An energy market is where energy is sold or purchased for immediate delivery. It operates similarly to a market of any other product. The energy market is used to deliver energy and to prepare for energy that will be needed in the future. The two main types of markets are wholesale and retail. Energy is initially sold on a wholesale market to utilities and other entities, who then resell it on the retail market to end-users. MISO operates a wholesale energy market in which energy is sold in real time and in preparation for the future.
The Real-Time Energy Market balances energy supply with demand every five minutes at the least possible cost while maintaining reliable system conditions; including reserve requirements, congestion management and accurate price signals.
The Day-Ahead Market serves as a "planning phase" for the next operating day. The outcome is an optimal set of unit commitment and hourly operating schedules for the following day. The Day-Ahead Market also calculates costs and allows buyers and sellers to lock in pricing prior to real time. This helps ensure that adequate resources are scheduled to meet the next day's anticipated demand.
Locational Marginal Price(LMP) is the cost of providing the next MW of electrical energy at a specific location on the grid. It is posted hourly for the Day-Ahead Market and is weighted and posted every five minutes for the Real-Time Market. Restaurants, similarly to the energy grid, have busy times and slower times. At a slower time in a restaurant, you can expect to be seated with little to no wait, which symbolizes a period with very little congestion on the grid. A busy time at a restaurant generates a longer wait time, which represents large levels of congestion on the grid.
The “marginal” part of locational marginal pricing means that in the Day Ahead Market, prices will be different for each hour of the 24-hour day because the load, the available resources and the resource dispatch will be different for each hour. In the Real Time Market, prices will be different for each 5-minute interval for the same reason.
The “locational” part of locational marginal pricing reflects the fact that the dispatch of resources is managed in a way that attempts to be least while at the same time respecting normal operating limits on transmission lines. LMPs are different based on time and location and can be compared to restaurant wait times.
FTRs are financial instruments whose values are determined by the transmission congestion charges that arise in the Day-Ahead Energy and Operating Reserve Market, leading to differences in the Marginal Congestion Components (MCCs) of Day-Ahead Locational Marginal Prices (LMPs) at different locations. FTRs may be used to provide a financial hedge to manage the risk of congestion cost in the Day-Ahead Energy and Operating Reserve Market.
MISO facilitates annual and monthly FTR auctions. The annual FTR auction is conducted prior to the beginning of each planning year, and it is conducted in three rounds. Each round is comprised of eight separate markets –peak and off-peak for four seasons.
An Auction Revenue Right is a Market Participant’s entitlement to a share of revenue generated in annual FTR auctions. A Market Participant’s firm historical usage of MISO's transmission system determines its share, and depending upon the FTR auction clearing price of an ARR path, the share could result in revenue or a charge.
Think of a shopping mall parking lot. Most mall parking lots are sized with enough spaces to handle customer levels during peak shopping periods like around the Christmas holiday. On most days during the rest of the year, however, the lot is only partially full. MISO, working with state regulators and electricity users and providers, takes a similar approach to ensuring there are enough resources in place to keep the lights on during peak periods. The resources may not always be used, but are committed to MISO in case they are needed to serve customers ensuring reliable service even at peak times.
MISO’s market vision is to foster wholesale electric markets that deliver reliable and economically efficient outcomes. MISO is continually identifying ways to improve performance and increase value to its members.