Power Markets Glossary


Note: Definition sources are hyperlinked, click to learn more.


AESO - The Alberta Independent System Operator, one of Canada’s two ISO’s.

Alternating Current - Alternating current is current that changes direction periodically.

Ancillary service market - A market utilized by the ISO or RTO to ensure that enough generation is available in the immediate future.  In the ancillary service market, a generator offers to hold back a certain amount of power, for a certain price, to be used if necessary.  Participants in the ancillary service market are usually spinning reserves or reserves that can be ramped up (or down) quickly.


Bal-Day - A contract settling at the average on-peak real-time price at a particular hub for the remainder or balance of the day, traded on ICE.

Bal-Month - Balance of the month is a contract settling on the average on-peak real-time price for the month. - link to blog post

Bal-Week - Balance of the week is a contract settling on the average on-peak real-time price for the week, traded on ICE. - link to blog post

Baseload generators - The generators running the majority of the time, they meet the low load that is essentially always present.

Battery Storage - A method of storing electricity for later use.

Bilateral Trading - Trades made directly between two parties, for example, between two utilities. Bilateral trades primarily take place in structured, vertically integrated markets, however they can in competitive markets. (Energy Trading & Investing)

Black start generator - Small generator that can be started without electricity and is then used to start the rest of the power plant.


CAISO - The California Independent System Operator. CAISO map available here.

Capacity Factor - Generation in MW divided by either the nameplate, summer, or winter capacity, multiplied by 100.

Capacity market- A market utilized by the ISO or RTO to ensure there will be enough generation available in the coming years.  Generators can offer to remain operational for a set period of time for a fee, called a capacity payment. (Coursera)

CENACE - Centro Nacional de Control de Energia, Mexico’s competitive electricity market.

Clearing price - The price at which the buyer and seller agree upon, once the price is agreed upon it clears the market.

Coal Plants - Power plants that produce electricity by burning coal to heat water, which produces the steam that turns the turbines that turn the magnets producing electricity.

Combined Cycle Plants - Combined cycle plants utilize both a combustion turbine and a steam turbine to produce electricity more efficiently.  The combustion turbine is run as normal, then, the exhaust heat produced by the combustion turbine that would otherwise go to waste is captured to create steam that turns the steam turbine, producing more electricity. 

Combustion Turbines - Combustion turbines ignite gas in order to expand it, rotating a turbine connected to a generator that produces electricity.

Commodity - Products or goods that are interchangeable and can be bought or sold.  Examples: oil, coffee.

Congestion - Congestion is similar to a traffic jam, it occurs when there is too much electricity travelling across a transmission line. Congestion can also occur when another line goes down, creating a binding constraint on another piece of transmission equipment. Congestion is the most variable component of the LMP, and is what financial power traders are most interested in.

Congestion Revenue Right (CRR) - The name for Financial Transmission Rights in CAISO & ERCOT

Constraint - A transmission constraint occurs when there is too much power flowing across a transmission line.  If actions are not taken to alleviate the constraint, damage to the line might occur.

Contingency - Equipment that has been identified to cause an issue in the event the equipment became inoperable for power flow.

Consumer - Someone utilizing an economic good or service. 


Day-ahead market - The market whereby the ISO or RTO predicts the next day’s load and schedules generation to supply that load.

Dec’s - Decrement offers, a type of virtual trade where the trader bids to buy power at or below a certain price point at a specific pricing node.

Department of Energy (DOE) - The Department of Energy’s mission statement is “ to ensure America’s security and prosperity by addressing its energy, environmental and nuclear challenges through transformative science and technology solutions.”

Deregulated Markets - Vertically integrated utilities own and operate electricity in regulated energy markets, deregulated energy markets allow for increased competition by allowing a larger number of participants to own electric and operate electric generation and transmission services.

Deregulation - Deregulation is the decrease or eradication of the government’s involvement in a specific industry, it usually occurs in an attempt to increase competition in said industry. 

Distribution - The system by which electricity is delivered to the end-user. Electricity is transported on lower voltage lines, analogous to residential roads, before arriving in homes and businesses. Distribution consists of the distribution substations, distribution lines, and distribution transformers.


Economic dispatch - The system used by the ISO or RTO to determine which generators will be used at what times of day.  The system of economic dispatch utilizes the cheapest feasible generation providers first, only taking the more expensive generator’s offers when necessary to meet the forecasted load.

EIM - The EIM is the Western Energy Imbalance Market.  It is operated by CAISO and unlike the other ISO’s, participation in EIM is completely voluntary.  EIM is a real-time market, not a day-ahead and real-time dual settlement market like the other ISO’s/ RTO’s. EIM map available here.

Electric Cooperatives/ Cooperative Utilities - Electric cooperatives are utilities built and owned by local communities.  

Electromagnetic Generators - Electromagnets utilize Michael Faraday’s discovery that moving a magnet in a coil of copper produces an electric current in the wire.  Electromagnetic generators utilize rotating electromagnetic shafts surrounded by a stationary case made of insulated coils of wire.  When the shafts turn the electromagnetic inside of the wire casing, it produces an electric current.

ERCOT - The Electric Reliability Council of Texas is the ISO/RTO in Texas. ERCOT map available here.


FERC - The Federal Energy Regulatory Commission.  Regulation organization ensuring reliable, efficient, and sustainable electricity. 

Financial power market participants - Financial participants are participants who bid into the market, but are not generating or consuming load, financial participants provide liquidity to the market and encourage economic efficiency. (Link to blog post)

Financial Transmission Rights (FTRs) - Financial contracts where there is no obligation to deliver electricity.  They are similar to spreads, they are transmission paths from a source to a sink, however they are much longer-term contracts than spreads.

FPC - Federal Power Commission. The predecessor of the Federal Energy Regulatory Commission (FERC).


Gas Plants - Gas plants produce electricity using combustion turbines.  The combustion turbine has three main components: the compressor, the combustion chamber(s), and the turbine.  Air is first drawn into the unit, it is then compressed in the compressor.  After compression, it moves into the combustion chamber(s) where the fuel (gas) is mixed with the air and ignited.  When the mixture combusts, it expands and produces steam that moves into the turbine, spinning the generator’s blades and producing electricity.

Generation - Generation is the process whereby electricity is produced from a fuel source.

Generation scheduling - ISO’s schedule generation in the day-ahead and real-time market using the system of economic dispatch.

Gross Generation - Total generation including the parasitic load.


Heat input - A measure of the fuel used by the generator (usually measured in mmBtu).

Heat rate - A measurement of generator efficiency. Calculated by dividing the heat input (mmBtu) by the total electrical output (MW). The lower the heat rate, the more efficient the plant.

Hedging - Hedging occurs when an individual or entity makes an investment in order to reduce the risk associated with another one of their assets. Often, assuming an offsetting position is hedge.

Hydraulic Turbines - See hydro dams below.

Hydro Dams - Dams produce electricity by preventing the natural flow of water and siphoning water through the dam’s penstock. At the end of the penstock, the water turns the turbine that rotates the magnets producing electricity.  Dams use flowing water to turn turbines rather than steam. 


IESO - The Independent Electricity System Operator, one of Canada’s two ISO’s. IESO map available here.

Inc’s - Increment offers, a type of virtual trade, where the trader sells power into the day-ahead market for a given price at a specific pricing node.

Independent Power Producers (IPPs) - Independent Power Producers are generators owned by entities which are not utilities, or municipalities.

Independent System Operator (ISO’s) - Independent, not for profit organizations, with the responsibility of coordinating generation and transmission. ISO’s have two main goals: providing reliable and cost-effective electricity.

Intercontinental Exchange (ICE) - An intermediary organization, or exchange, for over-the-counter (OTC) and bilateral trades.  ICE trading is purely speculative, while transactions are tied to ISO pricing signals, they are transacted completely on ICE and not through the ISO.  (See also: Energy Trading & Investing)

Intermittent generators - Renewable power sources are intermittent generators.  While they are inexpensive to operate, their output is based upon uncontrollable environmental factors, and their dispatch cannot be precisely planned. 




Levelized Cost of Energy (LCOE) - The cost that a generator will pay for each MW of energy over a plant’s entire lifespan. The LCOE is made up of four costs (capital costs) the cost of building, fixed costs (operational costs excluding the cost of producing the power, i.e. labor, maintenance, lights on), variable cost (operational and maintenance cost based on use/dispatch), and fuel cost (cost of fuels).

Liquidity - The feasibility and ease of exchanging an asset for cash. If it is easy to exchange the asset for cash it is a liquid market, if it is difficult to exchange the asset for cash it is an illiquid market.

Load - Load is the total demand for electricity at any given point in time.  The end consumer represents load.

Load forecast - The analysis of historical data, weather forecasts, etc. to predict energy demand. 

Locational marginal price (LMP) - The individual price of the next MW of power at individual nodes on the grid.  The LMP is made of three parts, the marginal location, loss and congestion component.  The cost of producing the next MW of energy is dependent upon the actual cost of generating that MW, but also upon the losses that occur on the transmission line, and the impact of congestion on transmission lines. 

Load serving entities (LSE) - Entities providing electricity to individuals or wholesale buyers, load serving entities produce load.


Market efficiency - When the price of electricity mirrors all the available information, leading to increased opportunities for buyers and sellers, with the lowest cost. In power markets, the goal is to provide reliable, affordable electricity.

MISO - The Midwestern Independent System Operator. MISO map available here. 

Municipal utilities - Municipal utilities are non-profit electric utilities owned by towns or cities to serve its citizens.


Nameplate - The maximum capacity of a generator under ideal conditions.

Natural monopolies - Monopolies occur when companies face little to no competition in a field or industry.  Natural monopolies often occur when there is a high barrier to entry. They are a product of market forces.  

NEISO - The New England Independent System Operator. NEISO map available here.

Net generation - Total generation excluding the parasitic load.

Next-day/ Day-ahead - Speculative trades on the RT prices for the next day, traded on ICE and settled on the average on-peak real-time price the next day.

Nuclear Plants - Power plants that produce electricity using nuclear fission to heat water, which produces the steam that turns the turbines that turn the magnets producing electricity.

NYISO - The New York Independent System Operator.  NYISO map available here.


OASIS - Open Access Same Time Information System. OASIS is the system that provides information on transmission capacity.  Transmission service is requested through OASIS as well. 


Parasitic Load - The power used by a generator onsite that will not be available to the grid.

Peaking generators - The generators that run during peak hours of energy demand or load. They are more expensive to operate, but also have faster ramp rates than baseload generators.

Physical power market participants - Participants who are buying or selling actual electricity, they have a physical need to use the power grid and transmission services.

PJM-ISO - The Pennsylvania, Jersey, Maryland Interconnection, the area's Independent System Operator/ Regional Transmission Organization. PJM map available here.

Point to Point (PTP) - The name for spreads in ERCOT.

Power Grid - The power grid is the infrastructure which allows for the delivery of electricity.  The power grid is made up of generators, transformers, the transmission system, and the distribution system. 

Price convergence - In power markets, price convergence would result if the real-time market ended up matching the day-ahead market exactly, with the day-ahead and real-time prices converging. Price convergence is the goal for ISOs and RTOs.

Pricing node - Pricing nodes are specific locations on the grid, such as generators or transmission components where there is location specific pricing (an LMP).

Pricing signals - The ISO balances the grid by sending pricing signals to certain pricing nodes.  High pricing signals indicate that generators in that area should ramp up, low or negative pricing signals indicate that there is too much generation in that area and generators should ramp down. 

Pumped Storage - Pumped storage facilities generate electricity by transporting water back and forth between two reservoirs at different elevations.  Water is pumped from the lower reservoir to the higher reservoir using electricity (this often takes place during low load periods, such as at night), then, when load is higher, the water is released from the higher reservoir to the lower one, passing through turbines in the same manner as it would in a hydro-dam and producing additional electricity.



Ramp rate - How long it takes for a generator to increase or decrease its power output, measured in MW / hour.

Real-time market - The market where the ISO or RTO meets the actual demand in real-time, by bringing generators on and off line.

Regional Transmission Organization (RTO’s) - Functionally, an RTO is the same thing as an ISO. However, FERC order 2000 outlined specific functions required to be classified as an RTO. Many markets were already operating as ISO’s and subsequently became RTO’s after meeting FERC’s requirements, but kept their original names, which included ISO.

Risk mitigation - Reducing the level of risk when taking a position in the market, decreasing the chances of losing a large sum of money.


Security-constrained economic dispatch (SCED) - The mathematical model used to create the most economic dispatch of generation while also accounting for operation limitations (i.e. congestion, ramp rates, outages etc.).

Solar Farms (Photovoltaics) - Solar farms produce electricity by converting photons from sunlight into electricity.  Solar panels contain cells made up of semi-conductor material.  When the sun’s photons strike the panel they free electrons in the semiconductor and create an electric current, generating electricity.

Spark/ Dark/ Quark/ Bark/ Crack Spread - The difference between the price a generator is paid for producing power and the cost of fuel to produce that power.

SPP - The Southwest Power Pool is the area’s Independent System Operator/ Regional Transmission Organization.  SPP map available here.

Spread Trading - Spreads are transactions between two points on the grid, the source where the power comes from, and the sink, where the power is going. Spreads are bid into the day-ahead market and settled in the real-time market  Essentially, they are bids on whether the congestion cost will be higher or lower in the day-ahead market than the real-time market.  Spreads are only an option in PJM (Up to Congestion) and ERCOT (Point to Point). (See Also: Energy Trading & Investing)

Step-up & Step-down Transformers - Transformers utilize alternating current and iron coils to increase or decrease the voltage of electricity to prepare it for transmission lines or for delivery to the end user. 

Summer/ Winter Capacity - The maximum capacity of a generator in the summer or winter. This is based on the actual generation, not the ideal conditions.

Supply and demand - Economic commodity relationship between the volume the producers want to sell and the quantity consumers wish to buy.

Steam Turbines - Steam turbines use fuel to heat liquid, transforming it into steam.  The steam rotates a turbine connected to an electromagnetic generator that produces electricity.


Transmission - The use of high voltage power lines to transport electricity across long distances.  The transmission system is analogous to the US highway system.

Transmission Congestion Contract (TCC) - The name for Financial Transmission Rights in NYISO.

Transmission Congestion Right (TCR) - The name for Financial Transmission Rights in SPP.

Transmission constraints - A transmission constraint occurs when there is too much power flowing across a transmission line.  If actions are not taken to alleviate the constraint, damage to the line might occur.

Transmission Lines - Transmission lines are power lines that carry electricity long distances at high voltages.


Up to Congestion (UTC) - The name for spreads in PJM.


Vertically integrated utility - Vertically integrated utilities are utilities that own the components of generation, transmission and distribution.

Virtual Trading - Virtual trades are financial trades bid into the day-ahead market, where the bidder does not have the intention or ability to provide supply, or consume load, also called DART trades. 

Volatility - The statistical dispersion between the returns in a given market.  Volatility often results in big pricing swings. Assets with more volatility are usually considered riskier.


Wind Turbines - Wind turbines utilize natural wind to produce electricity.  The wind spins the blades on the turbine around a rotor, spinning the generator and producing electricity.