It is DC Energy's strong recommendation that convergence bidding be given the highest priority of implementation for improvements to the initial release of MRTU. We believe convergence bidding should have been an integral part of the initial release of MRTU but agree with the CAISO decision to implement as a second pass so as to not significantly delay the implementation of MRTU beyond the Fall 2007 time frame. We offer the following as support to our recommendation.

Convergence bidding provides many benefits to and compliments the two-settlement LMP Market CAISO will be implementing with MRTU. It is an explicit financial tool used to hedge both physical supply and demand positions, contribute to the convergence of the Day-Ahead and Real-Time market prices and aid in the prevention of the exercise of market power.

In addition the CAISO White Paper on Ranking Criteria for Proposed market Design Changes (July 12, 2006) identified nine benefit criteria. Including convergence bidding as soon as possible would support six of those benefits (i.e., improving market efficiency, correct a market design flaw, enhance the goal of stable market rules, reputation, corporate risk inventory and mandate). While it is obvious how convergence bidding improves market efficiency, the other criteria may not be as explicit. 

Stable Markets/Reputation -- As is our general theme convergence bidding is an integral part of a two-settlement system and including convergence bidding would fill in the last major gap of a well designed and complete system. This completeness, along with another tool to combat the potential exercise of market power would go a long way to stabilizing the CAISO market and demonstrate that the CAISO market has a well designed system. As participants utilize this tool to hedge physical positions and arbitrage market-power-driven premiums, prices will converge and CAISO's confidence in the market will increase along with the reputation of the CAISO.

Corporate Risk Inventory -- As convergence bidding is a significant hedging mechanism for supply, demand and CRR positions, its inclusion will considerably reduce risk in the market.

Mandate -- FERC along with market participants all recognize the importance of convergence bidding inclusion. We only disagree on the timing of implementation. 

Of the remaining issues identified as potential post release 1 MRTU, DC Energy has divided them into two groups. The first group identifies issues DC Energy agrees should be implemented after convergence bidding and the second group DC Energy either has no opinion or does not believe necessary to be implemented in the short run.

Day-Ahead Market Power Mitigation and Unit Commitment Issues; Simultaneous RUC and IFM; Demand Response in the DAM; System-level Scarcity Pricing; Multi-day unit commitment in the IFM; Long-term transmission rights

Rebate of Loss Over Collection for Renewable Resources; Full Hour Ahead Settlement Market; Dynamic Pivotal Supplier Test; Multi-settlement for Ancillary Services; Consideration of import energy in the RUC; DEC Bidding on Day-Ahead Resource Schedules; Ramping Limits for real-time with constrained output generation; LMPM for COG units; Ramp rates; Ancillary Service self-provision; reservation of transmission capacity for ancillary service exports; Hourly designation of Ancillary Service contingency flag; combined cycle modeling; treatment of use-limited resources with limited hours or starts; start-up energy; automatic treatment of conditional A/S; automation of sub-LAP adjustments