Organized Wholesale Electricity Markets
Organized wholesale electricity markets (OWMs) are fundamental to advancing CEBA’s vision and goals. By leveraging the power of competition and balancing clean energy generation over large geographic regions, OWMs produce billions of dollars in benefits annually. These markets expand purchasing options and support reliable clean energy integration, increasing the ability of large energy customers to drive the clean energy transition.
CEBA supports expanding well-designed and well-implemented organized wholesale markets operated by Regional Transmission Organizations/Independent System Operators (RTOs/ISOs) in all regions of the country.
“Organized wholesale markets support GM’s overall commitment to protecting the environment as it pursues an all-electric, zero-emissions future by providing a platform that accelerates the deployment of cost-effective clean energy. GM is aware of the responsibility and opportunity to use its scale and resources to drive impact, including driving down costs for all energy customers, and facilitating broad integration of clean technology. The Organized Wholesale Markets Principles showcase how to optimize wholesale markets so that all customers can effectively pursue ambitious clean energy goals.”
- – GM, Rob Thelkeld, Sr. Manager – Power and Utility Strategy
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Introduction to Organized Wholesale Markets
Wholesale markets refer to the purchase and sale of electricity among generators and energy suppliers, along with services needed to maintain a resilient and reliable power system. Organized wholesale markets are centrally managed markets that provide a platform for transparent and competitive wholesale electricity trading.
“Meta wants to see a zero-carbon energy future. Well-designed, organized wholesale markets are foundational to getting us there quickly, cost-effectively and in a way that works for customers.”
- – Meta, Peter Freed, Director of Energy Strategy
Organized Wholesale Markets include:
Real-Time Energy Markets
A balancing market where electricity quantities and market clearing prices are calculated every five minutes based on actual system operations to settle any deviations from day-ahead market scheduling.
Day-Ahead Energy Markets
A forward – looking market often referred to as EDAM, where electricity quantities and market clearing prices are calculated individually for each hour of the day based upon participant bids for energy sales and purchases.
The ability of the electric system to always supply the aggregate electrical demand and energy requirements of the end-use customers while considering scheduled and unscheduled outages of system element through forward looking procurement.
Reliability is the foundational ability of the system to deliver power to end-use customers and power outages can occur when it is not properly maintained.
Ancillary Services are functions that help grid operators maintain and balance the reliable delivery of electricity to customers.
Governance & Stakeholder Processes
Organized Wholesale Market operators are required to have transparent structures and processes that provide opportunities for stakeholder participation.
Clean energy developers can request access to the organized wholesale market transmission network through non-discriminatory and tech-neutral processes.
Operators of OWMs can integrate local and regional planning and provide holistic regional and interregional transmission planning.
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Regional Transmission Organization (RTO) and
Independent System Operator (ISO)
The most advanced markets are operated by an RTO/ISO. There are seven RTOs/ISOs covering two-thirds of the country, providing electricity to over 200 million consumers. In the absence of an RTO/ISO utility planning is siloed, and there are no minimum standards for coordination or resource sharing. Some utilities in non-RTO/ISO regions have elected to participate in incremental market structures such as an energy imbalance market which is a voluntary market that provides a sub-hourly economic dispatch of participating resources to balance supply and demand every 5 minutes while maintaining transmission and reliability constraints. For example, in the west, many utilities have joined the Western Energy Imbalance Market (WEIM), operated by CAISO, or the Western Energy Imbalance Service Market (WEIS), operated by SPP. Incremental market structures, however, do not allow customers to experience the full range of benefits that are available under an RTO/ISO. (See link below the benefits of OWMs).
What is an RTO/ISO?
An independent entity overseen by the Federal Energy Regulatory Commission (FERC) that:
- Operates organized wholesale markets
- Coordinates power balancing across multiple utility service territories while ensuring reliability and dispatching least-cost generation first
- Manages transmission assets regionally
- Establishes a governance structure to guide decision making and public input
Clean Energy Customer Organized Wholesale Market Design Principles
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CEBA’s Organized Wholesale Markets Principles outline market design and implementation that meets the needs of large energy customers.
Unlock Wholesale Market Competition to Catalyze Clean Energy
Well-designed and effectively implemented organized wholesale markets catalyze clean energy resources. These markets operate most effectively when based upon competitive principles, including:
- An open and level playing field.
All generation, storage, demand-side management, and other resources should be permitted to provide all services they are technically capable of providing.
- A role for demand participation.
Meaningful avenues for demand-side resources to participate, as well as incentives for responsiveness to the time and geographic-specific costs of electricity use, can reduce system costs for customers and incentivize efficient and emission-reducing investments.
- Services that provide actual value to customers.
Customers should only pay for services that provide value. Organized wholesale market design should be based on market pricing, cost causation, and supply and demand principles, which allow a market price for services needed by demand.
Safeguard Market Integrity
Markets are best equipped to deliver durable benefits when rules, operation, and governance are conducted clearly, consistently, and fairly. The market benefits are achieved through:
- Independent and responsive grid governance, management, and operation.
Governance structures should ensure that grid operators are independent and incentivized to achieve reliable, cost-effective delivery of energy services without favoring or discriminating against any particular resource or stakeholder.
Transparency across pricing, decision-making and governance improves benefits for all.
- Broad stakeholder engagement and representation.
Careful attention should be paid to ensure that governance provides all participants, including customers, with robust pathways to meaningfully participate in decision-making and the stakeholder process.
Design to Scale to the Future
Market design should be constructed in recognition of the increasingly flexible, decentralized, and clean energy sector of the future, built to secure:
- Largest efficient operational scale available.
Because markets function more efficiently on larger scales, single larger geographic market footprints are preferred over multiple smaller ones. An independent operator should provide organized wholesale electricity services through competitive organized markets and oversee transmission operation and planning.
- Options for customers.
Markets should have mechanisms that permit customers to meet decarbonization commitments and facilitate efficient bilateral contracting.
- Respect for federal and state public policy.
Markets should facilitate and harmonize with other federal and state policy choices.
- Predictable investment decisions.
Market rules should be designed with durability and predictability in mind. Market rules may need updating over time, but changes should be minimized and avoided without a clear showing of need.
“At Google, we believe that organized power markets are essential to a well-functioning electricity system. CEBA’s market principles establish a vision for how markets can be organized and governed to provide maximum benefit to customers, including low costs, reliability, and greater uptake of carbon free generation.”
- – Google, Michael Terrell, Sr. Director for Climate
Benefits of Organized Wholesale Markets
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Well-implemented and designed organized wholesale markets provide significant customer, societal, and environmental benefits.
RTOs/ISOs provide information on market prices, fuel mix, resource operations, transmission congestion, resource operations, and emissions. Customers rely on transparency to make educated decisions on their energy needs and perform needed due diligence to enter long term power purchasing agreements.
Customer Options & Innovation
RTOs/ISOs enable generation competition and greater clean energy integration, which translates to more options to meet customers’ preferences. Large energy buyers can enter into market constructs directly with clean energy developers through market constructs like virtual power purchase agreements (vPPAs).
Transmission investment and operation are more efficient and economic when managed regionally. New transmission capacity can enhance the performance and economic benefits of new and expanded energy markets. Transmission enhancements in PJM reduce costs by nearly $300 million a year by alleviating congestion.
Expanding Organized Wholesale Markets
RTOs/ISOs do not currently exist in the Southeast and West, with the exception of the California Independent System Operator (CAISO). The utilities operate in traditional bilateral and non-transparent wholesale markets and therefore have limited regional engagement. Customers in the West and Southeast would benefit from a range of market reform options, including a full RTO/ISO. Recent studies conclude the regions are missing out on billions of annual savings by not participating in an RTO/ISO.
The West is comprised of 34 balancing authorities. Consolidating the region under one RTO/ISO could save $2 billion in annual gross savings by 2030 and reduce renewable energy curtailment by 33% more than a day-ahead market.
By 2040, compared to business-as-usual, a Southeast RTO/ISO could save a cumulative $384 billion in costs, reduce retail rates by 29%, and lower emissions by 37% from 2018 levels.