The California Public Utilities Commission wants CAISO to come up with a way to pause settlements of certain congestion revenue allocations in the ISO’s upcoming Extended Day-Ahead Market if participants begin to game the market through extensive self-scheduling.

If such “rampant pervasive behavior” appears, CAISO should consider reverting to using the ISO’s prior settlement methodology, the CPUC’s Energy Division said in January comments submitted to an ISO EDAM working group.

The congestion revenue allocation issue, specifically in situations of parallel flow on the electric system, was CAISO’s top priority last year. CAISO approved a new methodology to address the concern in June 2025, and FERC approved the methodology two months later. (See CAISO’s EDAM Scores Simultaneous Wins at FERC.)

Under the new methodology, certain congestion revenues stemming from parallel flows will be allocated to the BAA where the energy is scheduled rather than where the constraint is located — the previous methodology. Those revenues will be allocated based on a transmission customer’s eligible firm Open Access Transmission Tariff transmission rights submitted and cleared as day-ahead balanced self-schedules.

However, the new methodology will maintain a “suspected underfunding problem for the immediate future if other BAAs decide to self-schedule their bids in order to receive this congestion revenue,” the CPUC said.

“The expansion of the day-ahead market should not come at the expense of California ratepayers, who have invested millions, if not billions of dollars, into building a reliable grid,” the CPUC said. “Therefore, rather than allocating away congestion revenue tied to parallel flows to the BAA causing the parallel flow, any long-term CRA methodology should return that congestion revenue to the BAA in which the constraint occurred.”

Although the new allocation methodology has flaws, it was necessary to implement “as a stopgap measure for EDAM go-live to occur on time,” the CPUC added.

The CPUC recommended CAISO build out a “stop the brakes” mechanism, such as a pause in settlements, if the new methodology starts to show signs of gaming.

In December, CAISO published a proposed set of design principles that would help eliminate or reduce self-schedule incentives in the approved congestion revenue allocation design. Self-scheduling incentives could lead to significant unintended cost shifts, experts cautioned earlier in 2025. (See CAISO Looks to Eliminate Self-schedule Incentives in EDAM Congestion Revenue Design.)

The CPUC asked also CAISO to confirm the ISO’s settlements system will be able to break out the congestion revenue tied to a parallel flow that crosses multiple BAAs. This potential issue will not be a concern when EDAM launches with PacifiCorp as its first participant in May 2026, but the ability to break apart congestion revenues will become more important when Portland General Electric and other entities join the market later in the year and in 2027, the CPUC said.

The agency asked also CAISO to clarify how it is treating congestion revenue tied to parallel flows caused by flows from another market, such as Markets+.

“Is this congestion revenue assigned to the BAA in which the constraint occurs, or is this congestion revenue returned to the market participant in the other market?” the CPUC said. “If the latter, has CAISO initiated these conversations with Markets+? Or does EDAM simply keep these congestion revenues?”

EDAM Benefits Approach Drafted

Separately, CAISO on Jan. 20 published its draft methodology for how the ISO and EDAM participants will estimate EDAM’s gross economic benefits.

The draft proposes to calculate EDAM benefits based on production cost savings in the electric system with EDAM versus the cost of the system without EDAM.

For hydroelectric resources, the EDAM benefit methodology will use an adjusted bid value to calculate production costs of the resource. This is because hydroelectric market bids might include both the value of water and certain external limits, CAISO says. Some of these external limits include FERC minimum flow requirements, recreational reservoir levels and forecast reservoir level targets, the draft says.

Estimating EDAM benefits does not require additional market tools or external data sources, and EDAM participants are not required to submit more data than what they already submit in a market run, the report says.

CAISO plans to finalize the benefits calculation methodology in the first quarter of 2026 before EDAM opens in May.