An Overview of the Wholesale Electricity Markets in the US

At present about two-thirds of the population in US and more than half the population in Canada is served by the transmission system and wholesale markets operated by Independent System Operators (ISO) and Regional Transmission Operators (RTO). There are 10 ISOs/RTOs in the US and Canada as shown in the figure below. 

The key responsibilities for ISO/RTOs are - 

• Bulk power system operations - This includes maintaining reliable operations of the transmission network including outage coordination, generation scheduling, voltage management, ancillary services provision, and load forecasting. 
• Wholesale Electricity Markets - A market where energy providers submit their supply offers and purchasers submit their demand bid. ISO establishes the market clearing prices so that the lowest cost supplies are used until the demand is met. A number of studies have confirmed that such a centrally controlled competitive market market has reduced the cost of electricity for the consumers. Typically, an ISO operates several different markets to cover the power system operation over different time-scales. These include - 
• Day Ahead - Usually, the buyers and sellers submit bids and offers based on the day-ahead forecast of supply and demand and the ISO clears the market for each hour of the day so that supply and demand are matched at the minimum cost subject to transmission and other constraints. 
• Hour Ahead - Similar to the day-ahead market but now an hour ahead instead of the day-ahead.
• Real-time - Also called Energy Balancing, cleared every 5 or 10 minutes usually in "increments or decrements" from the hour ahead commitments previously established. Since the day-ahead and hour-ahead markets are cleared for "flat" power profile during the hour, the real time markets are needed to balance the changing demand and production continuously. 
• Ancillary  Services
• Frequency Regulation - This is a market to provide service that balances second-by-second variation in output to match instantaneous demand and maintain system frequency and voltage levels within a very tight tolerance. Typically, this is around 0.5-1% of the peak load and generators that provide this service have to hold that capacity out of energy production to accommodate the fluctuations. They incur an opportunity cost for lost production (if the market prices are higher than the cost of production) as well as additional wear-and-tear on the equipment. 
• Spinning Reserves - This is the extra capacity on line (i.e. spinning) that can respond quickly in case of a major system disturbance such as the loss of a generator. Typically, this is around 5-10% of the peak load and sufficient to cover the operation of the largest single generator going off-line. 

The ISO plays are key enabling role in promoting sustainable energy technologies for the grid. These include - 

• Demand Response - In 2009, about 30 Gigawatts of demand response in North America ISO/RTO markets representing about 7% of the peak electricity demand in these regions. This is an equivalent of 60+ power plants of 500MWs each. 
• Renewables - ISO/RTOs provide a one-stop shop for an power producer such as a wind farm for interconnection to the grid, access to energy spot markets, financial mechanisms like day-ahead market and financial transmission rights. By providing a flexible and competitive marketplace operating over a broad region, ISOs enable a renewable resource owner to sell its power outside of a local region. ISOs also coordinate the transmission planning process to evaluate and improve the transmission system and more efficient integration of renewable resources into the grid.