Load Granularity Refinements Issue Paper September 22, 2014
Table of Contents I. Introduction... 3 II. Background... 3 III. Scope of Initiative and Plan for Stakeholder Engagement... 4 IV. FERC s Reasons for Rejecting ISO Waiver Request... 5 V. Study... 6 Previous Pricing Studies... 6 Must Look at Nodal Data... 8 Day-Ahead versus Real Time... 9 Time Frame for Analysis... 10 Additional Considerations for Study... 11 VI. Potential Disaggregation to Consider... 11 Existing DLAPs... 12 Full Nodal... 12 Slight Disaggregation... 12 Load Aggregation to Minimize Error... 12 VII. Implementation Cost Estimates... 13 VIII. Next Steps... 14 CAISO/M&ID/M&IP/sak 2 September 22, 2014
I. Introduction On June 3, 2014 the Federal Energy Regulatory Commission ( FERC ) issued an order that denied the California Independent System Operators ( ISO ) request for a permanent waiver to complying with FERC s previous orders to disaggregate existing load aggregation points ( LAPs ). The order extended for one year from the date of the order the time for the ISO to comply, or seek further relief from the disaggregation request. This Issue Paper begins the discussion on how the ISO and stakeholders will seek to comply with FERC s order. II. Background The design of the ISO markets using locational marginal prices ( LMP ) as approved in FERC s September 21, 2006 order on Market Redesign and Technology Update ( MRTU ) included the bidding, scheduling and settlement of most internal load at three default load aggregation points ( DLAPs ) corresponding to the service territories of the three investor owned utilities ( IOUs ) 1. While FERC approved the structure, it directed the ISO to increase the numbers of LAP zones in Release 2. In 2010 the ISO initiated a stakeholder process to evaluate LAP disaggregation. The ISO conducted a pricing study, which found that with the exception of one small area prices in sub-lap regions did not differ significantly from the DLAPs. The Market Surveillance Committee ( MSC ) did a spatial pricing study showing that short of nodal pricing, there was no efficient way to group nodes in large zones. Stakeholders indicated that they would face significant implementation hurdles and that many potential benefits were already available to them through other ISO processes, or would be soon. FERC accepted the ISO s request to delay disaggregation of LAPs : We find that more pricing information and additional experience with the MRTU design changes, such as proxy demand response and convergence bidding will allow CAISO to develop a proposal to further disaggregate the default LAPs, as directed. 2 FERC extended the deadline to disaggregate LAPs until October 1, 2014. In 2013 the ISO initiated a stakeholder process to again evaluate with stakeholders disaggregation of the existing LAPs. The ISO performed a simple pricing analysis comparing prices in the existing sub-laps to the DLAPs, which indicated that there were no major price disparities. Based on this information, and stakeholder input indicating that they did not see enough price disparity and they would incur substantial costs from disaggregating the DLAPs, the ISO filed a motion for a permanent waiver of FERC s directive to disaggregate to the LAPs. On June 3, 2014 FERC issued an order that denied the ISO s request for a permanent waiver to complying with FERC s previous orders to disaggregate existing LAPs. 3 The order extended for one year 1 The ISO current has four DLAPs. When the Valley Electric Association ( VEA ) joined the ISO, a separate DLAP was created for load in the VEA service area. 2 Cal. Indep. Sys. Operator Corp., 136 FERC 61,055, at P 6 (2011). 3 Cal. Indep. Sys. Operator Corp., 147 FERC 61,181 (2014). CAISO/M&ID/M&IP/sak 3 September 22, 2014
from the date of the order the time for the ISO to comply, or seek further relief from the disaggregation request. III. Scope of Initiative and Plan for Stakeholder Engagement This Issue Paper is the start of a two phase stakeholder engagement process. The first phase will be focused on designing the study and determining the data required. The second phase will examine the study results to determine a recommendation for how to proceed. The scope of the initial phase of stakeholder engagement is to present the ISO s plan for the research and data collection that will be required. This includes a new, more detailed pricing study. With this Issue Paper, the ISO is seeking input from stakeholders on how the pricing study should be conducted, as well as what questions should be addressed in the pricing study. Further, this Issue Paper suggests four theoretical constructs of possible load granularity which will help focus the pricing study. The ISO is seeking stakeholder input on these theoretical pricing granularity constructs. Any final proposal on load granularity will need to examine any identified benefits of further disaggregation in the context of the implementation costs. In providing comments on this Issue paper, the ISO requests that stakeholders describe the types of costs they foresee if load granularity is increased. The first phase of stakeholder engagement will continue with the ISO posting a paper in late October 2014 that will detail the pricing study design incorporating stakeholder comments. This paper will also contain an information request for stakeholders to provide detailed cost estimates for implementing increased load granularity. The ISO envisions that this information request will request specific cost estimates based on stakeholder input on the theoretical load granularity alternatives and types of costs. The second phase of stakeholder engagement will occur once the pricing study results and cost estimates have been posted. The discussion and comments at this point will focus on what the study results indicated about the level of load price dispersion in the ISO, quantification of potential benefits from disaggregating load, including into the theoretical alternative levels more clearly defined from the pricing study results, and a comparison of those benefits to the costs imposed on the ISO and market participants from any disaggregation. The end result of this phase of the stakeholder process will be a recommendation to the ISO Board on whether to propose disaggregation of load and to what level, or to seek a ruling that the existing LAP structure is just and reasonable. The schedule for stakeholder engagement is listed below. Date August 22, 2014 September 22 September 29 October 13 Event Discussed topic at August 22 Market Surveillance Committee ( MSC ) meeting Post Issue Paper Hold stakeholder meeting Receive comments from stakeholders CAISO/M&ID/M&IP/sak 4 September 22, 2014
About October 20 October 24 October 30 November 14 Begin pricing study Post paper on how pricing study will be done and request implementation cost data Conference call on pricing study design and request for implementation cost data Implementation cost data due from stakeholders About November 17 Begin costs-benefits study December January 2015 January February February & March March 26-27 June 3 Post pricing and costs-benefits studies results, and draft proposal for how to proceed Hold stakeholder meeting Receive stakeholder comments Work with Market Surveillance Committee to obtain Opinion Prepare ISO documents to present to ISO Board Request approval at Board meeting File at FERC IV. FERC s Reasons for Rejecting ISO Waiver Request The ISO s 2014 waiver request of the mandate to disaggregate load pricing was based on a pricing study that compared prices at the SLAPS with broader DLAPS, 4 and showed that, similar to what was reported in 2010, the prices differences between the smaller SLAPs and the larger DLAPs were generally small. The ISO s request further relied on stakeholder comments which clearly indicated that there was general support to keep the existing load aggregation structure. Stakeholder comments indicated they saw few benefits and anticipated large costs from disaggregating load, and that there were other, higher priority projects that the ISO was considering. The FERC Order rejecting the ISO s waiver request provided clear guidance about why FERC rejected the request and what FERC expects to see in the subsequent ISO filing: ISO did not explain how the average price differences between the DLAP prices and more disaggregated prices, such as the sub load aggregation points ( SLAPs ), would affect market outcomes; ISO did not explain why average price differences are the correct metric; Given that more disaggregation theoretically should produce better price signals, we find the fact that the CAISO significantly limited the level of disaggregation examined and left SDG&E out of the Pricing Study entirely renders the Pricing Study inconclusive. 4 Load Granularity Refinements Pricing Analysis Study. Available at http://www.caiso.com/documents/pricinganalysisstudy-loadgranularityrefinements.pdf. CAISO/M&ID/M&IP/sak 5 September 22, 2014
More information was needed on how disaggregation would impact Congestion Revenue Rights ( CRRs ), and transmission investment incentives, and More detailed estimates of cost of implementation were needed. FERC extended for one year from the date of the order the time for the ISO to comply with the order to disaggregate the original MRTU load aggregation, or seek further relief from the disaggregation request. FERC provided guidance that any pricing study used to support a new request must include: Detailed description of underlying data; Analysis of a reasonable range of different alternate levels of disaggregation; Focused discussions on areas with large price differences; Properly supported estimates of implementation costs for the different levels of disaggregation; and Analysis of the entire ISO footprint, including San Diego Gas and Electric Company ( SDG&E ). V. Study As the FERC comments in their order on the ISO s waiver request make clear, the ISO must provide a more detailed and thorough pricing study with its next filing. This section of the paper begins with a review of the studies conducted in the earlier stakeholder processes on load disaggregation. The section then presents the ISO s initial thinking on the structure of the study that will be performed as part of this stakeholder engagement process. The discussion here is focused on what data to use in the study and how the study will be conducted. After the basic pricing study results are available, the next step will be to determine how to use the results to assess the impacts on ISO markets of reducing or eliminating the pricing dispersion by increasing load granularity or moving to fully nodal pricing. The ISO believes that is premature to discuss that analysis at this point; however, the ISO welcomes stakeholder comments about potential pricing or pricing dispersion metrics that might be useful when the analysis begins to consider the impacts on ISO markets of the results of the pricing study. Previous Pricing Studies The ISO has examined load granularity in stakeholder processes twice since the start of the nodal pricing market. The first time was in 2010, a little over a year after the implementation of MRTU. At this time two pricing studies were done, one by the ISO and another by the MSC. As discussed above, in 2013 the ISO performed another pricing study which was included in the ISO s waiver request filed in early 2014. The 2010 ISO study compared the SLAP prices to the DLAP prices over the period from April 2009 through August 2010. The results showed that for a few SLAPs, such as Humboldt and San Francisco, price differences were noticeable, but that in general even during on-peak periods the price differences were generally under two dollars. During off-peak periods, with the exception of the Humboldt SLAP the price differences rarely exceeded two dollars and were generally much less. CAISO/M&ID/M&IP/sak 6 September 22, 2014
The MSC also performed a study on prices for the 2010 stakeholder process. 5 This analysis also used data from April 2009 through August 2010, however rather than comparing SLAP prices to the DLAP prices this study looked at the nodal prices in comparison to the DLAP prices which were paid by load. The hourly nodal prices were regressed on the DLAP prices, using a simple regression: Where: P(I,h,k) = α j + β j *PLAP(h,k) + ε j P(I,h,k) = price at node I in LAP k during hour h PLAP(h,k) = DLAP price for LAP k during hour h If the expected value of the nodal price is the same as the expected value of the DLAP price, then α j =0 and β j =1. The results showed that the β terms seemed normally distributed around 1, but the α terms were slightly skewed to the positive side of 0. The MSC also looked at the spatial distribution of α j and β j, as well as the mean and standard deviation of hourly prices. Their conclusions were: Majority of locations β j 1 and α j 0 Particularly in locations near major load centers Large and small β j locations tend to be electrically disconnected areas Large and small α j locations tend to be near major load centers or generation pockets The spatial mapping indicated that the nodes with higher or lower prices were mixed rather than being spatially segregated, but that the majority of spatial price variation can be explained by the transmission network configuration. The lack of spatial segregation would make it hard to determine new load zone boundaries such that each zone reflects similarly priced nodes. The MSC concluded that the results showed that full nodal pricing was the best way to disaggregate. The 2013 ISO Load Granularity Refinements Pricing Analysis Study which was the basis for the ISO s 2014 waiver request examined the price dispersion between the SLAP prices and the DLAP prices from January 2011 through June 2013. The study divided the pricing data into Southern California Edison Company ( SCE ) and Pacific Gas and Electric Company ( PG&E ), by year and by on-peak and off-peak. The study also recognized that some SLAPs contain large amounts of the total load in the DLAP and others are smaller. Again, the results showed the price differences between the SLAPs and the DLAPs were generally small. For PG&E, the average on-peak difference remained well under two dollars, while for SCE the average on-peak difference increased for 2012 and 2013 but still remained under three dollars. While the average dollar value increased over the two and a half years in the study, this was not always true when looking at the price difference as a percentage of the DLAP price. 5 The MSC presentation is available at: http://www.caiso.com/documents/commentsonloadgranularity- MSCPresentation.pdf CAISO/M&ID/M&IP/sak 7 September 22, 2014
Must Look at Nodal Data The ISO believes that any pricing study will need to consider the pricing data at the nodal level. This flows directly from FERC s requirements for any future pricing study. Additionally, the need to consider reasonable alternatives of load disaggregation, along with the fact that the existing SLAPs were not designed using the current transmission structure or reliability considerations limits their usefulness for showing price dispersion with the DLAPs. The SLAP pricing data used in the last study is clearly not sufficient to meet FERC s requests for any pricing study included in future filings. FERC specifically indicated that the SDG&E region needs to be included in the study, but since there is no SLAP within the SDG&E DLAP unless the pricing study considers data at a finer level it will not be possible to study the SDG&E DLAP. Thus, using nodal pricing data will be necessary at least for the SDG&E DLAP. FERC also provided guidance that any study of load granularity provide an analysis of a reasonable range of different alternative levels of disaggregation. Using the existing SLAPs only provides information on load granularity alternatives which are combinations of the existing SLAPs. In order to consider any different level of disaggregation will require additional data; conducting the study with the actual nodal prices will allow the results to provide information on any possible construction of aggregation. Additionally, nodal price information may provide data to determine the optimal pricing aggregation. In 2010, the study of price dispersion conducted by the MSC indicated that in order to improve on the disaggregation of the existing DLAPs would require using nodal pricing for load. The existing SLAPs were not constructed to reflect existing transmission or reliability constraints on the ISO transmission grid. They were developed nearly 10 years ago to help report pricing information from the studies used to develop MRTU, and were based on the Reliability Must Run ( RMR ) reliability areas. There have been significant changes in the ISO market since they were developed. The level of RMR generation in ISO markets has decreased significantly over this period, especially as resource adequacy, and local resource adequacy requirements have been developed. The ISO grid is different due to new transmission being added, as well as changes in generation. New and different types of generation have come on line, and just as importantly, some generation has retired (the San Onofre Nuclear Generating Station or SONGS, for example). The new generation is often not located in the same areas as the generation it is replacing, and some is more removed geographically from the load than was previously the case. Additionally, much of the new generation is variable renewable generation, with different characteristics and price structures. These changes will obviously have an impact on the prices in the ISO markets, and together with the shift in location of the resources may be causing changes in congestion patterns. Additionally, the past few years have seen improvements in the market structure, such as the implementation of convergence bidding, the implementation of a binding 15 minute market, with interties scheduling on a 15 minute basis, a decrease in the bid floor, and changes in how bid cost recovery is done and how multi-stage generation is treated in the market. All of these changes may impact prices in the ISO markets, which might significantly alter the effectiveness of any particular load aggregation. A closer examination of nodal prices will provide a better understanding of how these changes have impacted local prices. CAISO/M&ID/M&IP/sak 8 September 22, 2014
For these reasons, the ISO proposes to consider the nodal demand pricing data in the pricing study. Starting with the nodal data will provide the most comprehensive analysis possible, and is a prerequisite for an analysis of any level of disaggregation except for the that of the existing SLAPs, which was done in the previous study and was deemed insufficient by FERC. The ISO proposes that the structure of the MSC pricing study from 2010 will serve as an initial design. The ISO seeks stakeholder comments on the appropriateness of this structure, as well as suggestions for alternative or additional studies. Day-Ahead versus Real Time ISO electricity markets now include three different financially binding time frames. The Integrated Forward Market ( IFM ) market runs on an hourly basis the day before, and then in real time there is the Fifteen Minute Market ( FMM ) run every 15 minutes, and the Real Time Dispatch ( RTD ) which runs every 5 minutes. In addition to the IFM, the day-ahead market processes also include a Residual Unit Commitment ( RUC ) run. The RUC is used by the ISO to ensure that sufficient generating resources are on-line in real-time if the ISO believes that the amount of load forecast and bid into the IFM underestimates the true amount, but does not establish locational marginal prices for energy. In real time, the ISO also runs an hour-ahead scheduling process, a short run unit commitment process which looks ahead several hours, and, if necessary, a contingency dispatch to respond to events on the grid. One important difference between the day-ahead market and the real-time market is how demand is treated. In the day-ahead market, demand is based on bids for the existing DLAPs and the ISO distributes this load to the various load nodes using load distribution factors ( LDFs ). In real time, load does not bid and the ISO generates load forecasts at the various demand zones. For the purposes of clearing the real-time market (which includes the FMM and the RTD), the ISO distributes the load at the various nodes using load distribution factors. For pricing purposes the ISO settles load at the applicable DLAP levels. Since most of the ISO load is settled at the day-ahead market price, the ISO proposes that the pricing study start with, and focus on, pricing dispersion in the IFM. In addition to having the largest proportion of load, the day-ahead markets are also the markets where disaggregating the existing LAPs would have the largest potential efficiency gains. It is in the day-ahead markets where load can actually bid, and where the solution efficiency would be increased by more detailed bidding and/or scheduling. More granular load bids could free the solution from being forced to adjust the load at all nodes in the DLAP proportionally; these extra degrees of freedom may allow for more efficient solutions. As discussed in the Pricing Inconsistency Market Enhancements initiative two years ago, in day-ahead markets there can be a difference between the price for a DLAP based on the weighted average price of all the constituent pricing nodes, and the aggregated DLAP resource. However, this aggregated resource is not required in real-time markets because load is not permitted to bid. Further, if load serving entities take advantage of the ability to adjust their bids at a more granular level, rather than being forced to rely on the LDFs, this should also improve the solutions. CAISO/M&ID/M&IP/sak 9 September 22, 2014
For these reasons, the ISO proposes that the pricing study will focus on the hourly, day-ahead prices. This has an added advantage of reducing the quantity of data, since each node has only 24 prices per day, not the 16 different prices per hour that are generated in the real-time markets. The ISO seeks stakeholder comments on whether the differences outlined above between the day-ahead and realtime markets might make a comparison of the price dispersions in the day-ahead and real-time markets useful to provide information on how much the market optimization might be improved if more granular load bidding/forecasting was adopted. The ISO also seeks stakeholder input on whether realtime market pricing information would be useful in determining the impacts of load aggregation on convergence bidding, CRRs, or other parts of the ISO markets that deal with the interaction of the dayahead and real-time processes. Time Frame for Analysis The locational pricing market structure was implemented over five years ago. The initial pricing studies used data from the first 16 months. The pricing study conducted last year used data from January 2011 through mid-2013. The more data points available, the better the study, or at least, the more confidence it is possible to have in the results of an analysis. However, the analysis must also take into account whether other variables which may impact the results changed over the data collection period, and whether the data collection period can be taken to be representative of the expected future periods. The ISO proposes that all pricing data from the start of MRTU be included in the study. This will provide over five years of data for which comparisons can be made between the nodal prices and the DLAP prices. Using such a large group of data should help minimize any anomalies due to purely random occurrences, such as might be caused by weather or equipment outages. Using such a large amount of data will require careful consideration of what changes have occurred over time that might impact the dispersion of prices, but will also allow the investigation of how these changes may have impacted the level of, or spatial dispersion of, pricing dispersion. This information will be helpful in forecasting how large price dispersion will be in the future. There have been considerable changes in the ISO markets and grid since the LMP pricing structure approved as MRTU was implemented in 2009. These changes provide both challenges and opportunities for the study. As a simple example of how these changes might impact the level of price dispersion, in 2010 FERC recognized that the implementation of convergence (virtual) bidding, which was scheduled for soon after FERC s ruling, might have a significant impact on the dispersion of load pricing, by providing market participants with the opportunity to create a more granular scheduling and settlement. If LSEs are able to use virtual bidding to achieve a more granular scheduling and settlement, this reduces the need to increase load granularity, since load can already achieve this if they desire. Additionally, if virtual bidding is being used in this manner, the virtual bidding should absorb the price dispersion and this should reduce the amount of price dispersion that is seen the markets. The ISO proposes that the pricing study examine how the introduction of virtual bidding, and its actual use, may have influenced the price dispersion shown in load prices. CAISO/M&ID/M&IP/sak 10 September 22, 2014
The existing LAP structure prices mostly at the level of the DLAPs, but also allows some load to price at custom LAPs and allows for the allocation of CRRs at SLAPs. As explained in more detail below, the SLAPs were developed a decade ago based on the RMR regions, and thus may not accurately reflect the existing structure of the ISO grid. There have been several other changes in the ISO grid structure: New transmission; Significant new generation, especially renewable generation in new locations; Retirement of generation, especially SONGS; and Increased amounts of distributed generation. If the pricing study considers the full range of pricing, it will allow investigation of how the pricing dispersion has changed over time. This information will be useful in addressing the following related questions for any level of load aggregation short of fully nodal: How will the accuracy of the aggregation change as the grid changes; and What events might trigger, or indicate, a need to reassess the level of load aggregation? The ISO requests stakeholder comments on both the appropriate time frame for the pricing study and what exogenous changes should be included and/or studied in the pricing study. Additional Considerations for Study There are other things which might impact the price dispersion seen in the ISO markets and should be accounted for in the analysis. The past studies have differentiated between on-peak and off-peak periods. As expected, the price dispersion was greater during the on-peak periods because during the on-peak period the likelihood of congestion occurring is far greater. Additionally, there may be differences on seasonal basis. These seasonal differences may impact the typical level of price dispersion, since some seasons may see more expected congestion than others. Seasonal differences may also change the geographic dispersion of prices; especially with the increasing number of renewable resources, which tend to be clustered in specific areas, and for which seasonal weather variations may have a large impact on the energy produced, or the timing of the energy. The ISO seeks stakeholder comments on other potential considerations to be included in the pricing study. VI. Potential Disaggregation to Consider The FERC order indicates that the future ISO filing must include an analysis of a reasonable range of different alternative levels of disaggregation. FERC further provides, in a footnote, For example, the study could include results using the current LAPs in comparison with aggregation using sub-lap groupings, sub-laps on their own, or a more granular level including individual nodes. The ISO recognizes that any actual level of pricing disaggregation will need to be determined after the pricing study because other aggregations may become apparent through the study. However, the ISO CAISO/M&ID/M&IP/sak 11 September 22, 2014
believes that by suggesting four possible load disaggregation levels for purposes of commencing the discussion, will help start the pricing study and allow things to move more quickly. The ISO proposes to initially consider both of the extreme cases, the current DLAP structure and a full nodal pricing structure, as well as two levels of load aggregation between these extremes. The ISO believes that these four alternatives bookend the possibilities and meet FERC s requirement of a reasonable range of different alternative levels of disaggregation. Existing DLAPs The base case for all comparisons is the current DLAP structure. Full Nodal The other bookend of possibilities is fully nodal load pricing. The study by the MSC in 2010 indicated that there was not any locational grouping other than nodal that made sense. Full nodal load pricing would eliminate some of the pricing inconsistencies discussed in the ISO s Price Inconsistency Market Enhancements stakeholder initiative. Further, a full nodal load pricing would obviously provide the most pricing information to allow demand response and energy efficiency to be deployed in the most efficient manner. The market model is actually solved on a nodal basis, even though currently load is not bid or settled on those nodal prices. Slight Disaggregation The first alternative would be to minimally increase the number of LAPs, perhaps from the current four to six or some similar number. This would allow for each of the large DLAPs to be split into more homogeneous pricing areas, without significantly increasing the complexity for load serving entities ( LSEs ). In addition to comments on whether such an increase in LAPs would be useful, the ISO seeks stakeholder comments on how this minimal increase in the number of LAPs could best be done. Load Aggregation to Minimize Error FERC suggested that the ISO might consider the existing SLAPs as a potential disaggregation level. However, the ISO does not believe that this would be useful. The existing SLAPs were developed during the development of the existing LMP system to provide a method for reporting the results of pricing studies. They were based on the RMR regions. Since then, the topology of the ISO grid has changed substantially as new generation and transmission have come on line and some existing generation has retired. The amount of RMR on the grid has also been reduced as resource adequacy has expanded to include local resource adequacy resources. These local resource adequacy areas differ from the RMR regions. Thus, the existing SLAPs may not be the best aggregation points to consider. The ISO anticipates starting a stakeholder process in the near future to examine the definition of the SLAPs as they are used in demand response and other market functions. Rather than use the existing SLAPs, the ISO proposes that a part of the pricing study might be to determine the best level of aggregation. This would be the level of aggregation that would minimize the errors, or deviations of the prices at each node in a LAP from the LAP price. There are two potential methods for determining this LAP structure, but both should result in very similar LAP structures. The two methods are: CAISO/M&ID/M&IP/sak 12 September 22, 2014
Use Price Data to group Nodes into LAPs to minimize Historical Error - Starting with the nodal demand pricing data for some period of history, computing power would be used to determine the grouping of those nodes into a predetermined number of LAPs to minimize the overall error. Because increasing the number of LAPs will obviously decrease the total amount of error, some metric would be developed to determine at what level the appropriate balance between the overall error and the number of LAPs is achieved. Use System Topology to group Nodes that are not Congested - Instead of starting with the pricing data, the transmission system could be examined to determine where there are binding constraints and where congestion occurs (or can reasonably be expected to occur). Using this information LAPs would be constructed within which there should be only minimal congestion, and hence the nodal prices should be similar. The ISO proposes that the pricing study should include the first method described above. Tthe second method may be conducted in a separate stakeholder process. Since the nodal data will be available through in the pricing study, once the redefined SLAPs are available it will be possible to compare the redefined SLAPs with the pricing zones created from the historical nodal prices. VII. Implementation Cost Estimates In order to determine the preferred level of load disaggregation, the expected benefits of different levels of increased load granularity will need to be compared to the costs necessary to implement that level of disaggregation. Adopting a more granular load aggregation may require changes to various systems and interfaces for both the ISO and market participants. The FERC decision on the ISO s waiver request made clear that any cost estimates would need to be detailed and supported, not just generic statements that there would be large costs. These costs must be considered for both the ISO and the market participants. From past stakeholder processes on this subject, the ISO is aware that market participants believe that increasing the load granularity may impose significant costs on them. In comments on this Issue Paper the ISO requests that stakeholders discuss the types of costs that will be required to implement increased levels of load granularity. The alternative levels of disaggregation suggested above should be considered as representative of the possible levels of disaggregation and provide guidance to determine what aspects of the market participant s business might need to be modified to implement the additional load granularity. After receiving stakeholder comments on this Issue Paper, the ISO will use those comments, and the discussions from the September 29, 2014 stakeholder meeting, to finalize the pricing study design. At that time the ISO will post a detailed pricing study design and issue an information request to stakeholders seeking their estimates of the costs that they would incur to implement increased levels of load granularity. CAISO/M&ID/M&IP/sak 13 September 22, 2014
VIII. Next Steps The ISO will discuss this Issue Paper with stakeholders during a conference call on September 29, 2014. Stakeholders should submit written comments by October 13, 2014 to lgr@caiso.com. CAISO/M&ID/M&IP/sak 14 September 22, 2014