CAISO has approved the final proposal in its highest-priority initiative in 2025.  

The CAISO Board of Governors and Western Energy Markets (WEM) Governing Body at a joint meeting June 19 approved a new method for allocating certain congestion revenues in the ISO’s Extended Day-Ahead Market (EDAM), set to launch in 2026. 

CAISO began the initiative to address a paper by Powerex that said the existing EDAM model contains a “design flaw” with potentially $1 billion in unjustifiable charges at stake. (See Powerex Paper Sparks Dispute over EDAM ‘Design Flaw’.) 

Since then, CAISO has issued multiple proposals on the subject and has held stakeholder workshops to resolve potential congestion revenue allocation issues that could arise under EDAM — some of which continue to exist in the final design, certain stakeholders contend. (See CAISO EDAM Congestion Revenue Proposal Gains Support.)  

“I think it would be an understatement to say that this initiative and proposal seem to be the most intense and engaged issue since the approval of EDAM,” Governing Body Chair Robert Kondziolka said at the June 19 meeting. “Although painful at times, the stakeholder process works.”  

“It’s clear that we are in territory that other ISOs haven’t navigated, so we are learning as we go,” CAISO board Chair Severin Borenstein added. 

The proposal is intended to address the fact that congestion revenues, or rents, will occur when a transmission constraint in one EDAM balancing area affects the locational marginal prices in neighboring balancing areas. In these cases, the market operator pays less to suppliers than to market participants. 

Under the current EDAM model, congestion revenues would be allocated to the balancing authority area that contains the transmission constraint that is causing congestion on the system. This design is in effect in the WEIM and has been approved by FERC. 

Under the new design, certain congestion revenues would be allocated to the BA where the energy is scheduled, rather than where the constraint is located. The new design applies in cases of parallel flow — or loop flow — on the system. In these parallel flow situations, congestion revenues will be allocated to an EDAM BA where congestion revenues are collected by using eligible firm Open Access Transmission Tariff transmission rights submitted and cleared as day-ahead balanced self-schedules, CAISO said in a June 12 memo on the matter. 

The purpose of the new design is to improve congestion cost protections for transmission customers exercising eligible firm transmission rights under the terms of the EDAM entity’s OATT, CAISO said in the memo. The design applies only to the day-ahead market, not congestion revenue allocations in the Western Energy Imbalance Market (WEIM). 

Most stakeholders support the final design, CAISO staff said at the meeting. However, two primary concerns remain among many stakeholders: one, that the design is ‘transitional’; and two, that the design could create economic incentives to self-schedule energy resources. 

The Unknowns

For transitional concerns, stakeholders want the ISO to “ensure there is a forum for consideration of a long-term design for congestion revenue allocation as the EDAM footprint grows,” CAISO said in its memo. CAISO therefore will hold working groups with stakeholders before EDAM begins in 2026.  

After these working groups, CASIO said it will propose a long-term design within the next two years. CAISO also will monitor the performance and impacts of this transitional change using certain metrics that will be shared with stakeholders.

The primary concern of CAISO’s Market Surveillance Committee (MSC) is about the new design’s potential to create self-scheduling incentives, which potentially reduce the benefits of coordinating unit commitment and dispatch across multiple balancing areas that EDAM is intended to provide, and potentially result in unintended cost shifts, MSC committee members said in a June 16 memo. 

“We do want to avoid those self-scheduling incentives,” consultant Scott Harvey, MSC member, said at the meeting. “On the other hand, they might be small … and there is not going to be a lot of self-scheduling in response to these incentives. But we think that is not a given and these are things CAISO needs to look at.” 

“EDAM is not an off-the-shelf product,” Harvey added. “When you’re doing something for the first time, you should never assume everything is going to work right.” 

The ISO’s Department of Market Monitor (DMM) agreed the new design is likely to create economic incentives for some inefficient self-scheduling of resources. However, while this will reduce the efficiency benefits from managing congestion over an expanded EDAM footprint relative to the currently approved design, there still would be significant benefits from an expanded market relative to the current pre-EDAM market, Eric Hildebrandt, DMM executive director, said in a June 12 memo.  

The ISO has provided data showing there is reasonable hope that the potential for inefficient self-scheduling would be limited in the PacifiCorp balancing areas, Hildebrandt said.