FERC on Jan. 24 approved CAISO’s tariff revisions related to real-time bid cost recovery rules for energy storage resources. 

The ISO sought revisions on the grounds that the existing bid cost recovery structure allowed for unwarranted compensation at higher value than actual costs, creating an incentive to bid in a manner that would result in excessive payments (ER25-576). 

Without the tariff changes, CAISO said, “scheduling coordinators for storage resources may exploit market buy-backs and sell-backs through strategic bidding to inflate bid cost recovery payments even more.” 

From January 2022 to September 2024, storage resources received bid cost recovery payments totaling $58 million, CASIO told FERC, most of which reflect real-time cost recovery payments. 

This is a much higher portion of bid cost recovery payments compared with the portion of energy that they provided to the grid, CAISO said. It said a 2024 report by its Department of Market Monitoring (DMM) found numerous situations where storage resources might receive inappropriate bid cost recovery payments. 

CAISO indicated that storage is a rapidly growing energy sector — battery resources participating in CAISO markets expanded from about 500 MW in 2020 to more than 10,000 MW in October 2024, with 3,500 MW of it in the Western Energy Imbalance Market.  

After four months of intense stakeholder engagement, the CAISO Board of Governors and Western Energy Markets Governing Body unanimously approved the changes Nov. 7. (See Proposal to Refine Bid Cost Recovery for Storage Passes Unanimously.) 

In comments to FERC, DMM said it did not oppose the tariff revisions as a temporary short-term measure because they would limit inappropriate payments and limit the potential for gaming the bid cost recovery rules for batteries. 

DMM said it supports CAISO’s continued effort to further refine the rules through a new stakeholder initiative, but said these changes by themselves are insufficient because they address only the bid-cost component of the bid cost recovery calculation, which reduces gaming potential but does not address inefficient bidding incentives created by the revenue portion of the calculation. 

As such, DMM said, the tariff revisions do not address the core problem: that the payments remove storage resources’ exposure to real-time opportunity costs, creating incentives that can lead to inefficiencies and reliability issues. It said it hopes CAISO will promptly propose additional changes that will address this. 

In its Jan. 24 order, FERC accepted the proposed changes effective Dec. 1. 

It wrote: 

• • “We find that the revisions can help mitigate the magnitude of unwarranted or inflated bid cost recovery payments to storage resources, especially in real-time.” 

• • “With respect to bid cost recovery related to incremental energy, we find CAISO’s proposal to use the lower of a resource’s real-time energy bid or proxy (the maximum of a resource’s day-ahead LMP, real-time market default energy bid or real-time LMP for that interval) provides a reasonable representation of the operational nature of storage resources.” 

• • “With respect to bid cost recovery related to decremental energy, we find CAISO’s proposal to use the greater of a resource’s real-time energy bid or (the minimum of) the aforementioned proxies better reflect the costs of providing decremental energy.” 

FERC wrote that some of the “core problems” DMM cites are beyond the scope of the proceeding but added that it found CAISO’s proposal a reasonable first step to mitigating real-time bid cost recovery payments. And it encouraged the efforts by CAISO, DMM and stakeholders to further refine the tariff.