Establishing a fast-start pricing mechanism in CAISO and the Western Energy Imbalance Market (WEIM) is complex and would bring few benefits compared with other potential market enhancements, the head of CAISO’s Department of Market Monitoring (DMM) said Jan. 10.

Though other organized markets have introduced the mechanism, doing so in the WEIM would be complex because WEIM has “some very unique features,” such as a flexible ramping product and multi-interval optimization, that do not exist in the other markets, said Eric Hildebrandt, executive director of CAISO’s DMM, during a presentation to a meeting of the Western Energy Markets Body of State Regulators.

Hildebrandt said fast-start pricing should not be prioritized over other potential market enhancements such as a “new or better real-time product for managing uncertainty and ramping capacity.”

“We have a 15-minute flexible ramping product in the real time market,” Hildebrandt said. “But frankly, it doesn’t do much, because it only looks out 15 minutes and the operators really need to look one to two hours out in terms of positioning units so that we have enough capacity to ramp up and meet uncertainty.”

Out of the six FERC-jurisdictional organized markets, CAISO alone doesn’t use fast-start pricing, a mechanism that factors the cost of starting and operating gas-fired peaking units into the wholesale market price.

In December 2023, CAISO presented its own analysis of fast-start pricing and sought stakeholder feedback for developing its scope.

Proponents have argued that fast-start pricing can decrease bid cost recovery and support new investments in new supply and ramping capacity, among other benefits.

The issue has also turned up in the competition between CAISO’s Extended Day-Ahead Market (EDAM) and SPP’s Markets+, with Markets+ supporters such as Powerex and other Northwest entities faulting the ISO for not including fast-start pricing in the EDAM’s initial design.

But Hildebrandt said data reveals that bid cost recovery for gas peakers is already low in the CAISO balancing area. For example, bid cost recovery paid to fast-start combustion turbines in the CAISO balancing area totaled about $32 million in 2022, or about 16% of total bid cost recovery payments to gas resources, according to DMM.

The numbers are lower in the WEIM footprint. Approximately $1 million was paid out in 2022, or about 3% of total bid cost recovery payments to gas resources in WEIM areas.

The 15-minute locational marginal pricing is usually sufficient to cover the startup minimum load energy costs of the peakers that are committed, Hildebrandt said.

“At least in our markets, there doesn’t seem to be significant benefits there, in terms of decreased bid cost recovery,” he added. “And I think that is reflection that they’re not used. These units are not usually being dispatched where there’s a big disconnect between the prices and their costs.”

Similarly, data does not support claims that fast-start pricing will lead to significant investments in new generation resources, according to Hildebrandt.

“You can argue anything that raises prices increases investment in new supply and ramping capacity,” Hildebrandt said. “But again, I think some of the data show that the increase from fast-start pricing is not going to have a significant impact on that.”

“In all the markets in the West, new investment comes from resource adequacy,” he added. “You know, utility planning, resource planning, and not from energy market revenues. So we question the benefits there.”

Hildebrandt also argued that CAISO should not be swayed by the fact that other ISOs have fast-start pricing, saying the Eastern ISOs introduced the pricing mechanism more than 10 years ago when they still had old and “very lumpy peakers.”

“They were more geared toward hourly prices rather than the five- or 15-minute prices that we’ve really kind of based the markets on out here in the West due to the higher penetration of renewables,” Hildebrandt said.