The evolving design of RTO ancillary service markets

Abstract

Although the markets for ancillary services at the North American Independent System Operators are often structured in quite different ways there is an emerging set of core design elements that represent a rough consensus as to what the optimal design configuration for ancillary services should be, albeit with some regional variation. This paper looks back at how the design of ancillary services markets has recently evolved to put this development in context. Thereafter it examines the methods by which ancillary services are procured by highlighting the procurement practices at a number of different Independent System Operators, principally those in California, New York, New England, Texas and the PJM Interconnection, in an attempt to tease out the remaining reasons why the ancillary service markets are still so different. This is important as there are many innovations that are not rooted in regional differences but reflect genuine technical advances and economic efficiency gains and can be replicated across other ISOs to produce more efficient designs, greater reliability and lower costs.