electricity is a relatively new type of tradable commodity several characteristics differentiated from other commodities such as crude oil or natural gas first it is completely fungible meaning one megawatt hour of electricity produced from either coal or natural gas contains exactly the same amount of energy second it must be produced and used simultaneously industrial battery storage is still prohibitively expensive therefore additional systems need to be in place to meet peak levels of consumption third the supply must meet demand exactly in the power grid ancillary services and demand response programs ensure that increases in demand are handled in real time this means uh neck anomic generation resources are not dispatched when demand is low they are only put into service during periods of peak demand due to these unique characteristics of electricity independent system operators ISO and regional transmission organizations RTO are responsible for keeping the power grid balanced between generation and load is OS and RTOS forecast and schedule generation to assure that sufficient generation and backup power is in place to meet unexpected demand or generation loss is OS and RTOS must be non-commercial organizations neutral and independent from commercial players currently there are nine ISO and RTOS in North America each one is responsible for the reliability operations resource planning and expansion in the deregulated electricity market each ISO and RTO typically operates and manages four markets energy capacity financial transmission rights and ancillary services let's first look at how is OS and RTOS manage the energy market which includes the generation and consumption of electricity they manage the energy market via two sub markets the first is through a day ahead market and the second is through the real time market in the day ahead market electricity generators and load serving entities submit their bids to ISO rtos to receive and offer electricity to the power grid based on varying costs for each hour or next operating day in the real time market is OS and RTOS manage the change in production and consumption throughout the day this can range from five minutes to half an hour increments is OS and RTOS optimize the generation dispatch schedule where they consider cost security and transmission constraints market participants will commit to the schedule with a locational marginal price or LMP set at each location based on published prices from ISO RTO in the real-time market operators send dispatch instructions to each generator based on actual system operating conditions in a real-time basis generation and load are priced at each node on the bus for longer-term Grid resource stability is OS and RTOS operate a capacity market that auctions the commitment of providing electricity generation capacity to ensure generation exceeds load in the long term this market incentivizes long term capital investment in generation resources and revenues are paid to the capacity providers regardless of whether energy is produced or not CME Group offers a variety of futures and options contracts for electricity day ahead real time and capacity markets this provides market participants a variety of regional locations to hedge and manage risk exposure you