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DATA INSIGHTS 09 Mar 2021

North American Electricity Market

The electric power delivery system in North America encompasses a wide diversity of institutions, technologies, organizational structures, economic mechanisms, and regulatory oversight. Energy Markets are much more fragmented than traditional capital markets. The lack of storage and other more complex factors lead to a very high volatility of spot prices.

Ayhan Kutlu

North American Electricity Markets

The electric power delivery system in North America encompasses a wide diversity of institutions, technologies, organizational structures, economic mechanisms, and regulatory oversight. Some parts of the system are provided by federal, state, or municipal governments; others are customer-owned cooperatives. Much of the power supply is from privately owned, regulated utilities. Functionally, many of those traditional utilities were vertically integrated, providing generation, transmission, and end-use sales to customers over their own distribution system.

Many generators are independent producers without normal rate-of-return regulation, but they are still subject to federal antitrust laws and the market-monitoring oversight of the FERC (Federal Energy Regulatory Commission) and the ISOs / RTOs that coordinates their wholesale market (1).

ISO (Independent System Operator) is a federally regulated independent entity, established to coordinate regional transmission in a non-discriminatory manner and ensure the safety and reliability of the electric system. ISO concept was suggested by FERC in ‘90s to enhance coordination among multiple interconnected power systems. This was taken a step further by the year 2000, by encouraging the formation of RTOs (Regional Transmission Organization). RTOs are voluntary, independent, membership-based, non-profit organizations of electric transmission owners, transmission users and other entities approved by FERC.

Like ISOs, RTOs ensure fair access to transmission, but they are also required to engage in transmission planning and expansion for their region. In practice, the distinctions between ISOs and RTOs in US have become very minor. One important distinction for international affairs; while ISOs are prohibited from involving international partners, RTOs are not (2).

While Canada’s provinces are largely non-integrated and have independent models for power sector governance, the U.S. system is more complex, and grouped into ISOs/RTOs and other power pools that range from state-contained (ERCOT, CAISO, NYISO) to cross-border (MISO, PJM).

There are 9 ISOs/RTOs operating in North America, serving two-thirds of electricity consumers in US and more than half of Canada’s population.

  • AESO (Alberta Electric System Operator) – Alberta / CA
  • CAISO (California Independent System Operator) – California / US
  • ERCOT (Electric Reliability Council of Texas) – Texas / US
  • IESO (Independent Electricity System Operator) – Ontario / CA
  • ISONE (ISO New England) – 6 US States:
    Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, and Main
  • MISO (Midcontinent Independent System Operator) – Manitoba / CA and 16 US States:
    Arkansas, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, New Orleans, North Dakota, South Dakota, Texas, Wisconsin
  • NYISO (New York Independent System Operator) – New York / US
  • PJM [PJM (Pennsylvania Jersey Maryland Power Pool) Interconnection] – 13 US States:
    Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia
  • SPP (Southwest Power Pool) – 14 US States:
    Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, and Wyoming

North America ISO-RTO Map

Energy Markets are forward markets, used by the ISO/RTO to ensure that enough generation capacity is online and able to produce energy on a day-ahead (24-hour ahead) to one-hour-ahead basis. ISOs/RTOs run two types of energy markets (3), which is also called as “multi-settlement” system:

  • The Day-Ahead Energy Market (DAM) lets market participants commit to buy or sell wholesale electricity one day before the operating day, to help avoid price volatility. This market produces one financial settlement.
  • The Real-Time Energy Market (RTM) lets market participants buy and sell wholesale electricity during the course of the operating day. The Real-Time Energy Market balances the differences between day-ahead commitments and the actual real-time demand for and production of electricity.

The Real-Time Energy Market produces a separate, second financial settlement. It establishes the real-time Locational Marginal Price (LMP) that is either paid or charged to participants in the Day-Ahead Energy Market for demand or generation that deviates from the day-ahead commitments (4). "Locational" refers to the clearing price at a given point on the grid. "Marginal" means that the price is set by the cost of delivering one more unit of power, usually one megawatt.

Energy Markets are much more fragmented than traditional capital markets. The lack of storage and other more complex factors lead to a very high volatility of spot prices (5).

You can find price and generation trends and create new insights by subscribing to ALTADATA's North American electricity market data products:

ERCOT

CAISO

NYISO

IESO

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