The Federal Energy Regulatory Commission (FERC) has unanimously approved the California Independent System Operator’s (CAISO’s) Day-Ahead Market Enhancements (DAME) and Extended Day-Ahead Market (EDAM) proposal, effectively allowing new market options to address challenges caused by increasing system variability and uncertainty in the West.
FERC’s decision issued on Dec. 20, for the most part, accepts CAISO’s Aug. 22, 2023–filed proposed revisions to its tariff to implement the DAME and EDAM proposals. “I believe such efforts will enhance reliability, expand the savings and efficiencies that wholesale markets provide, and contribute to consumers’ bottom line,” FERC Chairman Willie Phillips said on Wednesday.
CAISO already operates a day-ahead market—a wholesale market for energy and ancillary services that, similar to a commodity market, enables transactions a day in advance to ensure the system operator has adequate resources available in real-time. In 2014, CAISO launched the Western Energy Imbalance Market (WEIM), which allowed balancing authority areas (BAAs) in the Western Interconnection to participate in the imbalance energy portion of CAISO’s real-time market. In the WEIM, 22 voluntary participants—representing 79% of the load in the Western Interconnection—may buy and sell energy in 15- and 5-minute real-time markets to meet their imbalance needs.
Day-Ahead Market Enhancements (DAME)
Under its DAME proposal, CAISO proposed two new day-ahead market products—Imbalance Reserves and Reliability Capacity—to address growing system variability challenges and improve market efficiency and reliability. CAISO said the DAME revisions were needed to address increasing differences in the load forecast (the net load forecast) between CAISO’s day-ahead and real-time markets. The “net load forecast is a key value for the CAISO markets because it represents how much energy the market must procure from firm dispatchable resources to meet system needs in real-time,” FERC acknowledged in its decision.
CAISO noted that net load imbalances have grown in recent years, stemming from rapid growth in variable energy resource capacity, extreme weather-related uncertainty, and extreme weather events. Those factors have increased the risk that the grid operator will have insufficient capacity and ramp capability available in real-time to meet demand, it said.
While CAISO has so far utilized the residual unit commitment (RUC) capacity process in the day-ahead market to adjust the load forecast, DAME market products “will increase efficiency by incorporating expected variability and uncertainty into the day-ahead market, thereby minimizing net load imbalances between day-ahead and real-time,” the grid operator argued.
The two new day-ahead market “bi-directional” products would be procured on a co-optimized basis with energy. The Imbalance Reserves product “is intended to address real-time ramping needs that are not covered by hourly day-ahead market schedules because of uncertainty in the net load forecast used in the day-ahead market.” Resources that receive an Imbalance Reserves award must submit economic bids in the real-time market for its awarded capacity range.
The Reliability Capacity product, meanwhile, takes over an RUC process to meet positive or negative differences between cleared physical supply in the IFM (the financially binding portion of CAISO’s day-ahead market) and the day-ahead net load forecast.
The Extended Day-Ahead Market (EDAM)
The EDAM, a multi-year stakeholder initiative that was jointly approved by CAISO’s Board of Governors and the WEIM Governing Body in February 2023, essentially extends CAISO’s day-ahead market to WEIM entities. The voluntary regional day-ahead market leverages features from CAISO’s day-ahead market but also incorporates DAME market enhancements.
The EDAM is designed to allow “for the optimized commitment of resources and use of transmission capability across a larger footprint to effectively and efficiently position resources to meet next-day demand,” CAISO has said. CAISO suggests annual economic benefits associated with the EDAM could range from $100 million to more than $1 billion in addition to other benefits WEIM will continue to provide.
CAISO had asked FERC to approve the EDAM tariff revisions by Dec. 21, 2023, to accommodate “initial EDAM onboarding and implementation provisions” and keep to an anticipated implementation timeline. So far, PacifiCorp and the Balancing Area of Northern California (BANC) have announced an intent to join the EDAM.
“We are working with those entities on their implementation schedules to support their participation,” CAISO says in a recent factsheet. “As a result of additional project coordination and schedule alignment, and considering regulatory obligations with each entity, the ISO—in collaboration with PacifiCorp, BANC, and other potential entities—is estimating their onboarding to occur in 2026. Depending on the number of interested parties, this also allows for additional participants to onboard in 2026.”
“By joining EDAM, an external BAA voluntarily enters into participation agreements to take part in CAISO’s day-ahead market, similar to the existing WEIM,” FERC explained in its decision. “The DAME proposal would update CAISO’s existing day-ahead market to implement and accommodate EDAM functions, as well as address supply and load forecast differences, or imbalances, between the day-ahead and real-time markets,” it said.
Together, EDAM and DAME enhancements “will support the optimal commitment of a geographically diverse set of resources across the footprint of all BAAs participating in EDAM, optimize the use of available transmission capability, build upon the WEIM, and provide broad economic, reliability, and environmental benefits,” it said.
Notable Industry Pushback
However, FERC’s decision records several concerns submitted by industry stakeholders. The Electric Power Supply Association (EPSA), a group representing competitive power generators, suggested “the level of complexity in the DAME proposal” could create “uncertainty and inefficiencies and runs counter to the first principles that render market rules just and reasonable.” The trade group said it believes EDAM can move forward without DAME if necessary, “with appropriate reporting requirements for those elements of EDAM that currently fall short. Market participants should not be deprived of the benefits of this market expansion if it can be resolved on a faster timeline,” it said.
Several generators, including Shell and Vistra, also protested certain components of the DAME proposal. Vistra asserted that the proposal could undermine reliability and create market distortions due to “flaws in CAISO’s market design and that those issues would be spread regionally.” While a market-based approach for procuring upward capacity to address growing uncertainty is a good objective, Vistra found the DAME proposal “to be flawed to the point where it will not achieve CAISO’s intended results.”
CAISO, in its filings, responded that it would not consent to have the DAME proposal “severed” from the EDAM proposal, noting that the EDAM design “was premised on the DAME initiative, particularly the introduction of the Imbalance Reserves product.” CAISO also argued that the expense and effort needed to implement EDAM without the Imbalance Reserves product would be “unreasonable.”
FERC agreed: “We find that CAISO has demonstrated the DAME proposal to be just and reasonable and has explained how the Imbalance Reserves and Reliability Capacity products will address existing issues in the day-ahead market. We agree with CAISO that entities can determine for themselves if the DAME provisions provide benefit enough to voluntarily join EDAM,” it said.
Phillips: Reforms Are Necessary
On Wednesday, Chairman Phillips noted that CAISO has “committed to continuously monitor the performance of EDAM and DAME and make improvements, incorporating the input of its stakeholders, if necessary.”
“Focusing on the DAME proposal, these reforms are necessary to ensure that the day-ahead market schedule has the ramping capability needed to respond to real-time variations in net load,” Phillips added. “It is currently difficult for CAISO to forecast net load in each real-time interval, and this task will become more challenging over time as the resource mix changes.”
“Focusing on the EDAM and DAME proposal together, the unpredictable weather, the increased penetration of renewables and other changes such as the growing importance of storage and electrification (including electric vehicles) together increase complexity for grid operators and make it more challenging to ensure sufficient resources will be available to serve real-time needs,” he said.
“CAISO explained that it currently meets these needs outside of the market with manual interventions, which can be inefficient, raise costs to load, and distort market outcomes. I applaud CAISO for its efforts in this proposal to reduce such manual interventions and incorporate more of the system’s needs into the day-ahead market, thus enhancing transparency, price formation, and efficiency.”
“Establishing a day-ahead market for a larger geographic area is complicated and represents stakeholders’ significant efforts over the past few years to develop enhanced market mechanisms that jointly achieve reliability, affordability, and sustainability for customers,” Phillips underscored.
However, in his concurrence, Phillips also noted several other efforts are underway in the West to address shifting market needs. “States, utilities, and other stakeholders are evaluating possible participation in the Western Power Pool’s Western Resource Adequacy Program, the Southwest Power Pool, Inc.’s (SPP) RTO West, SPP’s Western Energy Imbalance Service, and SPP’s Markets+, in addition to WEIM and EDAM,” he said. “Furthermore, some states are performing benefit-cost analyses regarding joining regional transmission organizations.”