable double payment: Ratepayers would fund the costs for the demand response resource to be ready to dispatch for economic or emergency purposes, as well as the cost of a scarcity price mechanism that can increase the wholesale price of energy.  A scarcity mechanism that would increase the Locational Marginal Price due to dispatching an RA resource would create unreasonable costs to ratepayers and should not be pursued in this initiative.  Moreover, pursuing this issue would be inconsistent with the CAISO’s original intent to not “address price formation issues related to [RDRR].”[8] 

Finally, Cal Advocates notes that one of the highest-value capabilities of demand response in an energy market is increasing the elasticity of the energy demand curve at high prices.  In other words, dispatched demand response that reduces energy prices in real-time makes rational economic sense.  The outstanding problem seems to be the lack of a price signal between the hour-ahead and day-ahead time frames.  Indeed, one sign of an improved price signal would be convergence between the day-ahead and real-time market prices, and a reduction in high-variance price spikes.  The CAISO should consider whether price formation solutions might be more useful in the day-ahead market, or if the reserve capacity or imbalance reserve products introduced by the Day-Ahead Market Enhancements initiative might be better platforms for providing rational price formation.

[1] CAISO, Price Formation Enhancements Working Group Session #13, January 24, 2023 (Session 13 Slides) at 10.  Available at: https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Jan24-2024.pdf.

[2] Session 13 Slides at 11.

[3] Session 13 Slides at 12.

[4] CAISO, Revised Price Formation Enhancements Overview, September 13, 2023 at 1.  Available at: https://www.caiso.comInitiativeDocuments/Revised-Price-Formation-Enhancements-Overview.pdf.

[5] CAISO, Revised Price Formation Enhancements Overview, September 13, 2023 at 2. 

[6] “The [CPUC]’s overriding objective for RDRR is that it should be available to mitigate or avoid an emergency grid reliability condition.”  And “… RDRR as a reliability resource should be deployed before non-RA emergency resources in order to qualify as RA.”  CPUC Decision 23-06-029, Decision Adopting Local Capacity Obligations for 2024-2026, Flexible Capacity Obligations for 2024, and Program Refinements, June 29, 2023 at 95-96; issued in Rulemaking 21-10-002, Order Instituting Rulemaking to Oversee the Resource Adequacy Program, Consider Program Reforms and Refinements, and Establish Forward Resource Adequacy Procurement Obligations.  Available at: https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M513/K132/513132432.PDF.

[7] “Effective scarcity price signals attract supply and reduce demand during tight system conditions, and incentivize resources to be available and perform.”  CAISO, Price Formation Enhancements Working Group Discussion Paper, September 21, 2023 at ii.  Available at: https://www.caiso.com/InitiativeDocuments/DicussionPaper-Price-Formation-Enhancements-Sept21-2023.pdf.

[8] CAISO, Price Formation Enhancements: Issue Paper, July 5, 2022 at 6.  Available at: https://www.caiso.com/InitiativeDocuments/Issue-Paper-Price-Formation-Enhancements.pdf.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Cal Advocates prioritizes the problem statements as follows:

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

Cal Advocates provides no comment on this topic at this time.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

Cal Advocates provides no additional feedback at this time.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

The Sprint Approach established and promoted momentum.  Having meetings close together avoided the obligation to have an extended level-setting at the beginning of each session.  This combined with a single, consolidated comment period and video availability increased the effectiveness of this problem-definition process. 

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

Calpine supports the comments of WPTF which suggest that this process would benefit from a comprehensive discussion of the benefits of scarcity pricing to both load and supply resources.  

In addition, Calpine thinks that a targeted effort to reach out to and obtain feedback from non-CAISO entities is critical to the success of this effort.  We all operate in a regional market, and scarcity pricing will be topical and of great interest in all DA and RT markets including WEIM, WEIS, EDAM and M+.

Finally, Calpine makes two important and closely connected observations that may clear the path to a more lucid focus on areas of improvement. These observations are drawn from both ongoing operations and the joint report prepared by Calpine and GDS Associates (GDS Report) in 2022.

• First, Calpine observes and supports the fact that CAISO Operations must do everything in its power to maintain reliability.  We do not condemn the action of the operators when they intervene in the market. We support the logical and sequenced steps identified in Operating Procedure 4420 to address emergency – or pending emergency -- conditions. 
• Second, we observe that it is an incontrovertible conclusion that virtually every action identified in OP4420 will influence prices.  And OP4420 can be invoked long before and actual shortage occurs.  As identified in session 3 of the Sprint, some of those actions are priced into the market (for example, RDRR bid as 95 percent of the cap.) Even these “priced” actions deserve scrutiny to ensure that the resulting price effects and the duration of those price effects are reasonable.

However, many of the sanctioned and exercised actions of OP4420 are not priced, and in fact, can result in price suppression.  They can inefficiently lower prices at the worst time -- when load is being curtailed, when emergency resources are dispatched or when the operators obtain imports that do not flow to LMPs.   Ideally but unrealistically, each step of OP4420 would contain compensatory actions that ensured that the out-of-market actions would result in rational, continuous, and predictable price formation.  For instance, while a FlexAlert can reduce demand, it is unrealistic to believe that those demand reductions can be compensated appropriately in the price formation process.  However, the problems with resultant and irrationally low prices are well-established in both historic operational results and early discussions on this topic.

It is these two observations (operators must intervene, and their actions cannot be priced) that drive Calpine’s conclusion that we need some form of administrative pricing that begins to affect prices as soon as the operators begin to intervene.  This intervention (e.g., in the expectation of an EEA Watch) can be days before an actual shortage occurs.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions.

The SRDC is ineffective at rationalizing prices or triggering supply or demand responses for at least three reasons.  Addressing these limitations could help, but certainly would be an insufficient and inferior solution when compared to alternatives.

• First, SRDC only triggers when there is an actual reserve shortage. It might be much more effective if shortages are signaled long before they occur.
• Second, SRDC does not necessarily affect the most visible prices in the market – energy LMPs (and has no affect whatsoever on RTD LMP.)  Calpine questions the rationality of having A/S shortage conditions with energy prices clearing at or below marginal costs. 
• Finally, the pricing results of the reserve shortage are generally not immediately visible to market participants and are only discovered in after-the-fact reporting.

Theoretically, SRDC could be improved with RT market A/S re-optimization, new products, or a closer linkage to energy price formation (perhaps by adjusting energy penalty parameters, e.g., power balance constraint) when A/S shortages occur.  Such a redesign would involve a fundamental redesign of the foundation of the current RT markets and possibly, invoke concerns over the deliverability of products.  Before engaging on such a massive redesign, Calpine suggests that informed discussions occur that would identify the anticipated benefits, a sober review of feasibility and possible unintended consequences. 

b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall.

Calpine supports the intent of this problem statement, but perhaps, this statement is a solution rather than a problem.  The problem is that prices irrationally drop as the CAISO approaches possible demand shortfalls. The drop in prices increase the incentives for operators to take even more aggressive actions – which can further suppress the prices.  At times the empirical price drop is entirely unpredictable, discontinuous or sporadic.  Fast, random movements of price are not actionable.

Calpine strongly endorses the solution suggested in this problem statement. In advance of (not only during) an impending reliability problem, prices should behave rationally.  They should rise in a continuous (not dislocated) manner as supply conditions tighten. Several markets have designed administrative mechanisms to drive prices rationally.  While Calpine will not prejudge the selection of the vehicle (latent supply, price floor, ORDC, reliability deployment adders), Calpine is strongly supportive of a mechanism that will ensure that prices rise as operators intervene and supply conditions tighten.  Some of the key questions that must be considered are – what initially should trigger price adjustments, how quickly should prices rise above the cleared but suppressed “marginal” cost, how high should price rise before load curtailment and how long can they stay at maximum levels?  

c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation.

Calpine asserts that this is one of the key problems to be addressed.  The nuance is that the CAISO market design systematically allows out-of-market actions to suppress prices.  As indicated above, it is not realistic to divine a price effect for each of the steps operators can take.  Hence, a complementary, albeit administrative, mechanism should be designed to reverse the detrimental effects on price. 

In addition, Calpine feels strongly that the actions of the operators should be made as transparent as possible.  For example, operators should disclose when they have started the Strategic Reliability Reserve Program resources – because the minimum load will have an immediate impact on price formation and the hundreds of MW of incremental capacity (bid at marginal cost) will significantly shift the supply curve to the right.  And they should disclose when they use the Storage Exceptional Dispatch or State-of-Charge restrictions identified in OP4420. 

d. 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.

The artificial limit on storage bid caps is likely the cause of early discharging during recent reliability events, and subsequently, interventions by CAISO operators.  If the cap for storge bids were equivalent to the Order 881-adjusted caps of $2000, storage operators (and the CAISO’s dispatch models) most likely would have appropriately held that charge until net-peak periods. 

While this issue is very important to address, it is somewhat tangential to scarcity pricing.  Rather than adjust prices to accommodate this apparent market design flaw, perhaps the better path is to fix this problem directly.

e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Calpine is open to consideration of market rules that limit exposure to scarcity prices for both load and supply.  A careful evaluation of causes and incentives should precede such consideration. 

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

a. Medium

b. High

c. High 

d. High

e. Medium

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

Operating Procedure 4420 lists dozens of actions the CAISO operators can take to avoid or address Emergency conditions.  This should be a great starting point.  However, the CAISO should also consider actions of adjoining entities when considering triggers to scarcity pricing. These actions could be exposed through discussions with adjoining BAAs during workshops.  For example, when and how do adjoining BAAs deploy the reserves that they hold outside the market.  Do they hold reserves beyond that required by NERC? Are the Reserve Sharing Groups signaling shortages through resource deployment?  Is the RC indicating any issues. Are any BAAs declaring EEA events?

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

No comment. 

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

Design decisions in the recently approved Extended Day-Ahead Market (EDAM) may create limitations on how a scarcity pricing operating reserve demand curve (ORDC) can be implemented across the market footprint in both the day-ahead and real-time markets.  For example, EDAM entities will self-provide ancillary services thus the current scarcity reserve demand curve (SRDC) will not be triggered.  In addition, EDAM creates separate marginal energy costs by balancing authority, allows a balancing authority to set a net export limit, and introduces further limitation on GHG attribution by enforcing the GHG export constraint.  These design decisions can lead to balkanization within the market footprint which potentially could limit the ability to implement a market footprint, system-wide scarcity pricing paradigm.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

1. The SRDC is not designed to signal energy scarcity since the co-optimization of ancillary services is limited to incremental procurement in the fifteen-minute market and is no ancillary services are procured in the five-minute real-time dispatch.
2. The SRDC is not designed to allow prices to gradually rise as latent reserves are reduced and operators are taking actions to avoid scarcity.  The CAISO should implement an ORDC similar to other what other ISOs use when their thirty-minute reserves become tight.  During the development of the ORDC consideration of what market product should reflect latent reserves and how a new reserve product would interact with current ancillary services, the flexible ramping product, imbalance reserves and reliability capacity.  
3. It is unrealistic that all use-limitations and non-market actions can be eliminated or fully reflected in market prices due to computational limitations of the market software.  However, these items should be considered when establishing the ORDC cost segments.
4. The CAISO should immediately address the issue of not allowing storage resources to bid above $1,000/MWh during high-priced conditions.  High-priced conditions occur when either (1) the CAISO-calculated maximum import bid price has exceeded $1,000 for at least one hour, or (2) there is at least one cost verified bid greater than $1,000. This issue will cause significant reliability concerns given the growth in storage resources providing resource adequacy.  The current bidding rules are extremely problematic when high-priced conditions occur in the real-time market.  Flexible resource adequacy resources must submit economic bids into the real-time market in certain hours.  In those hours, storage resources will be unable to protect day-ahead schedules to charge or will discharge earlier than awarded day-ahead schedules.  In both instances, storage resources will to be forced to reprocure from resources allowed to bid higher and set prices greater than $1,000 which is not just and reasonable.

Southern California Edison (SCE) submitted a proposed initiative Energy Storage Bid Cap Not Aligned with FERC Order 831 in to the 2023 Roadmap process.  SCE noted that, currently, energy storage resources are only able to bid up to the soft bid cap of $1,000 MWh. FERC Order No. 831 raises the soft bid cap of $1,000/MWh to a hard bid cap of $2,000/MWh when cost based offers can be verified, or the ISO-calculated maximum intertie bid price exceeds $1,000/MWh. From the 2023 Catalog, “the ISO has not included this proposed initiative in this catalog because this effort does not include policy changes. This is a known implementation gap that the ISO is working to address.”  Since this is a known implementation gap, CESA is unclear why the issue was discussed in the price formation enhancements initiative.  CAISO should provide a status update on fixing the implementation gap. 

CESA believes the ability to reflect updated real-time opportunity costs in default energy bids (DEBs) should also be addressed, but this market design improvement does not have the same urgency as allowing storage resources to submit energy bids up to $2,000 during high-priced conditions by Summer 2024.  For purposes of market power mitigation, the current DEB formula can be applied in the interim.  In addition, CESA is not advocating that storage resources be allowed to submit reference level adjustments.  The fuel cost of storage resources is determined by other resources in the energy market.  If any non-storage resource is approved to bid above $1,000, this alone justifies storage resources also submitting energy bids above $1,000 up to the $2,000 hard offer cap.

During high-priced conditions, other resources are allowed to bid greater than $1,000.  Resource adequacy imports can submit bids above $1,000, but the bid is limited by the higher of the calculated maximum import bid cost or the highest cost-verified bid.  Internal non-storage generators can bid above $1,000 up to the resource’s cost-verified bid.  As a result, the only way to prevent inappropriate redispatch of resource adequacy capacity relative to day-ahead schedules is for operators to take out-of-market actions.  In addition, non-resource adequacy imports and exports can submit energy bids, without any limitations, up to $2,000. This results in storage resources being dispatched to support a reduction in an import’s day-ahead schedule or to allow incremental exports in real-time.  Since the real-time market horizon is less than two hours, the market software is unable to prevent the economic dispatch of storage resources when those resources are needed to meet peak CAISO demand later in the day.  Again, operators will be forced to take out-of-market actions to prevent the redispatch of storage resources because of the inability of storage resources to have the same bidding flexibility afforded to imports and exports.     

5. A circuit breaker mechanism is appropriate when price signals are ineffective over an extended period. 

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

1. Medium priority – improvements to the SRDC can be address in phase 3 of the price formation enhancements when ancillary services deliverability is discussed.
2. High priority – the lack of an operating reserve demand curve is a significant gap in the CAISO’s current market design.
3. High priority – as discussed above this is an immediate issue that must be addressed prior to Summer 2024.  The inability for storage resources to submit bids that allow it to maintain day-ahead schedules creates a reliability risk which operators must address through out of market actions and the energy deviation settlement is not just and reasonable.
4. Medium priority 

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

Out of market actions, which introduce additional supply to the bid stack, must not undermine the price signal in tight system conditions.  This is recognized in the reliability demand response resources (RDRR) design rules which requires these resources to bid greater than 95% of the offer cap.  Likewise, the CAISO implemented a market design change, in response to September 2020, when load is armed to allow contingency reserves to be put into the energy bid stack that the offer cap is used not the resource’s market cost.  Similar approaches should be considered for the strategic reserves reliability program.  

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

No comment.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

Middle River Power LLC (“MRP”) found the “Sprint” – a series of working group meetings dealing with the same topic (Scarcity Pricing) scheduled at regular intervals over a relatively short period of time – to be a productive way to consider this important topic.  The CAISO should apply this approach to other market design topics. 

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

In general, MRP believes the Sprint discussion identified – but, by design, did not resolve – most, if not all, of the issues and challenges related to Scarcity Pricing.   At this time, MRP cannot identify an issue or challenge that warrants further discussion on its own at this point.  MRP expects that other issues may arise once the CAISO and market participants begin work on the details of a robust scarcity pricing design.  

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. 

MRP agrees with this problem statement.  Because “tight system conditions” can occur without triggering the SRDC, the CAISO and market participants should seek a Scarcity Pricing design that does not depend solely on the SRDC. 

b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall. 

MRP also agrees with what it believes to be the sentiment of this problem statement – that, under the current market design, CAISO energy prices do not always reflect supply (not demand) shortfalls. MRP also agrees that energy prices should reflect the amount of shortfall – i.e., scarcity prices should be moderate when the supply shortfall is moderate and high when the supply shortfall is high.  It’s not clear to MRP that scarcity prices should, depending on conditions, “gradually rise”; but they should (1) not be “knife-edge” prices that reflect no scarcity in one interval and then jump to an upper limit when scarcity is observed, and (2) proportionally reflect varying degrees of scarcity.

c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation.

MRP also agrees with this problem statement.  MRP offers that one poster child for such non-market actions is the CAISO operators making bilateral out-of-market intertie purchases not just under emergency conditions, but also in anticipation of tight system conditions.  The prices for such transactions can be substantially above the CAISO market clearing price but the CAISO’s market clearing prices do not reflect these actions..

d. 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.

MRP agrees with this problem statement. 

e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.  

MRP respectfully urges the CAISO and market participants to develop a common understanding of what the term “circuit breaker” means.  The CAISO’s markets already include what MRP would consider to be a “circuit breaker”, namely, a FERC-mandated maximum offer cap that limits offers (though it does not limit instantaneous energy prices, which, due to congestion, could be higher than the offer cap).  The CAISO’s use of the phrase “over an extended period of time”, however, suggests that the CAISO is seeking comments on what MRP would – and other markets like PJM - refer to as a “stop loss” mechanism.  MRP agrees that the CAISO markets currently do not have a “stop loss” mechanism, and the CAISO and market participants should consider such a mechanism.  PJM’s Winter Storm Elliot experience, however, suggests a “stop loss” mechanism, though valuable, warrants careful CAISO and market participant design and consideration.   

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions.

MRP offers this is a high priority.

b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall. 

MRP offers that ensuring that energy prices reflect supply shortfall conditions is a high priority.

c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation.

MRP offers this is a medium to high priority.

d. 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.

MRP offers this is a medium priority, but, given the binary nature of this problem (should the CAISO allow storage resources to bid up to the Order 831 offer cap or not?) could and should be resolved relatively quickly. 

e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.  As noted above, MRP suggests the CAISO use the term “stop loss” instead of “circuit breaker”. 

While MRP finds it difficult to assign this issue a priority, given that it has not heretofore been an issue in the CAISO markets, MRP notes that the PJM stop-loss mechanism, which was set very high prior to the Winter Storm Elliott event in 2022, was implicated in severe impacts to many market participants and multiple 206 complaints that took months of protracted negotiations to settle.  In other words, the CAISO and market participants should have an effective stop loss mechanism in place BEFORE it is needed.  With increasing weather variability increasing the likelihood of a prolonged severe event – this probably should be a priority.   

As MRP's answers indicate, at this time it is difficult to assign priorities to these problem statements, all of which affect price formation.  It may be useful to go through the exercise of assigning priorities again after the CAISO and market participants have a better idea of what potential solutions are on the table and what level of effort, or implementation timeframes, those solutions entail.  

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

MRP offers, in particular, bilateral intertie purchases and the use of Strategic Reliability reserve resources, though there likely are many others that could and should be considered 

Given that such out-of-market actions are, by definition, taken outside the view of market participants, MRP requests the CAISO fully develop this list, propose which items on the list should be dealt with in this initiative, and share that proposal with market participants. 

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

MRP has no other comments.  

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

PG&E notes that the Sprint Approach has been a limiting factor to incorporate stakeholder feedback effectively, as it predetermined issues before allowing stakeholders to contribute, leading to a limited discussion that excluded broader topics. PG&E recommends CAISO consider stakeholder-driven approaches exemplified by current Green House Gas (GHG) and Gas Resource Management (GRM) working groups to influence the priorities examined and discussed.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

PG&E highlights a lack of discussion on how real-time Scarcity Pricing interacts with forward capacity procurement and day-ahead transactions. PG&E emphasizes the importance of considering Scarcity Pricing within broader concepts including the existing market structures as well as the wider context of the western market, especially in the context of EDAM and DAME implementation.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

PG&E is concerned that the premise of Problem Statements 1 and 2 overly attribute the causes to the current Scarcity Pricing mechanism and neglect other structural issues in the market design that warrant consideration. PG&E supports the fundamental principles of establishing accurate price signals but advocates examining essential assumptions and addressing structural market issues first, which include the following but are not limited to:

• The design of multi-interval optimization horizons, which determines how much uncertainties the market can incorporate in dispatching units.
• Introducing longer term reserve products, which allows the market to secure capacity ahead of time by anticipating demand shortfalls.
• Re-optimizing A/S instead of procuring incremental A/S in the real-time markets, which improves capacity liquidity in real-time.    

PG&E deems these issues crucial for forming accurate price signals, emphasizing the necessity to address them before delving into the specific Scarcity Pricing mechanism due to their broad reaching impacts.

In addition, PG&E highlights the importance of reassessing the legitimacy of the problem statements, considering the anticipated positive effects of forthcoming structural market changes, such as increased capacity through E-DAM transactions and Imbalance Reserve procurement under DAME.

PG&E partially agrees with Problem Statement 3, supporting the need to capture non-market actions during emergency events into price formation. To address this problem, PG&E proposes analyzing the costs and orders of non-market actions taken during emergency events.  Additionally, PG&E encourages the CAISO to explore solutions that allow prices to capture the non-market actions ahead of emergency events so that the non-market actions could be reduced.

Additionally, PG&E requests the CAISO to clarify the term “reliability use-limited resource” and whether it refers to RDRR.

PG&E partially agrees with Problem Statement 4, supporting allowing storage to bid up to the cap of $2,000/MWh when Order 831 is triggered. This change would provide equal treatment for storage and other resources that cannot justify cost in the market. Additionally, it would prevent early discharge of storage when Order 831 is triggered for storage is defined based on day-ahead LMP in the current market design. Therefore, PG&E suggests continued engagement with the storage community for discussions in an appropriate venue.

PG&E partially agrees with Problem Statement 5, acknowledging the necessity of a Circuit Breaker (CB) mechanism once a Scarcity Pricing mechanism is established. However, PG&E believes there are existing tools described in the Tariff and BPM to intervene in abnormal pricing, thus there may be no need to develop a new CB for Scarcity Pricing. PG&E requests the CAISO to confirm whether such tools exist to allow CAISO to intervene in abnormal pricing.  Lastly, PG&E finds the problem statement limits CB triggers to an “an extended period of time” and recommends CAISO define specific scenarios and triggering conditions that need intervention.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

PG&E abstains from providing comments on the priorities of PS 1 and 2, due to disagreement with the statements.

In terms of prioritization, PG&E considers PS 3 as low priority, PS 4 as medium priority and PS 5 as low priority. Notably, the priority of PS 5 has the potential to shift to high in the during the scarcity pricing development phase.  

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

RDRR, Load Arming, and Exceptional Dispatch.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

PacifiCorp found the sprint approach useful for focusing the attention of stakeholders on complex topics over the course of a few weeks rather than a single meeting. Each sprint gave adequate time to dive into each topic and led to thoughtful discussions that helped move the initiative forward. PacifiCorp recommends using this approach again for specific topics to continue the momentum towards creating a common understanding between stakeholders.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

PacifiCorp believes the problems statements presented in the January scarcity pricing working group meetings accurately identified challenges stakeholders are experiencing. As such, PacifiCorp has no other issues or challenges that need to be addressed.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions.

• PacifiCorp does not believe this problem statement reflects an issue representative of all WEIM market participants since the SRDC can only be triggered by a shortage of CAISO reserves.  In EDAM, EDAM entities will be communicating their ancillary services requirement to the CAISO. A mechanism akin to an operating reserve demand curve could be used as a scarcity pricing mechanism, however, it would be fundamentally different than the CAISO’s SRDC since ancillary services outside of the CAISO will not be co-optimized in the CAISO markets. Therefore, PacifiCorp is interested in further discussions on the use of operating reserve demand curves for scarcity pricing but doesn’t believe making alterations to the SRDC will be a solution for the WEIM.

CAISO’s market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall.

• While PacifiCorp understands the theoretical need for prices to gradually rise, it is unclear if this is currently an issue in the WEIM. There have been discussions in past working group meetings that highlight the need for gradual price increases to incentivize supply in the short-term. While gradual price increases, in theory, will incentivize supply, PacifiCorp is not sure if there is supply available to be incentivized. Therefore, PacifiCorp asks the CAISO to show the capacity that was left undispatched for energy during the summer heat wave in July 2023 due to bids being higher than the LMP. If energy prices were high enough to support all the available capacity to be dispatched as energy, then it seems unnecessary to raise prices further. In PacifiCorp’s opinion, this problem statement is worth exploring further with additional information provided by the CAISO so that stakeholders can better understand if the lack of prices not gradually rising during supply scarce conditions is a problem.

The impact on market prices from reliability use-limited resource and non-market actions during emergency events is not holistically captured by price formation.

• PacifiCorp agrees with the problem statement and believes this would be a good place for the working group to focus its attention on. CAISO operators frequently use non-market actions, like load biasing, for reliability that are not reflected in market prices. PacifiCorp believes the imbalance reserve product will provide the system with needed flexible capacity which will decrease the use CAISO operator load biasing but won’t eliminate the need for load biasing completely. As such, PacifiCorp is interested in further exploring how to incorporate CAISO operator load biasing into the formation of market prices. PacifiCorp also believes it is necessary that the group discuss how non-market actions during emergency events in other WEIM BAAs affect market prices. PacifiCorp looks forward to seeing the CAISO’s report on the January 2024 winter storm as it will hopefully show how reliability actions taken by entities in the Northwest affected market prices in the WEIM.

Energy storage bids/DEBs are limited to a bid cap of $1,000/MWh which may not reflect opportunity costs in tight system conditions when the bid cap is raised to $2,000/MWh.

• PacifiCorp agrees with this problem statement as it seems like storage resources may not be efficiently operated when Order 831 conditions are triggered. There were stakeholders that asked that this problem statement be evaluated and resolved before the summer. While PacifiCorp is not strictly opposed to this, PacifiCorp would first want to hear what the implications are for implementing any potential solution to this problem statement.

The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

• PacifiCorp agrees with this problem statement. PacifiCorp recommends that in a future scarcity pricing working group, the CAISO present on circuit breaker mechanisms used in other ISOs/RTOs. A level-setting workshop will give stakeholders more information for considering how a circuit breaker may work in the CAISO market.  

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

PacifiCorp views the problem statements in the following priorities.

High

• The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation.

Medium

• CAISO’s market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall.
• The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.
• Energy storage resource bids/DEBs are limited to a bid cap of $1,000/MWh which may not reflect opportunity costs in tight system conditions when the bid cap is raised to $2,000/MWh.
• CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

While there was some discussion about CAISO operator actions, PacifiCorp would like more information on why CAISO operators load bias in the Hour-Ahead Scheduling Process (HASP), which can lead to firm-provisional export tags being curtailed. In particular, PacifiCorp recommends the CAISO discuss the system and supply conditions that cause CAISO operators to judge that there is inadequate supply after the day-ahead market. In PacifiCorp’s view, the curtailment of exports due to load biasing indicates that there may be a supply issue within the CAISO. The potential supply issue then gets shifted to WEIM entities when export tags get curtailed if the entity was relying on the exported energy. Furthermore, the tagging rules being implemented as part of the Resource Sufficiency Evaluation Enhancements Phase 2 are going to create new challenges. Market participants may have a more difficult time replacing the supply that is curtailed due HASP firm provisional export curtailments, which will make passing the RSE harder when there is a scarcity of supply. While there have been discussions about firm provisional exports being curtailed in other initiatives, PacifiCorp is not aware of any discussions that evaluate how curtailments may be impacting supply available to the WEIM and market prices during times of supply scarcity. As such, PacifiCorp asks the working group to further explore CAISO operator load biasing in the HASP and how that may impact supply scarcity in the WEIM.

PacifiCorp also recommends the working group explore the CAISO locking dynamic WEIM transfers in the HASP and FMM in July 2023 during the heat wave and the impact it had on prices. The actions taken by operators in July 2023 likely had impacts on price formation during a period when supply was scarce, but it is not clear what the impact was. In the Summer Market Performance Report[1] for July 2023, the CAISO states, “This limitation on import transfers to the ISO area will also result in higher prices, both in the HASP (advisory) and FMM (binding) clearing prices for the ISO area, which in turn may lead to a price divergence within the broader WEIM area, characterized by higher prices in the ISO area and lower prices in other regions.” PacifiCorp believes this is another example of an out of market action that would limit the efficacy of any scarcity pricing mechanism. Furthermore, PacifiCorp is keenly interested in exploring what caused the large discrepancies between the WEIM transfers that cleared in the FMM compared to what was realized in the RTD market, causing CAISO operators to limit dynamic transfers imports into the CAISO. As such, PacifiCorp would like this out of market action to be included in future discussions on scarcity pricing for the CAISO markets.

[1] California ISO. Summer Market Performance Report July 2023. September 18, 2023. https://www.caiso.com/Documents/Summer-Market-Performance-Report-for-July-2023.pdf

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

PacifiCorp requests the CAISO provide the following data in a future scarcity pricing working group meeting.

• The amount of supply that was not dispatched during the July 2023 heat wave. One of the main motivations for gradually increasing energy prices as supply dwindles is to incentivize supply to participate in the market. However, PacifiCorp seeks more information from the CAISO on how much supply is available to be dispatched during times of supply scarcity.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

The Public Generating Pool (PGP) appreciates the educational efforts included in the sprint format and the references to relevant background materials. The narrower meeting scope and advance posting of materials has enabled more robust dialogue among stakeholders and enabled participants to have a better understanding of the topics being explored. The sprint approach also has made the comment timelines more reasonable, and may enable comments to address a more complete perspective on a broader topic. PGP looks forward to continuing to engage in this working group process, and we appreciate the extra planning and effort it has taken to make this enhanced structure possible. In general, this format aligns with the objectives of the Working Group process, and we hope that the CAISO extends this approach and the added roadmap and planning efforts to other working groups that are in process at this time.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

While the scarcity sprint covered an extensive list of topics as they relate to scarcity within the ISO, PGP is concerned that the problem statements do not adequately address the bigger picture issue of the appropriateness of a scarcity-type mechanism that extends to the WEIM and EDAM footprint. While we find value in understanding the structural issues that are foundational to the problems at hand, the list of potential solutions is not clearly linked to the future market that is likely to exist by the time any changes are implemented. Each problem statement should consider linkage to and implementation in a future with one or more regional Day-Ahead markets, the potential for an eroding bilateral market with minimal liquidity and price visibility, and a shrinking pool of market participants that are only in the WEIM or ISO and not in the Extended DA market.

To explore these issues further, PGP recommends some revised problem statements, and some items below for further exploration under the scarcity topic, that may not have been comprehensively explored beyond the applicability to the ISO. These topics were mentioned in the Discussion Paper and in working group dialogue, but not articulated in depth during the scarcity sprint analysis and information provided by CAISO staff, or incorporated directly into the problem statements:

1. Ability to send scarcity signal in areas that do not co-optimize AS and Energy or mechanisms to signal that scare conditions are eminent in the EIM or future EDAM footprint, may include administrative mechanisms, interaction with the resource sufficiency evaluation and/or energy assistance mechanism.
2. Signals of impending scarce conditions in the DA and/or incentives to follow Day-Ahead schedules or maintain DA availability (in EDAM), and
3. Sustainability of Order 831 implementation logic and other uses of bilateral price signals. We recommend posting the MSC opinion on this design as you have posted other background materials.

Of note, the MSC opinion “strongly urge(es) the CAISO to undertake an initiative that will be focused specifically on scarcity pricing, so that a more wholistic and consistent approach to scarcity pricing with both the CAISO and EIM regions can be developed. The experiences of mid-August (2020) again signal the urgency of such an initiative. These conditions will likely grow more frequent and the region is in need of a more coordinated approach to managing scarcity conditions.” (Opinion on Revisions to Import Bidding and Market Parameters for Compliance with FERC Order 831, CAISO MSC, pg.1)

PGP agrees with the sentiment presented in the MSC opinion, and we recommend that in general, any problem statement or solution set should have the broader market and future EDAM in mind.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

We appreciate the information shared but would like to see it contextualized in the broader WEIM and potential EDAM design and footprint, rather than limited to the ISO portion of the footprint. We recommend the exercise of walking through analysis of pricing during and immediately leading up to recent summer and winter shortfall events to seek to articulate additional problem statements as a next step. This should be done before the group can consider the problem statement formation phase of this working group process complete. Such an analysis should consider areas beyond the CAISO and look at the broader WEIM footprint.

1. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. This issue was framed as only relevant to the ISO footprint due to the co-optimization of ancillary services, and should be broadened to consider new mechanisms that directly apply to EIM/EDAM footprint. PGP would value additional background on this topic as it applies to the broader WEIM, including signals of AS shortages in BAs that are outside of the co-optimization mechanism, and pricing analysis of recent supply shortage events to help demonstrate what these signals are in the broader WEIM, with a narrative of how this translates to the EDAM design, or what signals may be present in that future design regardless of a participant’s co-optimization of AS.
2. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfalls. This topic, as presented, framed the FRP as the only signal in this category. We would like to see how the FRP pricing has performed at providing this signal for the broader WEIM in the lead up to recent shortage events to enable considerations of further revisions to FRP pricing in the solution set.
3. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation. PGP sees this as a high priority item given it seems relatively straightforward to define but could greatly improve the accuracy of price signals during periods of scarce supply. Again, a walkthrough of recent events and pricing results may facilitate further identification of what these non-market actions are. In some instances, this may crosswalk more clearly with the potential for implementation in EDAM/WEIM, given it may indicate some form of administrative pricing.  EDAM/WEIM design components and compatibility should be considered as potential solution sets are articulated.
4. 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. It was unclear as presented if this needs to be broadened to include other resources that use opportunity cost logic in their DEBs such as hydro resources. If this is more broadly applicable, we recommend revising the problem statement to “DEBs with opportunity cost logic are limited to a bid cap of $1000/MWh which may not reflect opportunity costs in tight system conditions.”
5. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time. Existing scarcity mechanisms need to be strengthened to incentivize supply participation and performance in advance of introduction of this concept. While the potential value was articulated clearly, this is a secondary design consideration as compared to the objective of getting the broader short-term scarcity signals correct.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

1. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. PGP considers this a high priority but the problem statement and potential solution sets need to be broadened to the WEIM/EDAM context.
2. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall. High priority, but again needs to be broadened to address interactions with Resource Sufficiency Evaluations and energy assistance, and may indicate further revisions to the Flexible Ramping Product which should be evaluated for interaction with potential fast-start pricing logic and/or benefits.
3. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation. This is a high priority due to it being a discreet set of conditions that should be able to be defined and addressed quickly, but it needs more discussion to broaden this problem statement and frame it within the broader WEIM/EDAM.
4. 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. High priority given this is characterized as an implementation error in storage DEBs rather than a true design flaw. PGP recommends that this solution needs to incorporate other opportunity cost-driven DEBs to the extent this is applicable, we agree with other stakeholder perspectives that this should not require a stakeholder initiative to solve. A solution should be implemented in advance of Summer 2024 if at all possible.
5. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time. Given the urgency of other items and the need to address broader scarcity design first, this item is a low priority at this time.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

A few examples include: Load conformance to incentivize additional supply, strategic reserve deployment, Emergency-Only DR deployment. PGP would like to see examples of the tools used by BAs other than the CAISO BA. Other trigger mechanisms that are within the market but may be worth exploring include RSE enforcement/transfer freezes and energy assistance calls, and FERC 831 trigger mechanisms and resulting impacts on the market.

As mentioned under question 3 above, to facilitate the development of a comprehensive list, PGP recommends deep dives on a few recent supply shortage events (including the recent winter event as well as summer 2022 and 2023) to articulate these issues and other scope items more fully. Improving price formation when out of market actions are used could enhance the perception of fairness for the CAISO as a Market Operator while it balances this role with simultaneously meeting BA obligations.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

As noted above, PGP recommends a broader lens for examining and articulating these issues so that any solution may function appropriately under future market structures. Deep dives on recent events in the WEIM may help to articulate these issues further.

Overall, the Price Formation Enhancements is an important initiative that clearly has a significant scope. The concepts under exploration are very important for sending consistent, fair, and accurate price signals to regional participants. The success of this initiative has broad implications around incentivizing competitive supply, long-term adequacy, and reliability, and should disincentivize leaning. Given the criticality of these items, we hope the working group will continue to expand on the Scarcity topic to ensure that it is comprehensive enough to create true enhancements to price formation that will fit into the evolving regional market. The sprint approach and topics explored so far have been very helpful for facilitating dialogue and documenting design issues, we hope the working group can take a broader view before considering this phase of the exercise complete. 

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

REV has no comment at this time

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

REV has no comment at this time

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

d. REV Renewables (REV) supports California Energy Storage Alliance (CESA) comments on this topic. Given the levels of storage now on the CAISO system, CAISO must address the issue of storage being limited to a bid cap of $1000/MWh before Summer 2024 so that storage is dispatched when needed to support system reliability. During high priced conditions, if storage is limited to $1000/MWh, it cannot accurately reflect its opportunity costs, which makes it difficult to meet day-ahead schedules, and is likely to be selected by CAISO’s model to discharge prior to high system need when storage resources are likely needed more. While the DEBs should also be updated to reflect updated real-time opportunity costs, REV thinks this issue could be resolved at a later date if needed in order to have the updated bid cap prior to Summer 2024.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

REV thinks item D is highest priority to address before Summer 2024, and A, B, and C are also high priority. REV does not think E is a priority.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

Seattle City Light (City Light) finds that the Sprint Approach is a helpful format in being able to cover a large amount of content over a shorter period of time. The downside to this approach is if there is a significant gap between sprints, the focus shifts to the other PFE issues, which can make the overall initiative feel disjointed and more difficult to follow. The lag between sprints may be necessary in allowing time for comments and an unavoidable component of this approach. City Light encourages the CAISO to let as little time pass as possible between sprints (within reason) to keep the conversation and issues fresh in stakeholders’ minds, which will help their ability to provide meaningful input.    

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

To date, the focus of the storage resources bid cap issue (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) has largely been limited to batteries. Hydro resources experience the same issue.

Hydro units need a real time method to verify costs and bid up to $2000/MWh when the soft market cap is lifted. Without this ability, those units will be dispatched at inappropriate times, impacting system reliability and requiring the BAA to buy energy at prices above their maximum allowable bid to replace the energy dispatched earlier. The current bidding limitation can result in a dispatch that exhausts a resource’s fuel supply or violates operating constraints (like reservoir levels) and then leaves the BAA without fuel or capacity to cover its own peak load in later hours of high-priced times. EIM BAAs need to maintain control of resources for reliability in high load/energy emergency conditions. The soft price cap is lifted based on the determination that high prices and scarcity are likely to occur; the hard market cap is triggered for defined hours in real time based on day ahead prices. The cost to refill a hydro reservoir in any of those hours can easily exceed $1000/MWh.

In light of this, we ask CAISO to ensure that the conversation around storage resources is construed more broadly to be inclusive of all storage resources that experience this issue.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Regarding item (d), as mentioned above, City Light’s hydro resources experience the same issues that other energy storage resources do as a result of the $1000/MWh bid cap. City Light appreciates CAISO’s attention to this issue. Included in our comments below, we have provided a high-level description of City Light’s experience with the bid cap during the January 2024 cold weather event below. This example demonstrates how the $1000/MWh bid cap can impact the overall operations of our BAA if it does not adequately reflect the opportunity cost of dispatching City Light’s hydro resources.

On January 13, 2024, during HE17 – HE20, City Light’s Real-Time LMP cleared above the allowable $1000/MWh bid cap, with a peak price of $1532/MWh in HE18. During this period, City Light’s EIM participating resources, with bids capped at $1000/MWh, were dispatched to the maximum allowable range. Without the ability to increase the bids of our hydro resources, City Light staff acted quickly, making numerous adjustments to ensure we could maintain reliable operating parameters for our cascading hydro project and that the project could be utilized for the duration of the cold weather event.

While City Light staff was able to successfully utilize tools available to us to change how our units participated in the EIM, without an instrument to get to the root of the issue—the disparity between the price cap and the LMP—these changes were imperfect solutions. For example, as a part of our response, City Light modified the regulation up and spinning reserve allocations on our participating units. This was done to prevent these units from being dispatched into the upper ranges of their flexibility capacity to resolve the market infeasibilities experienced during this time. The changes to the flex up from our participating resources, while necessary at the time to resolve the issue at hand, posed an additional risk that City Light could fail the flexible ramping test. If City Light had failed this test, it would have effectively islanded our BAA from the EIM, restricting our ability to import energy from other EIM participants during an extreme weather event.

In addition to making changes to our participating units, City Light staff also had to increase the non-participating unit base schedules at the lower hydro projects. This was done to facilitate the removal of the excess water discharged during the maximum dispatch of the upper reservoir and was necessary to maintain reliable operational parameters for the lower reservoirs. The resulting increase in discharge from the lower hydro projects further limited available fuel for future hours of the cold weather event. Notably, if this event were to occur in the summer, it would have created additional challenges, as the constraints on our reservoirs are more restrictive than what was in place in January 2024.

Beyond the operational impacts of the bid cap, it also has a financial impact. As mentioned above, the bid cap can result in a dispatch that exhausts a resource’s fuel supply (i.e., water) and then leaves the BAA without the ability to cover its own peak load in later higher-priced hours. Further, the bilateral market during this period traded above $1000/MWh; however, City Light’s opportunities to sell energy in the bilateral market during the later hours and days of the cold weather event were limited as a result of the changes we had to make in order to mitigate the operational impacts of the bid cap.

We again thank CAISO for its attention to this issue and look forward to future discussions on this topic.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. Medium.

b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall. Medium.

c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation. Medium.

d. 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. High.

e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time. Medium.

The energy storage resource bid/DEB bid cap issue is a very high priority issue for City Light,  and we ask CAISO to address this item as soon as possible. In the discussion on this topic at the workshop, other stakeholders pushed for resolution by the summer. City Light is supportive of that timeline and encourages the CAISO to dedicate needed resources to be able to support that effort.

There was also discussion in the workshop about whether the storage resources bid cap issue was the result of an implementation error or if there were additional policy considerations that needed to be revisited and revised to make changes. To the extent possible implementation issues can be severed from policy issues that will take longer to resolve, City Light is supportive of undertaking any work that can be done to minimize the impact of this issue in the near term, while identifying issues for further discussion in a longer stakeholder process. City Light requests additional discussion of the options available to develop a short- and long-term fix.  

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

None at this time.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

None at this time.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

Shell Energy North America (US), L.P. “Shell Energy” appreciates the time savings realized by the “sprint” approach to Price Formation Enhancements (“PFE”).

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

Shell Energy supports comments by Calpine Corp, WPTF and others which have identified the need to discuss direct benefits and knock-on effects accurate price formation results in, including during and leading up to tight system conditions, to both supply and load.  As such, dedicating time to this topic is appropriate in PFE. 

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

A: In light of the limitations of SRDC translating to higher marginal energy prices in the FMM and RT markets, a more widespread examination of conditions which trigger SRDC is warranted, in addition to reserve-induced scarcity which materializes only in IFM.  Specifically, SRDC should begin to signal the anticipation of tight system conditions (for both energy or A/S products) rather than triggering only when this reserve shortage has occurred across all markets if feasible (IFM, FMM, RTD).  As such, a review of possible solutions and direct consequences of each should be explored but given the design of CAISO A/S procurement, changes to the SRDC will result in muted impacts to energy prices.  A longer-term solution could involve changes to procuring/re-optimizing A/S across all markets and moving to an ORDC. 

B: Shell Energy supports this problem statement and believes prices for A/S, imbalance reserves and/or energy should increase as the system approaches tight conditions. During periods when emergency actions (Operating Practice 4420) are deployed, prices should reflect the soft-cap or hard-cap of $1000 and $2000 respectively.  In other words, price should rise as the system approaches tight conditions and prices at the applicable cap would ideally “ride through” periods when emergency actions are deployed and/or demand reductions are in progress. This could necessitate a form of administrative pricing such as during conditions outlined in Operating Practice 4420 or other scenarios such as deployment of State Reliability Reserve, Exceptional Dispatch of Imports, Manual dispatch of RDRR or storage etc.

C: Shell Energy supports the inclusion of this problem statement and believes CAISO should value non-market demand reductions or shortage conditions not currently captured in price formation today.  It is clear from August 2020 and other reliability close-calls that weak or irrational price responses to shortage conditions of energy, A/S (or imbalance reserves in future) communicates exactly the opposite of what is needed during these tight conditions.

D: It is reasonable to include this problem statement into the initiative as ESRs' incongruence with the applicable bid caps is clearly an issue with current markets.  This item could be broken out as a seperate fast-track item in advance of Summer 2024.  

E: Shell Energy does not believe there is adequate information to inform a position on the need/lack of a circuit breaker mechanism.  For clarity, we do not oppose limited use of a circuit breaker mechanism during continuous, muti-day shortages/curtailment of load although the devil is in the details. 

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

A: Medium Priority 

B: High Priority 

C: High Priority 

D: High Priority 

E: Need additional information to assess.  

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

One item to flag is under the CAISO’s FERC 831 process, the CAISO market software utilizes references to bilateral indices at Paloverde and Mid-C.  As EDAM and Markets+ launch in 2026, the volume of daily bilateral trades will most likely decrease at Paloverde and Mid-C; necessitating new methods for assessing market conditions outside the CAISO markets which have a profound impact on price formation across the West, to include inside CAISO markets. 

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

The Six Cities found the sprint approach to be a useful technique for focusing on and managing time committed to discussion of specific sub-topics.  Overall, it seemed that multiple two-hour time blocks with each focused on a different subject were more productive than longer meetings covering multiple topics.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

As discussion of Scarcity Pricing topics has evolved, the Six Cities have become increasingly concerned with the implications of the asymmetry between CAISO procurement of imbalance energy for the entire Western Energy Imbalance Market footprint and procurement of Ancillary Services only for the CAISO Balancing Authority Area.  The Six Cities are concerned that interactions between WEIM transfers and scarcity pricing measures focused on or triggered by shortages or impending shortages of reserves in the CAISO BAA may result in distorted price impacts and potential activation of reserves procured and paid for by the CAISO BAA to support energy transfers to other BAAs.  The Six Cities request that the CAISO conduct a focused evaluation of the interactions between procurement and deployment of Ancillary Services for the CAISO BAA and WEIM energy transfers in considering Scarcity Pricing alternatives.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

At this time, the Six Cities have not developed definitive positions on the various approaches to scarcity pricing that have been identified.  However, based on discussions in the three sprint sessions, the Six Cities support further analysis and consideration of the following:

1. Re-optimizing all Ancillary Services in the Real-Time market
2. The potential need for deliverability tests in procurement of Ancillary Services
3. Development of a thirty-minute reserve product and related requirements applicable to the entire WEIM area
4. Potential constraints on use of Ancillary Service awards procured for the CAISO BAA to support energy exports in the Real-Time Market
5. BAMx’s suggestion to allow storage resources to self-schedule in the Real-Time market to their Day-Ahead schedules
6. Allowing storage resources to bid above $1,000/MWh when the general bid cap rises to $2,000/MWh, including what cost justifications would be appropriate
7. Development of a circuit breaker mechanism to prevent unreasonably extended scarcity pricing periods
8. Extending the look-ahead period for Real-Time optimization.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

The Six Cities recommend that the CAISO prioritize analysis of the actual and potential impacts of the asymmetry between CAISO procurement of imbalance energy for the entire WEIM footprint and procurement of Ancillary Services only for the CAISO Balancing Authority Area, as described in Item 2 above, because a deeper understanding of those interactions can inform further analysis of multiple other price formation issues. 

With regard to the topics for further consideration and evaluation listed in Item 3 above, the Six Cities recommend prioritizing bullet points 5 and 6, relating to potential revisions to bidding rules for storage resources, as such revisions would appear to involve more limited design changes than other topics and be feasible to implement more promptly.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

The discussion of out-of-market actions thus far has focused on out-of-market actions taken by CAISO market operators.  Because out-of-market actions by operators of other BAAs also can affect the volumes of energy available to the WEIM and, hence, the prices for energy in the WEIM, there should be a holistic assessment of out-of-market actions that may be taken by the operators of all BAAs participating in the WEIM, not just the CAISO operators.  Further, as a general rule, all BAA operators (including the CAISO) should have the ability to take similar actions to maintain reliability within their BAAs.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

The Six Cities have no further comments at this time.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

SCE does not have issue with the Sprint Approach so long as any action or implementation determined to be undertaken is not rushed but thoroughly evaluated.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

SCE has no further suggestions. 

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

SCE shares stakeholder concerns on the $1000/MWh bid cap limitation of storage during $2000/MWh bid cap conditions. The CAISO should address this promptly in the interest of reliability, market efficiency and technology agnosticism. It appears that storage may provide substantial reliability benefits during tight system conditions. Consequently, SCE recommends that the CAISO immediately implement the $2000/MWh bid cap allowance for storage when the cap is raised to $2000/MWh, monitor grid performance, then decide whether there is need to further continue exploring scarcity pricing.

SCE recommends that CAISO should pursue raising the bid cap for energy storage and should explore leveraging existing enhancements used in the Reliability Demand Response Bidding Enhancements Phase 1.  In that initiative, CAISO built functionality to automatically adjust submitted bids when the bid cap is raised to $2000 based on the percentage of the original bid cap.   SCE understands that bidding strategies for energy storage may be significantly different than RDRRs because energy storage bids need to account for charging; however, CAISO can leverage the auto adjustment feature for peak hours when ES are expected to discharge. 

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

 SCE has no further comments.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

SCE agrees that it is important to evaluate out-of-market actions for their potential impact on the outcome of optimization.  Yet, given limited time and resources,  this evaluation should only be for those out of market actions that, as variables in the model,  can be reasonably incorporated into the optimization. Additionally, as energy markets follow a stochastic rather than deterministic process,  there is always an uncertainty, an error, that cannot, and should not, be incorporated into the predictive variables. Consequently, there will always be grid needs requiring addressing through reliability measures that cannot be included in the optimization, as such, SCE believes that arming load and manual load shedding should not be considered as one of the independent variables in the list of actions not captured by price formation[1].

Another concept to prioritize is the magnitude of impact of the out of market action. If the impact of a variable that is not incorporated into the optimization, is de minimis, the benefit to the predictive power of the market optimization will also be de minimis. Thus, the impacts of SRRP and RDRR should be scrutinized and then, based on magnitude, prioritized in the proposal.

Further, there will be some variables that do not at all belong in the optimization. While the transmission network is largely impacted by wholesale actions, there are retail actions that can impact it through the distribution network. However, the impact of these retail actions are not just de minimis, but they’re also impacts outside of wholesale economics. Neither consumer nor producer surplus are impacted given that retail programs do not impact any wholesale economics, and thereby wholesale prices. This is simply demand responding to signals without impacting the wholesale market. Thus, it would be inappropriate to attempt to shoehorn paid retail programs and ELRP into wholesale market economics.

Finally, Flex Alerts are simply requests by the CAISO, that may lead to some level of “good citizen” behavior; however, SCE does not see how such an action can be incorporated into any market economics, let alone be reliably predicted.

[1] Page 11 https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Jan24-2024.pdf

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

 SCE has no further comments.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

No comment.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

No comment.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Terra-Gen, LLC (“Terra-Gen”) focuses its feedback on CAISO’s item d. 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.

Terra-Gen emphasizes that this issue has been a implementation gap related to CAISO’s FERC Order No. 831 (“Order 831”) policy and implementation specifically for storage resources, clearly known to CAISO for an extended period of time, as demonstrated below.

Terra-Gen takes this opportunity to highlight the fact that CAISO has known about this concern and previously indicated that it would address this specific concern when raised by Southern California Edison (“SCE”) in CAISO’s 2023 Stakeholder Initiative Catalog process:

• See CAISO’s Final 2023 Policy Initiative Catalog at pp. 8 “Energy Storage Bid Cap Not Aligned with FERC Order 831: This initiative was submitted by Southern California Edison. SCE notes that, currently, energy storage resources are only able to bid up to the soft bid cap of $1,000 MWh. FERC Order No. 831 raises the soft bid cap of $1,000/MWh to a hard bid cap of $2,000/MWh when cost-based offers can be verified, or the ISO-calculated maximum intertie bid price exceeds $1,000/MWh. The ISO has not included this proposed initiative in this catalog because this effort does not include policy changes. This is a known implementation gap that the ISO is working to address. (emphasis added) [1]

Terra-Gen believes this storage bidding rule problem has as gone unaddressed for far too long. Given the CAISO’s own statements included in its Policy Initiative Catalog, specifically, CAISO’s own response and explanation for this issue not being included in the catalog was that “this is a known implementation gap that the ISO is working to address”, it is clear that this concern should be addressed on an expedited basis, as soon as possible, and certainly prior to Summer of 2024.

Terra-Gen and other stakeholders have already adequately explained the extremely problematic nature of the CAISO’s current implementation of this storage bidding cap related to Order 831, including providing verbal explanations during the Price Formation Enhancements (“PFE”) regarding the economic inefficiencies and adverse market outcomes stemming from this issue.

CAISO’s own slides from the PFE initiative also demonstrate the symptoms of this Order 831 market design policy implementation flaw for storage, as shown on slide 16 of its January 24 PFE slides, also provided below. [2]

This chart above provided by CAISO clearly demonstrates that when the price cap was raised above $1,000 on both September 5 and 6, 2022, CAISO's market outcomes prematurely awarded and dispatched storage resources, prior to the periods they would have been most efficently and reliably discharged. The chart also shows a period when storage resources' State-of-Charge ("SOC") was depleted to the point that the overall storage fleet was then dispatched to hold its charge during these scarcity conditions at extremely high prices to ensure it would be available for later needs as projected by CAISO. This outcome is unfair to storage resource owners that are unable to effectively manage their resources' SOCs to meet Day-Ahead schedules and capture Real-Time price signals. 

Terra-Gen is highly concerned that these unintended outcomes of utilizing storage resource’s SOC prematurely in Real-Time, as illustrated in the chart above, will continue to occur during every instance that its Order 831 bidding cap change is triggered during scarcity conditions. Terra-Gen notes that this outcome will continue to be observed until CAISO resolves this matter that results in an inefficient utilization of storage resources, and unjustly and unreasonably impacts storage resource owners’ ability to ensure economic market awards do not preemptively deplete their resource’s SOC. Such outcomes have negative impacts on the financial viability of storage resources, reduces their value to load and offtakers, and can even increase the likelihood of CAISO out-of-market actions and experiencing reliability concerns. All of which is due to a CAISO market design policy implementation flaw that can be quickly resolved.

Terra-Gen believes the easiest way to solve these concerns is to simply allow storage resources to bid up to the $2,000 Order 831 bidding cap when the increased bid cap is triggered. Terra-Gen also notes its concurrence with the California Energy Storage Alliance ("CESA") written comments submitted in response to this feedback opportunity related to these issues and related items that were discussed on the January 24 PFE Stakeholder call.

Terra-Gen recommends CAISO prioritize this issue for expedited treatment and immediate resolution outside of this prolonged price formation stakeholder effort to ensure the simple solution can be implemented prior to the Summer of 2024. Terra-Gen avers that CAISO must not rely only on operator's out-of-market actions to ensure reliability when related outcomes are clearly demonstrated to be stemming directly from a flaw in CAISO's storage bidding rules that can be easily resolved.

[1] See CAISO Final 2023 Policy Initiatives Catalog at pp. 8: https://www.caiso.com/InitiativeDocuments/Final2023PolicyInitiativesCatalog.pdf.

[2] See CAISO January 24 PFE Presentation at pp 16: https://www.caiso.com/InitiativeDocuments/Presentation-Price-Formation-Enhancements-Jan24-2024.pdf.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Terra-Gen notes its only feedback on prioritization at this time is regarding item d. 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. Terra-Gen strongly requests that this issue be given the highest possible prioritization of any issues identified in the PFE effort, and be expedited for the reasons noted above.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

No comment.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

No comment.

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

TEA supports the Sprint Approach used to date for the Price Formation Working Group. TEA appreciates the effort that CAISO staff, facilitation staff, and CAISO stakeholders have committed to this effort and is optimistic this initiative will address issues that have been a high priority for the CAISO stakeholder community for multiple years.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

TEA continues to be concerned that insufficient attention is being paid in this initiative to the "seams" that exist within the CAISO's markets that impact Price Formation in practice and believes that further exploring and addressing these internal market seams is crucial to the CAISO developing an efficient, effective set of Scarcity Pricing and general Price Formation policies.

The WEIM model implemented a decade ago extends most of the CAISO's real-time market to independently-operated BAs and voluntarily-participating LSEs, and has been incredibly successful in its growth over time and its lowering of barriers to organized market participation that its streamlined model has allowed. WEIM BAs and participants come to each real-time market instance through the WEIM framework on unique footing in terms of the transmission capacity they bring to the market, the mix of participating and non-participating generators within their BAAs, and their forward resource procurement and optimization strategies, from long-term integrated resource planning to day-ahead and intra-day trading, and whether and how they engage with the CAISO's day-ahead and hour-ahead intertie markets alongside their WEIM participation. The CAISO BA and its multiple forms of market participants also come to the WEIM on unique footing, with the CAISO's BAA having its own forward RA program, day-ahead market, must-offer requirements, process for management of imports, exports, and wheelthrough transactions, frameworks for compensating and charging for transmission access, congestion revenue rights market, ancillary services co-optimization program, various forms of demand response and emergency/strategic reserve deployment programs, day-ahead convergence bidding opportunities, intra-day and hour-ahead trading and internal scheduling practices, uneconomic import RA bidding requirements during certain hours (required by the CPUC but materially integrated in the CAISO market clearing), various forms of outage rules and exemptions, hourly and sub-hourly economic intertie markets, etc. All of these mechanisms and different attributes that materialize uniquely to greater and lesser extents across the entire footprint of the CAISO real-time optimization have a significant impact on price formation and create seams issues that could undermine any solution set developed in this initiative if not explored fully and designed around.

The Working Group has discussed a few of these to date, such as identifying that any "scarcity pricing" mechanisms developed around market attributes unique to the CAISO market such as ancillary service co-optimization or the CAISO market operator's use of load-conformance may fail to send appropriate signals to the non-CAISO areas. However, a comprehensive review of the drivers for Price Formation and unique issues created by the dissimilar footing of entities participating in the CAISO WEIM optimization has not been performed in this initiative. More broadly, the CAISO has over time in other initiatives looked at these issues to an extent, including in the 2019 Price Performance Report effort, various iterations of the Resource Sufficiency Evaluation Enhancements initiative, and when considering certain aspects of the Order 831 offer-cap and Summer Readiness enhancements, but lessons-learned and identified outstanding issues from those efforts have not been fully integrated with considerations in this specific Price Formation effort. TEA believes it is especially important to investigate these "internal seams" issues near term in this initiative as the implementation of EDAM over the next two years will bring additional variations to these internal seams and will further challenge efficient price formation across the CAISO's broad market footprint. While it is difficult to forecast the impact of EDAM and the new market products DAME is bringing at the same time, it is still possible to identify potential issues and build solutons that account for them, or at a minimum to leave placeholders in the policy for future exploration.

Going forward, TEA therefore recommends that the CAISO and stakeholders stress-test any solutions being developed in this Price Formation effort against how they are expected to impact the market in practice in all three of the CAISO's future market contexts: its full day-ahead to real-time market inside its BAA and at its interties, the EDAM to WEIM market as it is expected to be experienced outside the CAISO BAA, and the WEIM-only market as it is expected to exist following the initial 2026 implementation of EDAM. 

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

TEA supports the comments developed by the Western Power Trading Forum (WPTF) in this area.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

TEA supports the comments developed by WPTF in this area.

TEA also believes exploration of Order 831 policies and outcomes should be a high priority within this Price Formation initiative.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

TEA views the following list as examples of various types of "out of market" actions or decisions that should be explored to inform or test the efficacy of Price Formation solutions:

• Out-of-market purchases by CAISO operators at the interties.
• Recurrent exceptional dispatch of CAISO resources other than for anomalous events.
• Deployment of strategic reliability reserves within the CAISO BAA and any other "emergency" procedure, relaxation of constraints/requirements, or other action that influences supply/demand dynamics but is not directly incorporated in LMP.
• Use and presence of various WEIM mechanisms such as Available Balancing Capacity, limitations on the impact of power balance constraint relaxation included in Order 831 policy, the voluntary nature of ETSR limitations and GHG "deeming", self-management of ancillary services, demand response, and other programs that impact in-market supply/demand dynamics that are run through the CAISO's market optimization and LMP-development in the real-time market.
• Use of load conformance in RUC, HASP, FMM, and RTD, including programmatic use of a P100 forecast in RUC (to the extent that practice is expected to continue and/or remains in place currently) and the more heuristic-based use of conformance in each real-time instance.
• Various modeling and transmission operations decisions that significantly influence how congestion and binding constraints materialize in the day-ahead and real-time markets, such as accounting for unscheduled flow or shift-factor determinations.

TEA sees multiple ways that these actions and decisions could be worked with or explored as potential solutions to improve Price Formation, ranging from increased transparency and reporting to inform efficient engagement with the CAISO's market by market participants to developing specific triggers for instituting administrative pricing as a result of the out-of-market action being taken. While not all of them may fit within the scope of the initiative, each should at least be considered as elements to be aware of when developing solutions here. 

To be clear, TEA does not wish to question the use of the mechanisms in exceptional circumstances or take tools out of the toolbox that operators leverage to maintain reliable system operations. Rather, TEA hopes that by understanding and investigating these mechanisms and decisions fully, Price Formation solutions can be developed that aren't likely to have their effectiveness inadvertently undermined in practice.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

TEA reiterates its support for the comments submitted by WPTF and again wishes to thank the CAISO for its approach to managing this initiative, including the time it is taking to ensure it has properly identified the "problem" before moving on to developing and selecting a "solution".

Absent a commitment from CAISO for Price Formation enhancements to be an evergreen initiative, similar to how working on Resource Sufficiency, Resource Adequacy, and Storage Resource enhancements have been ongoing initiatives for multiple years, TEA is concerned that if ALL known Price Formation and Price Formation-adjacent issues are not looked at in this working group effort, they are unlikely to be addressed elsewhere over a 2-3 year horizon.

TEA therefore requests that the CAISO provide adequate time as the working group effort comes to a close in the coming weeks or months to have open-ended dialogue with stakeholders once they've had time to step back and think holistically about Price Formation in CAISO's markets, both as they exist today and as they are expected to evolve over time.

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

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

Vistra would find the working group structure more workable if all working group meetings could be coordinated and held in a set of continuous days once a month. In February, CAISO held 14.5 hours of working group meetings across the month. Alternatively, CAISO could have held 2.5 days of on-site meetings back-to-back once this month. Under this framework, CAISO would hold working group meetings in 2 ½ consecutive days in e.g., the first week of each month and then have comments due at the end of the month. This framework is more like other markets that coordinate and organize content in contiguous days and advanced schedule meetings into the year. We hope to see some process changes to the working group format similar to this with easing burden in mind.

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

Vistra wants to clarify that the issue around whether the current scarcity pricing levels aligned to between $1,000/MWh and $2,000/MWh in the pricing runs is an effective level or not is in scope. Please clarify that the appropriate price level being used to signal scarcity is explicitly contained within one of the problem statements. Vistra has been reviewing other market designs as well as exploring whether tying scarcity price signals to the offer caps versus separating scarcity price level from the caps and valuing at against a value of loss of load (VOLL) results in a more efficient market design. We believe the issue should be fully discussed under problem statements A-C.

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Problem Statement A. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions.

The market should send market signals that reflect energy or ancillary service scarcity across all products and in the market outcomes, both when the system is approaching scarcity conditions, and when it is in true scarcity.   While we originally considered ancillary service re-optimization might be the easiest solution, it is becoming apparent that the implementation would be difficult and could delay needed scarcity reforms. There are alternate solutions to the AS re-optimization such as setting a latent reserve curve (i.e., operating reserve demand curve) that could allow for ancillary service scarcity pricing to be surfaced in both the energy clearing prices and the ancillary service marginal clearing prices (MCP) when the latent reserves are at or below CAISO’s reserve targets. We look forward to working with CAISO and stakeholders on a solution that results in the desired market outcomes. Our desired outcomes are for ancillary service shortages occurring in the operational horizon to be reflected in Fifteen Minute and Five Minute Market prices.

Problem Statement B. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall

Energy or ancillary service prices should increase as the market approaches scarcity of either energy or ancillary service and should continue to steadily increase to reflect the probability of lost load as reserves degrade and energy or ancillary service requirements are increasingly at risk. Appropriate price formation should result in energy clearing prices that reflect shortage conditions or alternatively reserve shortage conditions under a latent reserve approach at a steadily increasing rate aligned with VOLL as the reserve shortage is nearing and through the shortage. Vistra continues to analyze multiple options for addressing these concerns and hopes to further work on the solution set with CAISO and stakeholders as this issue progresses. Our initial thinking is that latent reserves sound almost synonymous with operating reserve demand curve designs that have been utilized by other markets, specifically Texas. While there are other options, we are interested in pursuing a latent reserve curve as a likely front-runner.

Problem Statement C. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation

Grid operators or non-market participants take actions leading up to or during shortage conditions in response to a myriad of emergency procedures on both the distribution or the bulk transmission side of the electricity industry that if not captured in the market will result in artificially indicating the shortage has been resolved. Such actions may result in artificially suppressing market prices and send signals to demand response to stop responding, storage to avoid adding loads onto the stressed grid through charging, and lessens penalties to resources for unavailability even while the grid is still under shortage conditions. Vistra believes this problem statement has the greatest risk to undermine reliability and extend shortage or emergency conditions. In our prior comments, we explain our view of this problem and again urge the CAISO to ensure energy clearing prices continue to send the needed scarcity signal until a shortage condition is resolved. If the market inaccurately publishes an energy clearing price that indicates no shortage condition was occurring when in fact there was a shortage this undermines incentives for demand flexibility to maintain its responsiveness and mutes the penalties imposed on resources if they are unavailable during the critical need period. These can have a direct negative effect on reliability and should be resolved expediently.

Problem Statement D. 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.

Vistra is extremely concerned that limits to storage’s bidding during stressed conditions is resulting in the storage fleet prematurely being discharged and then if available for additional cycling charged up during periods of high loads adding to the loads drawing from the grid exacerbating tightness in the hours leading up to high stressed net peak hours. When looking at the September 2022 heat wave load levels where above 41,000 MW across ~10 consecutive hours beginning mid-day through either 9 or 10PM depending on the day. On high load days where high loads materialize mid-day to early-afternoon prior to peak or net peak hours and the load increases are being felt throughout the West, it is paramount that storage resources be able to reflect the opportunity cost of its use on a scarcity day. Storage cost offers above $1,000/MWh should be allowed on days with tight system conditions when the offer cap goes above $1,000/MWh. Additionally, storage offers should not be mitigated below a reasonable real-time opportunity cost value even when the bid cap is at $1,000/MWh. CAISO should allow reference level adjustments whether cap is below or above $1,000/MWh on stressed days when scarcity pricing is in effect so that storage can submit energy cost offers with an updated opportunity cost aligned with scarcity pricing. This will allow for storage to offer to maintain its state of charge to be available when most needed.

E. ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Vistra initially proposed a stop loss mechanism, which is being called circuit breaker here, as an element of a compromise proposal for major scarcity pricing reforms. Our desired reforms would more reasonably balance market needs for both effective scarcity pricing signal levels aligned with VOLL likely above $2,000/MWh, allow for scarcity to be surfaced gradually as we near a shortage condition, and ensure scarcity is not artificially erased during a shortage condition through something analogous to ERCOT’s reliability deployment price adder (RDPA).[1] Without large-scale reforms to increase scarcity to levels well above $2,000/MWh if we shift penalty prices to be aligned with VOLL and incorporate RDPA, Vistra does not believe there is any need for a stop loss mechanism. The CAISO’s low penalty price paradigm on the magnitude at $1,000/MWh the majority of the time and only infrequently up to $2,000/MWh sufficiently mitigates load exposure under current rules and a stop loss mechanism is not necessitated.

[1] See prior comments on the August workshops, available at https://stakeholdercenter.caiso.com/Comments/AllComments/8d00802c-b099-496e-88af-fcf7da60e9aa#org-937cd5c6-0c5d-475a-b2c4-5c8ebffcbaf8. We noticed an issue with our previous comments link to the ERCOT protocols that describe its RDPA. Please see Section 6.5.7.3.1, https://www.ercot.com/mktrules/nprotocols/current.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Vistra generally believes A-D are all high priorities, and assume the problem statement to better value scarcity more closely aligned with VOLL is included in one of these statements. For additional specificity, we provide a rank order within that high priority below:

1. Problem Statement D: High priority
2. Problem Statement C: High priority
3. Problem Statements A and B: High priority
4. Problem statement E: Not currently a priority absent large-scale reforms

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

Vistra requests for CAISO to consider including a mechanism analogous to ERCOT’s RDPA in its market design when out-of-market actions are taken goes well beyond when CAISO operators take action and would also include when programs outside of CAISO’s direct operational control are called. We are concerned that it is incredibly difficult to brainstorm this list, and that there may be actions outside CAISO’s control of which it is not aware. Any list would need to be iterative. Further, any market design solution to address problem statement C needs to be agile enough and realistic enough to ensure the final market clearing price has been corrected before impacting settlements if it is not feasible during the operating day to have the market prices adjusted to drive changes in market outcomes.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.

None at this time. 

1. Please provide your feedback on the Sprint Approach employed in the Price Formation Working Group.

The sprint approach proved to be highly effective and efficient, offering a clear advantage over the practice of constantly switching between three distinct topics: Scarcity Pricing, BAA Level Market Power Mitigation, and Fast Start Pricing. This method ensured that valuable time was not wasted reorienting ourselves in each session, as often happens when bouncing back and forth between subjects. By maintaining focus on a single topic, discussions flowed seamlessly without interruption, fostering deeper exploration and understanding. Given its success, WPTF strongly recommends the CAISO adopt a similar approach, particularly for addressing matters concerning BAA-level Market Power Mitigation. 

2. Is there any issue/challenge related to Scarcity Pricing that has not been discussed and warrants further Working Group conversation?

WPTF highly encourages the CAISO to incorporate a comprehensive discussion on the benefits of scarcity pricing within the wholesale competitive market, considering perspectives from both the load and supply sides. It's crucial to emphasize that scarcity pricing extends beyond merely raising prices, as reiterated by the CAISO. Rather, it serves as a mechanism to convey accurate signals that align with prevailing market conditions. This precision in price formation during scarcity situations is mutually beneficial for both load and supply participants.

Overall, scarcity pricing in the wholesale energy market benefits both supply and load by creating more efficient incentives, enhancing reliability, and promoting cost-effective asset utilization. It fosters an environment where investment in maintenance of existing supply infrastructure is incentivized, ensuring reliable operation when demand peaks. Moreover, scarcity pricing increases the consequences for supply not showing up when needed, thereby improving overall system reliability. It also encourages more efficient use of generation assets by prioritizing least-cost resources in the day-ahead scheduling process, reducing the need for expensive incremental energy purchases in real-time and ultimately lowering costs for consumers in the long term. Additionally, scarcity pricing serves as a natural mechanism to mitigate market power, as resources are incentivized to offer at marginal cost during tight supply conditions, increasing the likelihood of being cleared and capturing higher prices. Lastly, scarcity pricing incentivizes load to better schedule and forward contract and to provide and maintain demand flexibility through the shortage period, leading to reduced costs for consumers over time.

In evaluating the efficacy of scarcity pricing, it's essential to contextualize its performance within the framework of FERC Order 831 that CAISO implemented. WPTF believes it's worth noting and discussing some nuanced aspects of the final FERC Order 831 policy CAISO adopted that may potentially hinder improvements in scarcity pricing. For example, fluctuations in the power balance constraint (PBC) penalty price between $1,000/MWh and $2,000/MWh, the establishment of shortage threshold values before the PBC penalty price is reflected in prices, and bidding regulations for storage and PDR resources. Therefore, it would be informative to include metrics assessing the performance of FERC Order 831, providing valuable insights into its impact on scarcity pricing dynamics, most notably during tight supply and shortage conditions. 

3. Please provide your organizations feedback on the following Problem Statements presented in the Sprint. This feedback can include comments on the issue/challenge identified, framing of the issue, potential solutions or necessary considerations in order to develop solutions.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions.

WPTF acknowledges the issue articulated in this problem statement and concurs with its significance. Additionally, it recognizes that the current setup restricts the ability of the SCRD to consistently activate and influence energy prices across all markets - IFM, RTPD, and RTD - as deemed appropriate. This limitation persists because, as acknowledged by the CAISO, the SRDC's influence does not extend to the RTD market, thereby rendering it unable to impact 5-minute prices. Furthermore, even upon activation, the SRDC does not guarantee that scarcity pricing will be reflected in energy prices, leading to inconsistency and instability in scarcity signals across markets and products.

While WPTF appreciates the CAISO's willingness to explore modifications to the SRDC design aimed at enhancing scarcity pricing - such as re-optimizing AS and expanding its scope to encompass both the FMM and RTD markets – there are some threshold questions that first need to be addressed regarding feasibility and efficacy. First, we wonder whether the CAISO FMM and RTD markets can continue to publish results with these changes within the current market timeline, especially if a deliverability test is incorporated as discussed by the CAISO. Secondly, WPTF wonders if additional alterations to the SRDC are necessary to fully realize the anticipated benefits under AS re-optimization. For instance, are adjustments to penalty prices in the market for AS necessary to ensure the SRDC triggers appropriately, thus sending the requisite scarcity signals? And if so, do the adjustments still align with any applicable reliability requirements as defined by NERC/WECC standards?

WPTF would also like to take this opportunity to confirm with the CAISO that, per operators request, the market must include an AS deliverability test if AS is re-optimized in real-time. While from a theoretical standpoint, ensuring deliverability of AS products in real-time would be beneficial, we ask that the CAISO have a robust discussion with stakeholders about potential ways in which the benefit can be accomplished while minimizing adverse impacts to the market, such as price formation issues, added complexity, and market processing timelines.

Finally, WPTF asserts that achieving a robust scarcity pricing design in the CAISO market requires augmenting the current (and/or enhanced SRDC) framework with an additional element on the energy side. Since the SRDC's activation hinges on AS supply, and may not consistently impact energy prices during AS shortages, there's a need to broaden the discussion beyond the SRDC during shortage conditions. This suggests that the conversation should extend to include solutions that ensure consistent and effective reflection of scarcity signals across all products ideally in both Fifteen Minute Market and Five Minute Market, particularly in energy prices as supply conditions tighten. This may include consideration of an administrative adder or a power balance constraint penalty price structure that increases as shortage conditions increase. Making improvements to the SRDC as well as an additional mechanism on the energy side would facilitate a more comprehensive strategy for improving scarcity signals within the CAISO market ecosystem rather than solely enhancing the existing SRDC.

b.CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall

WPTF fully concurs with the issue delineated in this problem statement, recognizing its an imperative feature of a robust scarcity pricing design. Such a design is essential for facilitating a gradual escalation of prices as supply conditions tighten, and approaches shortage conditions. In response to this challenge, CAISO has proposed several options for discussion, including the implementation of a latent supply curve and the introduction of new reserve products aimed at bolstering energy prices amid tightening supply conditions. However, WPTF maintains a stance that CAISO should refrain from creating new products solely to enhance scarcity pricing signals; rather, the creation of new products should be justified by operational necessity. Consequently, WPTF's initial inclination is to further explore the concept of a latent supply curve, which would enable prices to incrementally rise above marginal costs. We envision such a construct would have prices that gradually rise as the amount of remaining supply on the system decreases. It's crucial to emphasize the gradual nature of this price increase to avoid sudden spikes, ensuring stability in pricing dynamics. Ideally, such adjustments would be integrated within the market framework itself rather than relying on post hoc price correction mechanisms.

c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation

Any robust scarcity pricing design should ensure that use of reliability resources and out of market actions taken to either prevent scarcity conditions from occurring or help correct market conditions during shortages should not counteract scarcity pricing signals. In other words, such actions should not suppress prices that otherwise would signal scarcity conditions.

d. 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.

WPTF aligns with fellow stakeholders in emphasizing the critical importance of allowing storage and PDR resources to bid above $1,000/MWh under FERC Order 831 conditions, a matter deemed of high priority. Restricting these resources from bidding above $1,000/MWh, despite their justified opportunity cost, not only impedes the market's efficient utilization of these vital resources during critical periods but also fails to accurately reflect the marginal cost associated with relying on them under such circumstances. We anticipate that rectifying this issue can be feasibly accommodated within an expedited manner and therefore should be prioritized for implementation before the summer of 2024. While we acknowledge that the concept of opportunity cost for storage resources was not initially considered during the FERC Order 831 policy process due to their exemption from mitigation and lack of a reference level construct at that time, it has since been recognized and defined. Consequently, addressing this issue should be relatively straightforward.

e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

WPTF does not believe it is a problem that CAISO’s current market design does not include a circuit breaker mechanism or stop loss mechanism, given the relatively low prices used in the pricing run. Our understanding is that stop loss mechanisms that limit the amount of scarcity payments issued by the market are intended to limit significant collateral damage and are linked to the scarcity pricing levels.  Unless the CAISO explores increasing the penalty prices used under scarcity to values closer aligned to the value of loss of load (i.e., higher than the standard $2,000/MWh under FERC Order 831) the lack of a circuit breaker is not an issue.

4. Of the problem statements that were discussed in the Scarcity Pricing Sprint, please provide your organizations view on this problem statement (High priority, Medium Priority, Low Priority, Not a priority, I need more information/discussion to decide).

a. CAISO’s market design limits the opportunity for the Scarcity Reserve Demand Curve (SRDC) to activate during tight system conditions. b. CAISO's market design limits the opportunity for energy prices to gradually rise ahead of impending demand shortfall c. The impact on market prices from reliability use-limited resources and non-market actions during emergency events is not holistically captured by price formation d. 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. e. The ISO market does not have a circuit breaker mechanism in the event scarcity pricing occurs over an extended period of time.

Given that this stakeholder effort is intended to be a holistic review of the CAISO’s scarcity pricing design, we envision all of these elements to be of equal priority as they all go hand in hand in creating a robust scarcity pricing mechanism. We envision the circuit breaker mechanism as an element of the discussion on scarcity pricing if the CAISO explores increasing scarcity pricing signals well above $2,000/MWh.  The only element that we would support being separated out and put on a fast track is the ability for storage and PDR resources to bid above $1000/MWh under FERC Order 831 conditions.

5. In Sprint session 3, we provided some examples of out of market actions to explore. What are the out of market actions you believe should be explored further in Working Group conversation?

It is challenging at this time for WPTF to provide an informed opinion on which actions should be pursued without access to a comprehensive list detailing all actions taken. Therefore, WPTF emphasizes the importance of the CAISO developing such a list. This comprehensive compilation should include all actions aimed at preventing shortages and those implemented to manage market conditions during shortages. It is crucial that once this list is established, the stakeholder community and CAISO can discuss ways to avoid any of these actions from negatively impacting the integrity of the scarcity signal.

6. Please provide any additional comments of feedback on the Price Formation Enhancements Working Group.