Bonneville Power Administration
Submitted 10/05/2020, 02:49 pm
1.
Please provide a summary of your organization’s comments on the revised draft final proposal:
Bonneville does not support the System Market Power Mitigation Revised Draft Final Proposal as we generally believe the Revised Draft Final Proposal represents a significant step backwards from the previous proposal. We recognize the difficulty in determining whether CAISO is import constrained, which is the first step in the market power mitigation process, but we believe that failing to consider adjacent bilateral trading hub prices weakens CAISO’s ability to approximate import constraints and risks inappropriate triggering of mitigation.
Further, we are troubled by the Revised Draft Final Proposal’s assertion that bilateral trading hubs across WECC may be uncompetitive, though no evidence of uncompetitive conditions was presented. CAISO should, as FERC does, assume that the rest of WECC is competitive, and CAISO policy should reflect this assumption.
2.
Provide your organization's comments on the updated proposal for the mitigation process to only trigger when (1) the ISO Balancing Authority Area (BAA) marginal energy cost is greater than internal ISO and external proxy peaker prices and (2) the ISO BAA marginal energy cost is highest within the EIM and ISO is in an import-transfer-constrained EIM region:
Bonneville does not agree with the removal of the criterion that triggers the system market power mitigation process only when CAISO energy prices are greater than published bilateral trading hub price indices. Removing this criterion will likely result in mitigation during periods of supply shortage within the CAISO BAA during tight system conditions, and thus fail to send the necessary price signal to encourage additional supply from outside of the CAISO BAA, as illustrated by the August 2020 heat wave. Resource operators and suppliers rely on market price signals to inform appropriate dispatch, and potentially suppressing CAISO prices administratively, which are already lower than adjacent bilateral trading hubs, will only incent supply to serve other regions. With CAISO’s proposed changes, it is unclear how often the system market power mitigation process would trigger, and even if it was only triggered on occasion, the risk of system-level market power mitigation is sufficient to discourage participation in CAISO markets.
System level market power mitigation may be appropriate when CAISO cannot access competitive markets, like the rest of WECC. This is precisely why Bonneville supports accurately assessing whether CAISO is import constrained. We encourage CAISO to embrace WECC competitiveness in its SMPM proposal, rather than imply that it may not exist.
3.
Provide your organization's comments on the updated proposal for the pivotal supplier test to consider economic import offers as potentially pivotal supply:
Bonneville is encouraged by the proposal’s inclusion of economic import offers as potential pivotal supply in the pivotal supplier test as it more accurately reflects CAISO’s reliance on imported energy. We expect this proposal will trigger system level market power mitigation less frequently due to CAISO expanding the number of entities that may represent pivotal supply. For sake of clarity, Bonneville requests CAISO confirm that while import offers may be considered for the pivotal supplier test, import offers will not be subject to mitigation.
4.
Provide your organization's comments on the updated proposal for the competitive Locational Marginal Price (LMP) to be calculated as the greater of the highest import offer cleared on a constrained ISO intertie and the next highest BAA marginal energy cost within the EIM:
Bonneville believes the updated proposal for calculating the competitive LMP is less effective than the previous proposal which considered bilateral trading hub prices. The competitive LMP is intended to represent the competitive price for energy outside of the constrained area. Bonneville believes that the previous proposal that considered bilateral trading hub prices more accurately represents the competitive price for energy outside of the constrained area.
5.
Provide any additional comments on the revised draft final proposal, as part of the System Market Power Mitigation initiative:
Calpine
Submitted 10/05/2020, 03:07 pm
1.
Please provide a summary of your organization’s comments on the revised draft final proposal:
Calpine continues to support market design principles that allow competitive price formation. These principles support targeted market power mitigation, but also allow prices to rise reasonably in order to attract all forms of supply or demand-side responses when required to maintain reliability.
Calpine does not view the current proposal as meeting those principles for the following reasons:
- Seeking approval of this proposal without addressing legitimate scarcity value prejudges and forecloses an unbiased and truly “holistic” review of scarcity pricing as supported by the MSC and CAISO Board, as well as promises of the CAISO Staff.
- The proposal could discourage critically needed imports and ironically, create incentives to export energy when it is needed the most by the CAISO.
- The effects of the proposal have not been analyzed and may trigger false-positive indications of market power or not address the speculative concerns that spawned the initiative.
Finally, given the very tight conditions of the last month, the surprising need to curtail exports and the suspension of Virtual Bidding, it seems only reasonable to suspend consideration of this initiative until we have exposed, digested and considered the lessons we should learn.
Hence, Calpine does not support the proposal as currently structured.
2.
Provide your organization's comments on the updated proposal for the mitigation process to only trigger when (1) the ISO Balancing Authority Area (BAA) marginal energy cost is greater than internal ISO and external proxy peaker prices and (2) the ISO BAA marginal energy cost is highest within the EIM and ISO is in an import-transfer-constrained EIM region:
The two triggering metrics offered by the CAISO ignore the simple fact that the price in markets outside the CAISO could represent the preferred opportunity for uncommitted capacity. Together, the two proposed triggers fail to recognize this external opportunity and fail to demonstrate – and in fact are likely to falsely suggest – that the CAISO is constrained in access to other markets in the West, and as such, are susceptible to the exercise of market power within the State.
In the first test the CAISO compares the cost of a (presumably) simple-cycle gas turbine to the ISO SMEC. The ISO asserts that if the SMEC is greater than the fully-loaded costs of an external gas peaker that market power may exist inside the State because “profit-seeking marketers” would otherwise seek to deliver “cheaper external supply to CAISO interties.” Hogwash. Profit-seeking parties will look to the opportunity with the most value – whether inside California or in external markets. If the prices created at external hubs are higher than the “expected value[1]” of delivering to the CAISO they will sell at the hub. They do not have an unalterable affinity for, and with implementation of this proposal, could have growing disdain for transacting in California. As such, the current proposal, which could falsely trigger mitigation, could certainly have the effect of further discouraging imports when needed most for reliability. In addition, the possible improper mitigation of system prices could encourage uncommitted resources to export from the ISO to regions where price formation is more attractive and durable.
The proposal, however is very interesting in that the CAISO looks to the fully-loaded costs of external peaker as a valid and reasonable reference price. The CAISO proposes to include not only variable cost of production, but to amortize start, minimum run and other costs in order to calculate the reasonably formed comparison price of an external peaker. This is precisely the price that Calpine and others have long-advocated as the reasonable LMP to use for a fast-start resource and is a first step towards a reasonable scarcity pricing mechanism which would clear markets inside the CAISO. This observation demonstrates the very close relationship of this proposal to the definition and implementation of scarcity pricing.
The CAISO reverses the Draft Final Proposal in this revision and rejects the appropriate use of external hub prices despite the fact that these prices represent the reasonable opportunity cost available to suppliers. We find this exceedingly confusing given that the CAISO has supported the use of the same external hub prices in its Board-approved FERC Order 831 proposal in justifying higher constraint parameters and bid caps. This demonstrates the close relationship (and in this case dissonance) between system market power and Order 831.
From this, it should be clear that system market power, scarcity pricing, Order 831 and for that matter Flexible Ramping demand curves are all related. The MSC and members of the CAISO Board echoed the close relationship between these programs. The CAISO should suspend this initiative and consider it in conjunction with its implementation of the closely related scarcity pricing initiative. Setting the system market power mechanism in stone (through a tariff amendment) could eliminate scarcity alternatives at a minimum, and more likely, foreclose a truly “holistic” review of scarcity.
Calpine will not repeat its objections to the second trigger – in which the CAISO seeks to infer market power in the CAISO because of price separation in the EIM. The very small subset of transmission represented by the EIM market is not and cannot be dispositive of the presence of market power.
Finally, Calpine is struck by the fact that the CAISO itself cannot state that the proposal it has put forward would address the issues that spawned this initiative. The CAISO has presented no data on how often the triggering metrics would induce a pivotal supplier test. It has not presented evidence that would correlate the positive indications to the troubling supply conditions or prices that the CAISO itself, or the DMM found in 2017 or 2018. Intuition, alone, used in this exceedingly complex market is not without risk, and taking this step forward in the absence of hard data could have significant unintended consequences.
[1] We note that HASP prices are clearly not the expected value of intertie transactions. Once confirmed intertie flows are priced at the 15 minute prices, with no uplift (BCR) to the accepted HASP bids. As such, the expected value is very different than the advisory HASP clearing price.
3.
Provide your organization's comments on the updated proposal for the pivotal supplier test to consider economic import offers as potentially pivotal supply:
Calpine agrees that all feasible economic import offers should be considered potentially pivotal supply, particularly as the ISO considers mitigation in the HASP run.
4.
Provide your organization's comments on the updated proposal for the competitive Locational Marginal Price (LMP) to be calculated as the greater of the highest import offer cleared on a constrained ISO intertie and the next highest BAA marginal energy cost within the EIM:
No further comments.
5.
Provide any additional comments on the revised draft final proposal, as part of the System Market Power Mitigation initiative:
No further comments.
Pacific Gas & Electric
Submitted 10/07/2020, 04:13 pm
1.
Please provide a summary of your organization’s comments on the revised draft final proposal:
PG&E offers the following comments on the California Independent System Operator’s (CAISO) System Market Power Mitigation revised straw proposal. PG&E appreciates the efforts that the CAISO has made to design an improved system market power mitigation framework.
Summary:
PG&E supports CAISO’s revised final proposal as an incremental improvement to ensure a more efficient real time market. While PG&E believes that implementing a design framework in time for the summer of 2021 is the priority, PG&E still has concerns over some aspects of the proposal that may result in a less effective system market power mitigation framework and will at minimum need to be monitored going forward and fixed if issues arise. PG&E concerns include:
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- Which gas prices will be used in an external proxy peaker price calculation
- Whether it is appropriate to use the highest import offer cleared on a constrained ISO intertie as a competitive LMP to avoid excessive dispatch and potential exports
- Including all bids as competitive supply in the 3-pivotal supplier test
PG&E requests the CAISO to use the external gas prices PG&E suggests for (i) and eliminate the highest import offer cleared on a constrained ISO intertie as a competitive LMP for (ii). PG&E also requests that the DMM monitor the results of the three-pivotal supplier test for (iii).
PG&E thinks that with certain changes to this improved proposal the mitigation framework can be effective at mitigating market power in the real time market, however the day-ahead market will still be at risk and susceptible to market power. PG&E is concerned that grouping day-ahead system market power mitigation into EDAM will significantly delay development and implementation of this important mitigation tool. PG&E request that the CAISO take day-ahead system market power mitigation out of the EDAM initiative and start the initiative in 2021. This initiative should take precedent over a scarcity pricing initiative and be done in parallel if needed.
2.
Provide your organization's comments on the updated proposal for the mitigation process to only trigger when (1) the ISO Balancing Authority Area (BAA) marginal energy cost is greater than internal ISO and external proxy peaker prices and (2) the ISO BAA marginal energy cost is highest within the EIM and ISO is in an import-transfer-constrained EIM region:
PG&E thinks that the triggers proposed by the CAISO are an improvement from the previous proposal. PG&E agrees that using an internal gas peaker price as opposed to a static $100/MWh threshold is a better measure for when the CAISO price may be influenced by market power. Additionally, PG&E agrees that after eliminating EIM BAAs that fail the upward flex ramp sufficiency test, it is appropriate to consider the CAISO BAA import constrained from the rest of the EIM when it is in the highest priced EIM area.
PG&E requests CAISO provide further details on which gas prices the CAISO plans to use for the external proxy peaker price. PG&E’s believes that the CAISO must use gas prices that are associated with significant electric load. A gas price that is used to calculate an external proxy peaker needs to represent an area with sufficient electric load, so that the assumption that power in the WECC is flowing to this area as opposed to the CAISO, leaving the CAISO non-import constrained, remains true. If the gas price area does not have sufficient electric load, then a higher proxy peaker price might reflect a small or insignificant amount of WECC energy being pulled to this area, and the condition that the CAISO is import constrained can no longer be assumed. PG&E recommends CAISO consider the following three gas prices that reflect applicable highly traded gas hubs: Sumas, El Paso San Juan, and Opal. We look forward to engaging with the CAISO on how the correct gas price for the proxy peaker price will be chosen in different situations.
3.
Provide your organization's comments on the updated proposal for the pivotal supplier test to consider economic import offers as potentially pivotal supply:
PG&E agrees that economic import supply should be considered potentially pivotal supply for a supplier affiliate group. The CAISO is import dependent and import supply can be economically withheld, particularly import RA bids, just as internal supply can be economically withheld to exert market power.
PG&E is concerned that not all the supply is competitive that the CAISO is counting to be able to meet demand without the three largest suppliers in the three-pivotal supplier test. An example of non-competitive supply would be import supply at or near the price cap. SCE had proposed in the last round of comments that only competitive imports should be counted as supply in the three-pivotal supplier test, with competitive being defined as less than or equal to the competitive LMP calculation. PG&E supports this idea of counting competitive supply and ensuring that the three-pivotal supplier test is not passed due to uncompetitive import bids. PG&E would like the DMM to monitor the results of the three-pivotal supplier test and report on the results if they find that the three-pivotal supplier test is being passed because of non-competitive import supply.
4.
Provide your organization's comments on the updated proposal for the competitive Locational Marginal Price (LMP) to be calculated as the greater of the highest import offer cleared on a constrained ISO intertie and the next highest BAA marginal energy cost within the EIM:
PG&E understands that when reducing resource bids as the final part of the mitigation proposal, the CAISO wants to avoid over dispatch in the CAISO from mitigated bids to the point where the CAISO would export energy to other balancing authority areas resulting in reverse flows. When mitigated bids are used in the real time markets any additional CAISO exports would go through the EIM to other BAAs. For that reason, PG&E agrees that using the next highest EIM BAA marginal energy cost is a reasonable competitive LMP to avoid unneeded export. However, PG&E is not convinced that using the highest import offer cleared on a constrained ISO intertie is necessary to avoid additional export.
CAISO will clear import offers from the bilateral market in HASP. Those schedules will carry over to the real time markets and the real time markets will use these bilateral import schedules to clear the real time market but will not dynamically change these schedules. Since these schedules are static in the real time market, there is no concern over additional exports into the bilateral markets from a competitive LMP that is lower than the highest import offer cleared on a constrained ISO intertie. As stated previously, the only additional export would be through EIM. To prevent the CAISO’s objective offlow reversal, PG&E agrees that the CAISO using the next highest EIM BAA price as a competitive LMP, but we do not see the highest import offer cleared on a constrained intertie to be a valid price to achieve that objective.
Further, PG&E assumes that when mitigation occurs it is likely that the CAISO clearing price could be at the competitive LMP price. If this occurs, it seems that some megawatts of competitive LMP bids will be necessary to clear demand but potentially not all the competitive LMP megawatt bids. PG&E asks CAISO to provide additional clarity on how the CAISO will determine which of these competitive LMP bids will be dispatched and which will not when the price clears at the competitive LMP?
5.
Provide any additional comments on the revised draft final proposal, as part of the System Market Power Mitigation initiative:
Public Generating Pool
Submitted 10/05/2020, 05:02 pm
1.
Please provide a summary of your organization’s comments on the revised draft final proposal:
PGP appreciates CAISO’s tireless efforts to find a balance between the very different stakeholder perspectives on this initiative. This is not an easy task and we appreciate the work CAISO has done to bring all stakeholders along. PGP supported the prior iteration of this proposal, with caveats, however at this time we recommend this initiative be put on hold for the reasons explained below. If CAISO does decide to proceed forward with this initiative, we recommend that CAISO consider reverting back to prior proposals with regard to the trigger for the three pivotal supplier test.
PGP has consistently shared its view throughout the development of this policy initiative that there is not a strong case for opening a system-level market power initiative, for two reasons. The first is that the analyses to-date of conditions in the CAISO BAA that would lead to a supplier being able to exploit market power indicate that this scenario is very infrequently expected to occur.[1] The second is that addressing system-level market power concerns in a vacuum and prioritizing these over other price formation issues is not appropriate or equitable and is likely to lead to less efficient and effective market design and outcomes.
Notwithstanding the above view, PGP offered its support of CAISO’s last iteration of the system-level market power proposal. While our concerns remained over the appropriateness of opening and prioritizing this initiative at all, we believed that the proposed design was likely to avoid unnecessary mitigation and the potential harms associated with this, and for this reason we were supportive of the proposal, with caveats.
However, recent major events in the CAISO BAA lead PGP to believe the timing and scope of this initiative should be reconsidered. PGP believes the recent CAISO load-shed events and the lessons that will be learned through analyzing this event will have broad implications for policy reform across many initiatives, including system-level market power. Specifically, PGP believes it is important to understand whether conditions in the CAISO BAA during the load-shed event were conducive to exerting system-level market power in the CAISO BAA and to consider what the impact of the proposed draft final system-level market power proposal would have been on supply and prices during the load-shed event. PGP also believes the recent capacity challenges in the CAISO BAA re-iterate the importance of considering the root cause of high prices in the CAISO BAA that have led some stakeholders to voice concerns around system-level market power. Now more than ever, PGP believes CAISO should reexamine whether enhancements to the resource adequacy program and long-term contracting practices may be a more targeted and appropriate way to address system-level market power concerns.
In addition, PGP believes the latest proposed changes in the draft final proposal further swing the balance of the overall proposal such that the potential harms are no longer acceptable. PGP believes the proposed changes would frustrate rather than enhance CAISO’s ability to accurately determine when conditions in the CAISO BAA would enable suppliers to exercise market power. In particular, we are concerned with CAISO’s changes to the pivotal supplier test trigger. The revised draft final proposal no longer accounts for prices in bilateral markets, nor actually tests binding transmission constraints into the CAISO BAA. We believe the end result is a trigger that no longer effectively tests whether the CAISO is import-constrained.
It is also not clear what the impact of the new proposal may be. CAISO indicates it will provide an estimate of the frequency in which the pivotal supplier test would have been triggered under the proposal prior to seeking approval for tariff changes from the CAISO Board of Governors and anticipates that the test will be triggered in many less intervals than previous proposals. In the last proposal, CAISO indicated that the test would have triggered in 0.5% to 1% of all intervals, however, in earlier proposals, the test was estimated to trigger in close to 30% of all intervals. PGP believes at a minimum CAISO should provide this estimate and allow time for stakeholders to provide comment on this before taking any proposal to the CAISO board.
For all of the above reasons, PGP recommends that the system-level market power mitigation initiative be put on hold until at a minimum, stakeholders have had a chance to review the CAISO’s after-action report on the CAISO August load shed event and consider the possible implications for this initiative and offer recommendations to the CAISO. PGP also believes it will be important for CAISO to develop its own recommendations and actionable plan to addressing the implications of the load-shed event as well. If CAISO does proceed forward with this initiative according to the existing schedule, PGP strongly recommends that CAISO either include bilateral hub prices in the pivotal supply test trigger, along with the other price criteria proposed in the draft final proposal or revert back to the initial trigger proposal which was based on when the three major interties into the CAISO BAA had binding constraints.
[1] See: PGP’s May 4, 2020 comments:http://www.caiso.com/InitiativeDocuments/PGPComments-SystemMarketPowerMitigation-RevisedStrawProposal.pdf “DMM’s 2019 analysis found that the supply mix was potentially uncompetitive in 272 hours in 2018 and CAISO found that there were 200 hours (less than 3%) in 2018 when its supply mix was potentially uncompetitive as evidenced though the failure of the pivotal supplier test. The Market Surveillance Committee also noted that the CAISO and DMM analyses indicate that little to no market power was exercised in most hours in which the three pivotal supplier test failed. Moreover, it appears that many of the hours when the test has failed are during times of tight supply conditions in the market which suggests that these hours may be actually reflecting scarcity rather than uncompetitive conditions.”
2.
Provide your organization's comments on the updated proposal for the mitigation process to only trigger when (1) the ISO Balancing Authority Area (BAA) marginal energy cost is greater than internal ISO and external proxy peaker prices and (2) the ISO BAA marginal energy cost is highest within the EIM and ISO is in an import-transfer-constrained EIM region:
PGP does not support the current proposal for the pivotal supplier test trigger and recommends that CAISO instead consider including bilateral market hub prices in the pivotal supply test trigger, along with the other price criteria proposed in the draft final proposal or revert back to the initial trigger proposal which was based on when the three major interties into the CAISO BAA had binding constraints.
As CAISO explains in the revised draft final proposal, the CAISO BAA has two sources of energy from outside its BAA: EIM transfers resulting from the EIM’s resource specific dispatch and import bids at CAISO’s interties. For a CAISO market participant to exercise system-wide market power, the CAISO has to have limited access to both of these sources of external supply. CAISO proposes that when it has the highest marginal energy cost in the EIM within a constrained area and when the CAISO BAA marginal energy cost is greater than all internal CAISO gas-fired peaker prices and external gas-fired peaker prices, it is unable to access additional supply, regardless of price, from EIM participating resources or at the interties. CAISO reasons that if CAISO BAA prices rise above external peaker prices, it is likely some external limitation is preventing more supply from getting to CAISO’s interties because CAISO would expect profit-seeking marketers to offer to deliver cheaper external supply to CAISO’s interties.
PGP does not agree these proposed conditions indicate that CAISO is cut off from external supply. Gas prices that are lower than the CAISO BAA marginal energy cost may be one marker of prices outside the CAISO BAA but are not representative or a substitute for testing binding transmission constraints and are a less accurate proxy than electrical bilateral hub prices combined with the other price criteria CAISO proposed in its draft final proposal. As CAISO explained in its last proposal, external gas-fired peaker proxy costs can help ensure that the mitigation process will not incorrectly apply market power mitigation if there is a sudden gas price increase after the time that electrical price indices are published. However, gas prices alone are not a proxy for bilateral trading hub electricity prices which also include opportunity costs.
In an earlier proposal, CAISO proposed to test whether the three major transmission paths into the CAISO were binding as a trigger for the pivotal supply test. However, this was eventually abandoned as a trigger for the pivotal supplier test and replaced with pricing criteria, including bilateral market hub-prices, meant to simulate or approximate import-constrained conditions. Bilateral market trading hub prices alone are not a perfect indicator for testing whether the CAISO is import-constrained but combined with other pricing criteria such as those recommended by CAISO in it is last proposal, are a reasonable proxy. The revised draft final proposal no longer incorporates prices at bilateral market hubs, nor actually tests binding transmission constraints into the CAISO BAA. We believe the end result is to further dilute the pivotal supplier test trigger such that it no longer would effectively test whether the CAISO is import-constrained.
This is concerning because to trigger the pivotal supplier test incorrectly runs the risk of over-mitigation occurring. Over-mitigation would inappropriately lower prices in real-time but would also have effects beyond the real-time market since the clearing price in the real-time market also affects the day-ahead market through price-convergence. In addition, fear of over-mitigation could lead to a lack of supply bids in CAISO’s markets. If prices are expected to be mitigated, then less supply may be offered in future hours, exacerbating CAISO’s supply challenges. Given the risks associated with over-mitigation, CAISO should take a light touch at the outset and monitor whether a more stringent trigger is needed in the future.
3.
Provide your organization's comments on the updated proposal for the pivotal supplier test to consider economic import offers as potentially pivotal supply:
PGP does not oppose including economic import offers as potentially pivotal supply, however, we request that CAISO confirm that import offers will not be subject to mitigation, even if they are deemed pivotal.
4.
Provide your organization's comments on the updated proposal for the competitive Locational Marginal Price (LMP) to be calculated as the greater of the highest import offer cleared on a constrained ISO intertie and the next highest BAA marginal energy cost within the EIM:
PGP believes that bilateral hub prices are a more accurate proxy for the competitive price for energy outside the CAISO BAA, as compared to the current proposal which determines the competitive LMP based on highest import offer cleared on a constrained ISO intertie and the next highest BAA marginal energy cost within the EIM. There are three major interties into the CAISO BAA, the highest import offer on one constrained ISO intertie does not reflect the highest price in the broader bilateral market.
5.
Provide any additional comments on the revised draft final proposal, as part of the System Market Power Mitigation initiative:
No comments.
Public Power Council
Submitted 10/05/2020, 04:39 pm
1.
Please provide a summary of your organization’s comments on the revised draft final proposal:
PPC appreciates the opportunity to provide feedback on CAISO’s System Market Power Mitigation Revised Draft Final Proposal. PPC represents the interests of nearly 100 public and consumer owned utilities in the Northwest. PPC’s members are interested in the potential development of this policy from several perspectives: as purchasers of preference power and transmission services from BPA (which is planning to join the EIM in 2022), as load serving entities in the current and/or future EIM footprint, and as current, planned and potential EIM participants themselves.
PPC does not support the most recent modifications to the System Market Power Proposal and believes this issue should be addressed as part of a more holistic stakeholder initiative on price formation that can include the lessons of the August load shedding events. PPC believes the most recent proposal removes important and practical safeguards that help ensure the proposal is not mitigating supply unless the CAISO BAA is actually experiencing conditions where system market power concerns exist. Taking a more complete approach to address market power concerns in conjunction with an examination of scarcity pricing will result in more durable solutions and avoid unintended consequences. The August and September energy emergency events highlight the important role prices play in CAISO’s ability attract non-RA import supply and the importance of attracting that supply during high demand periods. A proposal to mitigate bids for potential System Market Power, particularly as currently structured, could have significant effects on price formation and PPC is concerned that the current schedule for the system market power initiative do not allow for the lessons of recent events to be incorporated into the proposal. PPC believes the new modifications to the proposal could discourage economic import offers in tight grid conditions when voluntary import offers are needed the most exacerbating the potential for supply issues in the future.
PPC continues to be concerned that this price formation topic has been prioritized over other price formation issues. Analysis to date prepared by CAISO staff and the Department of Market Monitoring (DMM) has not demonstrated the CAISO BAA currently has a problem with the exercise of system market power. The Market Surveillance Committee, in its November 2019 Opinion on System Market Power Mitigation, reviewed these analyses and concluded ”there might have been some limited potential for market power at the system level, but, according to analyses of prices and costs that have been carried out to date, this market power has not been exploited very frequently or aggressively”.
Despite the fact that little to no market power at the system level has been exercised in recent years, PPC understands that load within the CAISO BAA and the DMM remain concerned that anticipated changes in the CAISO resource mix could increase the potential for the system market power. As thermal resources retire and are not replaced with resources demonstrating the same characteristics, the number and capacity of resources available to meet grid demands will decrease – potentially leading to additional entities exploiting market power at the system level.
PPC believes the same changing resource mix will also have the effect of increasing the CAISO BAA’s reliance on voluntary economic offers of imports to meet grid needs. The events that occurred in August and September appear to reinforce this perspective. Given this context, PPC believes it is vital to take the time to carefully develop a reasonable framework that addresses the exercise of system-level market power without discouraging voluntary economic import offers. We agree with CAISO staff that this is best achieved through policy and market design that results in competitive, accurate and efficient price formation. Despite PPC’s reservations regarding the need for this initiative, we have supported multiple iterations of CAISO’s previous proposals as reasonable methods to meet this objective. However, as explained in further detail below we do not believe the current iteration strikes a reasonable balance between mitigating system level market power and protecting against over mitigation.
2.
Provide your organization's comments on the updated proposal for the mitigation process to only trigger when (1) the ISO Balancing Authority Area (BAA) marginal energy cost is greater than internal ISO and external proxy peaker prices and (2) the ISO BAA marginal energy cost is highest within the EIM and ISO is in an import-transfer-constrained EIM region:
The CAISO pivotal supplier test trigger is designed to identify and limit mitigation to periods in which the potential for system level market power exists. As CAISO explains, a well designed trigger is important because system market power mitigation has very broad and consequential impacts; an overly broad application of system market power mitigation could discourage supply and demand participation in the market. PPC believes there is general agreement among stakeholders that the CAISO BAA is potentially uncompetitive at the system level when CAISO is cut off from the broader western interconnect. Throughout this initiative, stakeholders have had difficulty reaching a consensus on what criteria best approximates when the CAISO BAA is cut off from the competitive west. PPC is concerned with the modifications to the proposed criteria, in particular the replacement of bilateral market hub prices with a proxy external peaker price. PPC believes this modification will result in a less accurate assessment of when the CAISO BAA is cut off from the broader western interconnect.
The current mitigation proposal would trigger when 1) the CAISO BAA has the highest marginal energy cost among the EIM BAAs, 2) CAISO BAA prices exceed the proxy costs of an internal peaking unit, and 3) CAISO BAA prices exceed the cost of proxy external peaking units incorporating start-up gas. In this iteration of the proposal, CAISO intends to use the hypothetical costs of external peaking units in leu of actual bilateral prices outside the CAISO BAA as a method to approximate when there may be a limited ability to import into the CAISO BAA from the broader WECC. PPC’s concern with this approach is that it is less representative of when CAISO may actually be cut off from the broader WECC.
The current iteration of the proposal continues to only consider EIM transmission and not the broader transmission framework in determining when the CAISO BAA is import constrained. In the previous proposal, this conservative assumption was balanced by also considering whether CAISO BAA prices exceed those at bilateral market hubs. This is a reasonable way to approximate when the CAISO BAA is a constrained area and cut off from the broader WECC supply because it considers the actual prevailing price of energy outside the CAISO BAA. Significant price separation between these two markets is an indicator that supply from external BAAs that can be delivered into the CAISO BAA is limited. PPC believes that the hypothetical costs of a gas peaking unit are a poor proxy for external bilateral market prices. Stakeholders have raised several reasons why proxy peaker costs are not reflective of bilateral market prices such as premiums for scarcity, forward opportunity costs of fuel limited resources or potential transmission hurdle rates which can be included in bilateral market pricing. Using a poor proxy of bilateral market conditions may lead to CASIO mitigating prices when prices within the CAISO BAA exceed the costs of an external peaking unit, but the BAA is still price converged with the actual market prices in another portion of WECC. PPC believes this could lead to poor outcomes where mitigation exacerbates CAISO’s ability to send the appropriate signal to attract voluntary economic imports. This is because market participants will decide to offer supply into the CAISO BAA, not based on the marginal cost of a hypothetical peaking resource, but based on the actual prices in other regions.
In order to evaluate the current CAISO proposal, additional information related to the frequency of when the pivotal supply test would trigger is needed. CAISO has stated it anticipates the proposal would be as conservative or potentially more so than the last proposal. PPC would appreciate seeing data that supports this conclusion as the modifications to the screening criteria appear much less conservative than the previous iteration.
3.
Provide your organization's comments on the updated proposal for the pivotal supplier test to consider economic import offers as potentially pivotal supply:
No comments.
4.
Provide your organization's comments on the updated proposal for the competitive Locational Marginal Price (LMP) to be calculated as the greater of the highest import offer cleared on a constrained ISO intertie and the next highest BAA marginal energy cost within the EIM:
No comments.
5.
Provide any additional comments on the revised draft final proposal, as part of the System Market Power Mitigation initiative:
PPC appreciates the opportunity to comment on the Revised Draft Final System Market Power Mitigation proposal.
Southern California Edison
Submitted 10/05/2020, 01:48 pm
1.
Please provide a summary of your organization’s comments on the revised draft final proposal:
SCE appreciates the opportunity to provide comments on the CAISO System Market Power Mitigation Revised Draft Final Proposal (the CAISO Proposal).[1]
SCE strongly supports the CAISO’s effort to develop rules to address system market power issues (e.g., the number of structural non-competitive hours identified in CAISO and DMM studies) and agrees with the CAISO’s observation that tightening supply conditions may increase the potential for system-level market power in the coming years[2]. Developing a system market power mitigation mechanism for the CAISO BAA is consistent with the fact that a system-level market power mitigation already exists for EIM BAAs.
The latest CAISO Proposal is an improvement over the previous proposal (i.e., Draft Final Proposal dated June 15, 2020). SCE supports the removal of day-ahead bilateral trading hub index prices from the trigger criteria and the calculation of the Competitive LMP. There are still several issues that should be addressed under the CAISO Proposal as listed below. SCE supports the CAISO’s timeline to implement the CAISO Proposal prior to Summer 2021. SCE recommends that the CAISO address these issues before implementing its proposal prior to Summer 2021 as the schedule allows and address all remaining issues that are not addressed prior to Summer 2021 in a later phase[3].
- The CAISO Proposal should only count competitive import offers as fringe supply,
- The mitigation test should trigger when all BAAs clear at a same price and the cleared price is above the proposed proxy cost for the hypothetical internal and external peaker (SCE notes that, the price being above the proposed proxy peaker cost is one triggering criteria proposed by the CAISO). This will address scenarios, for example, when all BAAs clears at a price at or near the bid cap, and
- The CAISO Proposal should consider subjecting all resources in the constrained region to bid mitigation when the region fails the system market power test.
These issues are discussed further below. SCE’s comments below also seek more clarity on the calculation of the CAISO BAA’s marginal energy cost under the proposal. Last but not the least, SCE continues to request that the CAISO launch an effort to design and implement system market power mitigation in the day-ahead market.
[1] CAISO System Market Power Mitigation Revised Draft Final Proposal, September 18, 2020, available at http://www.caiso.com/InitiativeDocuments/RevisedDraftFinalProposal-SystemMarketPowerMitigation.pdf.
[2] The CAISO Proposal, at 9-10.
[3] The CAISO plans to have a future market initiative to address further issues after the implementation of this proposal. The CAISO Proposal, at 32.
2.
Provide your organization's comments on the updated proposal for the mitigation process to only trigger when (1) the ISO Balancing Authority Area (BAA) marginal energy cost is greater than internal ISO and external proxy peaker prices and (2) the ISO BAA marginal energy cost is highest within the EIM and ISO is in an import-transfer-constrained EIM region:
SCE supports the removal of day-ahead bilateral trading hub index prices from the trigger criteria and the calculation of the Competitive LMP. As commented by SCE and other stakeholders, including bilateral hub prices as a mitigation trigger or a component in deriving the Competitive LMP is unnecessary and can be problematic[1]. The CAISO Proposal addresses this issue. SCE also supports that when the CAISO BAA price is compared to EIM BAAs’ prices in deciding whether to trigger the test, the comparison should not consider those EIM BAAs that may have elevated prices, higher than the CAISO price, due to a failure of the upward Flex Ramp Sufficiency Test. The CAISO should clarify whether other EIM sufficiency tests (e.g., balancing and resource sufficiency tests) should be excluded as well since a failure of those tests can result in the EIM BAA price being higher than the CAISO BAA price, similar to that when the Flex Ramp Sufficiency Test fails.
The CAISO should provide additional information regarding the cost magnitude of including start-up costs in estimating a proxy cost for the hypothetical external peaker. This information is critical because under the CAISO Proposal, the proposed system market power mitigation will not trigger unless the CAISO BAA price is higher than this proxy cost.
The CAISO should clarify the meaning of the marginal energy cost in the proposal, for example, as referred to in the following statement:
The market systems will only trigger the system market power mitigation process when the following two conditions occur: (1) the CAISO balancing authority area marginal energy cost is greater than internal CAISO and external proxy peaker prices and (2) the CAISO balancing authority area marginal energy cost is the highest balancing authority area marginal energy cost in the EIM and the CAISO is in an import transfer constrained region of the EIM. [2]
It is unclear whether the CAISO BAA marginal energy cost is the same as the system marginal energy cost (SMEC), which to SCE’s understanding is the shadow price of the system power balance constraint with the CAISO BAA load as the system reference bus. Further, since all BAs in the EIM share the same marginal energy cost across all pricing nodes in their BAs, it is unclear how the proposed comparison would work mathematically, what additional information the CAISO market would need to produce to implement the proposal, and whether such information would be made available to the market.
Issue of not triggering the system market power mitigation test when all BAAs clear at the same price, above the proxy cost of the hypothetical internal and external peaker
Under the CAISO Proposal, when the CAISO and all EIM BAAs clear at a same price, e.g., at an extreme level at or near the bid cap, there will not be any test for system market power, nor any actual mitigation even if the potential for system market power exists. For example, if and when pivotal suppliers inside the CAISO BAA can economically withhold their capacity, by bidding above the resource’s marginal cost (e.g., at a high price at or near the bid cap) for a quantity just exceeding the amount of net imports during a market interval, the pivotal suppliers would be able to set the clearing price for the entire market. But such a scenario would not trigger the market power mitigation test under the CAISO Proposal. This can occur even if there is no scarcity involved (i.e., due to capacity withholding, rather than shortage of supply). For this reason, the CAISO Proposal should address the issue by triggering the system market power mitigation test when all BAAs clear at the same price that is above the proposed proxy costs for the hypothetical internal and external pearker that is not the result of scarcity events[3].
[1] E.g., SCE comments on Draft Final Proposal, July 14, 2020, at 3, available at http://www.caiso.com/InitiativeDocuments/SCEComments-SystemMarketPowerMitigation-DraftFinalProposal.pdf. Issues of including bilateral prices are also summarized in the CAISO Proposal, at 6.
[2] The CAISO Proposal, at 5, 26.
[3] Scarcity could be involved for example when the power balance constraint is relaxed; however, all BAAs could clear at the same price, at or near the bid cap, without any power balance constraint relaxation.
3.
Provide your organization's comments on the updated proposal for the pivotal supplier test to consider economic import offers as potentially pivotal supply:
SCE supports the inclusion of import offers of CAISO BAA pivotal suppliers in their pivotal supply for the calculation of the residual supply index (RSI3). Below SCE comments on several issues on the proposed pivotal supplier test design.
Issue of counting all import offers as fringe supply regardless of their competitiveness
The CAISO Proposal essentially treats all import offers as fringe supply, with the only limitation being subjecting import offers on individual interties to the intertie limit. This can lead to a large amount of import offers that are either infeasible (e.g., exceeding the simultaneous import limit (SIL)) or non-competitive. The CAISO should ensure the amount of import offers as fringe supply do not exceed SIL. To address potential non-competitiveness of import offers, only the import offers on the interties that are deemed competitive should be included as fringe supply. Given the calculation of the Competitive LMP, SCE believes that the CAISO should treat only those import offers that are bid at or below the Competitive LMP as competitive, and consequently only include those offers as fringe supply.
Other issues
The CAISO Proposal considers only those pivotal suppliers that are located inside CAISO BAA, even though the test is performed for a constrained region that extends beyond the CAISO BAA. This can create inconsistency in that the test may not be able to capture the true pivotal suppliers in the region, resulting in potential under detection of market power. Another issue of the proposed test design involves the fact that a significant portion of the output of the resources controlled by the three pivotal suppliers is treated as fringe supply. Such treatment could lead to a large discrepancy in the counting of the capacity of pivotal resources between this proposal and offline studies that treat the entire capacity of a pivotal resource as pivotal. Such discrepancy can introduce a gap in the effectiveness of the CAISO Proposal in addressing structural non-competitiveness of the CAISO markets unless a system market power mitigation mechanism is implemented in the day-ahead market[1].
[1] For more details on this topic, please see SCE Comments, May 4, 2020, at 3-4, available at http://www.caiso.com/InitiativeDocuments/SCEComments-SystemMarketPowerMitigation-RevisedStrawProposal.pdf.
4.
Provide your organization's comments on the updated proposal for the competitive Locational Marginal Price (LMP) to be calculated as the greater of the highest import offer cleared on a constrained ISO intertie and the next highest BAA marginal energy cost within the EIM:
The CAISO should provide details on how the marginal energy cost of an EIM BAA will be calculated, also as commented above. In addition, as recognized by the CAISO, it is possible that the use of the next highest EIM BAA price may result in an uncompetitive LMP, for example, if the price is for a small BAA with little net supply[1]. Given the importance of ensuring competitive prices for the CAISO BAA and the market, SCE believes that the CAISO should consider using mitigated EIM prices or prices for those BAAs that have passed the market power mitigation test.
[1] The CAISO Proposal, at 39.
5.
Provide any additional comments on the revised draft final proposal, as part of the System Market Power Mitigation initiative:
Bid Mitigation: issue of not mitigating all resources in the constrained region when the region fails the system market power test
During the April 13, 2020 stakeholder call, the CAISO staff stated that when the RSI fails, the SMPM will mitigate resource offers from any supplier when in combination with the two largest suppliers are required to meet demand. This implies that the amount of supply internal to the CAISO that is being mitigated will not be lower than the amount of demand in the constrained area (plus the net export when applicable). This is a critical element of the proposal and the CAISO should clarify this understanding in the next iteration of the CAISO Proposal. While mitigation of an amount of internal supply not lower than the amount of the demand will provide some protection, it does not guarantee a competitive clearing price following the mitigation. As such, the CAISO should consider extending the bid mitigation to additional resources and potentially all resources in the constrained region.
Western Power Trading Forum
Submitted 10/05/2020, 03:50 pm
1.
Please provide a summary of your organization’s comments on the revised draft final proposal:
WPTF has been and will remain supportive of a competitive market that allows for appropriate price formation while protecting against market power. As iterated in past comments, WPTF is extremely concerned that the costs of implementing the proposed system market power mitigation mechanism may not outweigh the benefits and rather deter much needed supply from being offered into the market during periods when its needed the most. The CAISO’s data has yet to show the exercise of system market power and WPTF is still not convinced that system market power is looming around the corner such that the CAISO should expedite the implementation of a knowingly flawed design. The design as currently constructed will inherently over-identify hours to be tested for uncompetitive conditions, leading to over-mitigation and suppressed market prices; market price suppression will have the effect of deterring much needed supply, most notably during periods when energy prices should be increasing above the marginal cost of energy to signal tight supply and near scarce conditions. This entire effort seems to be a solution in search of a problem. While WPTF is not convinced that some form of system market power mitigation is necessary or prudent, WPTF nevertheless comments on the CAISO’s proposal below.
Furthermore, the recent August events further WPTF’s concerns in that there is now more risk in implementing system market power mitigation absent other market changes such as scarcity pricing. The ongoing discussions occurring within this policy process come at an opportune time; the CAISO and stakeholders can leverage the experience gained from the August Heat Wave Events to help inform these discussions, develop proper market design elements, and ultimately help ensure the continued reliable operation of the electric grid and facilitate a competitive wholesale market with improved price formation.
WPTF understands that the CAISO believes there is a sense of urgency to design and implement a system market power mitigation process prior to summer of 2021. Prioritizing a speedy implementation requires making trade-offs, trade-offs (for example, full consideration of a conduct and impact test) that WPTF along with several other stakeholders have urged the CAISO to reconsider. In the event the CAISO opts to continue designing a system market power mitigation mechanism, rather than rushing through a stakeholder process that will have wide-ranging implications on the amount of supply made available to the CAISO markets in both the short and long terms, we again ask that the CAISO take pause and give this market design effort the time and discussions warranted. As discussed in more detail below, the additional time would also provide for the ability to implement system market power mitigation together with scarcity pricing.
2.
Provide your organization's comments on the updated proposal for the mitigation process to only trigger when (1) the ISO Balancing Authority Area (BAA) marginal energy cost is greater than internal ISO and external proxy peaker prices and (2) the ISO BAA marginal energy cost is highest within the EIM and ISO is in an import-transfer-constrained EIM region:
WPTF is unsure why the CAISO opted to move from triggering the mitigation process when four criteria are met to the now proposed criteria. The newly proposed criteria seem to no longer consider a trigger that factors in the prices at which the other bilateral markets are trading. As clearly discussed from the very onset of this effort, the CAISO is designing the system market power mitigation process under the assumption that the WECC is competitive. Thus, if bilateral markets are trading at prices higher than the CAISO, it then follows that those prices are reflecting competitive conditions. However, the CAISO’s currently proposed triggers may trigger the mitigation process even though the CAISO’s prices are still below the competitive prices the rest of the WECC is trading at. This will have the unintended, and quite frankly harmful, effect of deterring much needed voluntary import supply from even making itself available to the CAISO market. While WPTF understands that triggering the mitigation process itself does not mean resources will actually have their bids mitigated, it does mean that there will be an increase in Type II errors (false positives).
Over-mitigation, or the instances of false positives, has implications throughout not only the CAISO energy markets but the broader western energy markets as well. The context throughout this entire stakeholder process has been concern with regards to supply becoming tighter and more concentrated. However, the current proposal will hinder the CAISO’s ability to attract much needed import supply. If a supplier has the option of either selling energy across the interties to the CAISO, and risk not clearing the market as a result of the CAISO mitigating offers absent market power, or selling elsewhere where mitigation is not a factor, the risk introduced by the CAISO over-mitigating will likely chase away much needed supply.
Furthermore, mitigating and suppressing prices when market power has not been exercised will fundamentally dilute the CAISO’s price signals. The CAISO spent years designing a nodal energy market recognizing the benefit of having more transparent price signals at each pricing node compared to its previous zonal market structure. WPTF strongly agrees that there are significant benefits to transparent and granular nodal prices when those prices can be formed under competitive market forces such that they represent the marginal cost of energy. Mitigating offer prices when market power has not been exercised will reduce the quality of price signals – something the CAISO is aiming to improve. It should also be noted that the energy LMPs are used not only to send out hourly, 15-minute, and 5-minute price signals to the immediate market to inform daily and hourly participation, but are also used to make longer term investment and contracting decisions. These longer-term decisions are also key to continuing a competitive market structure as they incent new entry and inform the exit of uneconomic supply. The implications of over-mitigation, as would be the case with the current proposal, are far-reaching and long-term, and thus should not be simply brushed off.
The CAISO could consider some modifications to the formula proposed for determining the external proxy peaker price. It is WPTF’s understanding that one of the reasons the CAISO has included the external proxy peaker price as a trigger is as a way to determine if the CAISO is “import constrained”. The CAISO’s reasoning is that if there is lower cost energy outside the CAISO BAA that is not being offering into the CAISO market, it must then be the case that there are external constraints restricting the ability for that competitively priced external supply in the WECC to reach the CAISO. First, WPTF does not agree with this reasoning; as discussed in more detail below, the lower priced energy may not be offered into the CAISO market because (1) the energy is not actually "lower cost" since the CAISO’s estimated cost for external competitive supply does not reflect all costs and (2) the simple presence of mitigation introduces risk when external suppliers are considering where to offer the energy. The reasoning offered by the CAISO also assumes that the external proxy peaker price is reflecting all costs that would be considered as part of a competitive offer. To that end, WPTF believes there are some missing cost elements to the formulation. Without the addition of these missing cost elements, the design will inherently underestimate the external proxy peaker price and trigger the mitigation process more often, leading to more instances of over mitigation. First, the CAISO is proposing that the external proxy peaker price will reflect start up costs; for the same reasons start up costs are being included, WPTF believes minimum load costs should also be included. Second, to the extent external peakers would have to incur transmission costs to deliver its energy to the CAISO BAA, those costs should also be captured in the formulation. Lastly, and most importantly, the formulation also needs to consider the opportunity cost external resources face. External resources can sell energy either to the CAISO or elsewhere via the bilateral markets; this decision has to be made prior to submitting bids and offering its energy to the CAISO. Thus, any rational suppiers will only offer their supply to the CAISO so long as doing so will at least recover its operating costs and opportunity cost of selling that same energy through the bilateral market if dispatched. Therefore, opportunity costs of the bilateral market should be reflected in the proxy peaker price formation as its widely accepted and considered a marginal energy cost that can and should be reflected in competitive energy offers. Again, by excluding these cost elements the external proxy peaker price will inherently be lower than what a competitive price would reflect, thus increasing the instances of inappropriately triggering the mitigation process.
Lastly, WPTF respectfully requests that the CAISO conduct and make public an analysis that evaluates which hours the newly proposed triggers would trigger running the pivotal supplier test. We ask that the analysis be provided in sufficient time such that in the event it identifies the need for additional modifications to the triggers, the CAISO and stakeholders have ample time to consider and make the necessary changes prior to finalizing the design.
3.
Provide your organization's comments on the updated proposal for the pivotal supplier test to consider economic import offers as potentially pivotal supply:
4.
Provide your organization's comments on the updated proposal for the competitive Locational Marginal Price (LMP) to be calculated as the greater of the highest import offer cleared on a constrained ISO intertie and the next highest BAA marginal energy cost within the EIM:
WPTF believes additional discussion is warranted regarding the use of the highest cleared import offer on a constrained intertie in determining the competitive LMP. Under west-wide heat wave conditions where supply is tight across the west and imports, while being provided to the CAISO, may not actually result in any intertie constraint binding. In this case, WPTF asks for clarification if the CAISO will then by default set the competitive LMP to the second highest EIM BAA marginal cost of energy. Furthermore, the points made previously regarding the need to reflect opportunity costs in the mitigation process triggers also apply here. It’s imperative that the competitive LMP is able to reflect the competitive bilateral prices that are occurring outside the CAISO and EIM BAAs. Import offers may simply not be provided to the CAISO because the seller runs the risk of selling to the CAISO at a price less than the competitive bilateral prices, thus the import offers into the CAISO on which the competitive LMP would be based does not reflect the true higher competitive price because of those risks. This in turn will result in the competitive LMP used in the CAISO market to be further suppressed.
5.
Provide any additional comments on the revised draft final proposal, as part of the System Market Power Mitigation initiative:
As discussed previously, WPTF strongly encourages the CAISO to take pause and utilize additional time to coordinate implementation with other necessary changes such as scarcity pricing. Furthermore, with the additional time, the CAISO and stakeholders can consider other solutions for addressing the potential presence of system market power. The CAISO could seriously consider the alternative solutions, such as incenting LSEs to engage in long-term contracting, and/or take additional time to vet and consider a conduct and impact test rather than moving forward with the proposed pivotal supplier test. The CAISO continues to note that the reason it has not considered a conduct and impact test is the urgency at which it wants a system market power mitigation mechanism implemented. Again, the CAISO’s 2019 Annual Report on Market Performance and Issues published by the DMM shows that (1) prices in 2019 were competitive and (2) the day-ahead market was more structurally competitive in 2019 compared to 2017 and 2018. Thus, the idea that supply on the system is becoming more concentrated year after year and something needs to be implemented sooner rather than later is not even supported by the CAISO’s own analysis.
The August Heat Wave Events are clear evidence that there is the need for more supply on the system to address peak demand, especially during west-wide heat waves. However, tight supply does not necessarily mean the presence of market power. What it does mean in the context of market power mitigation is that the CAISO should take extreme efforts to ensure that price formation during the tight supply conditions sends out appropriate signals. High prices during tight supply conditions is not evidence of the exercise of market power; high prices during tight supply conditions is evidence of appropriate price formation and a well-functioning competitive market. To that end, WPTF requests that the CAISO implement system market power mitigation at the same time it implements a robust scarcity pricing market design. WPTF appreciates the CAISO’s recent commitment to conduct a holistic review of scarcity pricing starting in 2021. Here again, this provides another opportunity that can only be capitalized upon if the CAISO takes the additional time warranted to finalize the SMPM design. Coordinated implementation timelines for both scarcity pricing and system market power mitigation can provide the market protection against system market power in the event it becomes prevalent while ensuring prices are able to rise above the marginal cost of energy during tight supply and scarce conditions.
