
Energy-Storage.news Premium speaks with Sergio Melendez, storage sector manager at CAISO, and Ali Karimian, market optimisation director at GridBeyond, about regulating Bid Cost Recovery Payments in the California Independent System Operator market.
Recently, the California Independent System Operator’s (CAISO’s) Market Monitor has identified gaming concerns for battery energy storage system (BESS) facilities in CAISO’s bid cost recovery (BCR) process.
CAISO is a non-profit organisation offering three main services for California’s electric grid: grid operator, market administrator, and transmission planner. BCR is the CAISO settlements process through which eligible resources recover their bid costs.
From CAISO: “Bid costs comprise start-up bid cost, minimum load bid cost, energy bid cost, transition bid cost, pump shut-down cost, pumping cost, ancillary services bid cost, and Residential Unit Commitment (RUC) availability payment.”
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“To calculate BCR, the commitment costs and the energy and AS bid costs are used as inputs to calculate a resource’s net difference between costs and revenues in separate pre-calculations for the integrated forward market (IFM), the RUC process, and the real-time market (RTM).”
BCR was intended for traditional generation assets, such as natural gas units. The majority of payments in 2024 did go to natural gas units, but BESS was often coming in second, frequently receiving more than solar, hydro, or wind units.
That same year, battery storage facilities recovered approximately US$18 million through real-time BCR, representing roughly 11% of the total BCR.
As Ali Karimian, Market Optimisation Director at optimiser GridBeyond explains, “The purpose of the BCR programme is to ensure resource owners are made whole when CAISO dispatches their assets beyond what the owners intended.”
Karimian continues, “In recent years, CAISO’s Department of Market Monitoring (DMM) found cases where some asset owners manipulated their bid curves to trigger BCR payments unfairly.”
It is important to note that GridBeyond is serving as an expert voice as an operator in CAISO, and says, “we have always prioritised being good grid citizens. We do not engage in market manipulation.”
CAISO’s Melendez explains the DMM, saying, “The Department of Market Monitoring’s goal really is to keep an eye on the efficiency and effectiveness of our markets, including the Western energy imbalance market.”
“Their job is to provide transparency and information to the market participants, regulators, the CAISO, our board, the governing body, and the challenges we might face, both in terms of market design and operationally. As the name implies, with market monitoring, of course, to monitor for potential detrimental market behaviour and communicate that to the ISO or applicable regulators like FERC.”
Identifying systematic gaming
Proving systematic gaming requires significant resources and burdens CAISO. Consequently, the market operator chose to modify the BCR calculation method to minimise potential abuse.
Melendez explains, “When we started seeing storage coming online, we generally extended those (BCR) rules to storage. That initially did not create a bunch of complications because of how storage was participating back then.”
“But what we found is that this approach creates some concerns. One was the strategic bidding concern that we were working on last year. The other concern is a little bit more generalised – some of the drivers that required the existence of BCR for conventional resources are not present for batteries.”
In November 2024, CAISO submitted a tariff amendment, documented in the DMM’s ‘Storage Bid Cost Recovery and Default Energy Bid Enhancements ‘ report, aimed at solving the battery storage BCR gaming issue. The amendment became effective on 1 December 2024.
CAISO’s amendment aims to limit battery bids for calculating BCR payments, primarily to prevent batteries from inflating unjustified BCR payments.
This is regarded as an interim solution. According to the DMM’s report, stakeholders pointed out that some cases would still require BCR, but at the same time, unnecessary BCR payments will persist after the policy is enacted.
In June, the DMM gave a storage BCR presentation, noting “Importantly, the current BCR rules remove the exposure to real-time prices for storage resources when buying back infeasible day-ahead schedules.”
The report continues, stating that the ISO’s current solution only addresses the bid cost component, noting that negative revenues, rather than bid costs, are the primary driver of BCR.
From the report, “Batteries will continue to receive BCR for revenue losses, which will continue to distort bidding incentives.”
The DMM makes three primary recommendations: eliminate day-ahead BCR for BESS, eliminate most real-time BCR for BESS, and eliminate BCR associated with the Outage Management System (OMS) limitations on state of charge (SOC).
For the first recommendation, DMM says it has yet to identify any instance where day-ahead BCR is appropriate and recommends that stakeholders discuss and provide such scenarios.
Next, DMM recommends “redesigning the BCR rules to assume no eligibility for batteries and add eligibility only under specific situations where BCR is warranted.”
The Monitor says that eliminating default real-time BCR from buying back day-ahead schedules would incentivise more accurate estimation of day-ahead bidding parameters and real-time bidding that reflects intraday opportunity costs based on real-time prices.
The final recommendation aligns with other OMS MW capacity derates, which refer to reductions in the available MW capacity of a generation or transmission resource caused by an outage.
CAISO and the DMM continue to monitor for gaming behaviour, trying to maintain a fair market for all participants, until everything is fully sorted.
Melendez says, “Both DMM and the ISO, we are very much on top of trying to monitor for potentially detrimental market behaviour, and we have the means to be able to, if we identify activity that could entail consequences in terms of applicable regulation, refer that activity to the regulators, in this case, FERC.”