How wholesale electricity works — generators, ISOs, you

How wholesale auctions work

Day-ahead market: load forecasts and generation bids set prices for each hour of the next day.

Real-time market: 5-minute auctions adjust for actual conditions vs forecast. Prices spike when demand surges or generation trips offline.

Cheapest plants clear first (nuclear, hydro, wind, solar with $0-$10/MWh marginal cost), then natural gas combined-cycle ($25-$45/MWh), then peaker gas ($60-$120/MWh), finally diesel and demand response ($300-$9,000/MWh in scarcity).

The marginal plant sets the price for ALL plants in that interval. So even if 90% of supply is cheap nuclear, if a $200/MWh gas peaker is needed to meet the last megawatt of demand, all suppliers get $200/MWh.

The seven US ISOs/RTOs

PJM: Pennsylvania, NJ, MD, DE, VA, WV, OH, parts of IL/NC/MI. Largest US market, 65 million customers.

ERCOT: Texas only, ~26 million customers. Energy-only market with no capacity payments — leads to extreme scarcity prices.

NYISO: New York. Capacity + energy markets. Heavy reliance on gas and nuclear; renewables growing.

ISO-NE: 6 New England states. Winter constraint risk (gas pipeline capacity).

MISO: 15 Midwest + South states. Diverse generation mix.

CAISO: California. Heavy solar + storage; duck curve volatility.

SPP: Plains states. Wind-heavy generation.

Why retail customers should care about wholesale prices

Retail prices reflect wholesale plus capacity charges plus delivery plus supplier margin. The capacity-market-pjm-ercot-explained guide breaks down the capacity component. The wholesale portion is typically 30 to 50 percent of the total residential bill, with delivery and capacity making up most of the remainder.

During wholesale price spikes — heat waves, polar vortex, hurricanes, regional generation outages — retail customers on variable-rate or index plans see immediate bill jumps. Default-rate residential customers in deregulated states feel wholesale spikes through their utility default rate, which resets quarterly or semi-annually based on procurement auctions. The when-to-lock-in-electricity-rate guide covers the lock decision.

Industrial customers and large commercial accounts buy directly at wholesale through retail suppliers. The commercial-rfp-guide and manufacturing-energy-procurement guides walk through the structure. For a 5 MW manufacturing site, wholesale-tied procurement can save $200,000 to $1,500,000 per year vs default service.

Sophisticated retail customers (TOU rate plans, demand response participants) capture some of the wholesale-pricing benefit through behavioral changes. The how-to-shift-electricity-usage-off-peak guide covers the residential moves; the demand-response-rebate-guide covers the utility programs that pay for active participation.

ISO-by-ISO detail — the seven US wholesale markets

PJM Interconnection: covers Pennsylvania, New Jersey, Maryland, Delaware, Virginia, West Virginia, Ohio, and parts of Illinois, North Carolina, Michigan, Kentucky, and Indiana. About 65 million customers — the largest US ISO. Day-ahead and real-time markets plus a separate capacity auction. 2026 capacity prices cleared at decade-high levels.

ERCOT (Electric Reliability Council of Texas): serves about 90 percent of Texas, roughly 26 million customers. Energy-only market with no formal capacity payment. Scarcity pricing during shortage events can spike to $5,000 to $9,000 per MWh, as happened during February 2021 freeze.

NYISO: New York State only. About 10 million customers. Capacity market plus energy and ancillary services. Heavy reliance on natural gas plus nuclear and growing renewables.

ISO-NE: 6 New England states (MA, CT, RI, VT, NH, ME). About 7.5 million customers. Capacity market plus winter reliability program. Natural-gas pipeline constraints into New England drive winter wholesale spikes.

MISO (Midcontinent ISO): 15 states from Manitoba border to Louisiana including most of the Midwest and parts of the South. About 45 million customers. Capacity auction plus energy and ancillary services.

CAISO (California ISO): California only. About 30 million customers. Heavy solar and storage; well-known duck curve volatility (low midday wholesale prices, high evening prices).

SPP (Southwest Power Pool): plains states including Kansas, Oklahoma, Nebraska, parts of Texas. About 19 million customers. Wind-heavy generation mix — over 40 percent of energy from wind in some hours.

Forward curves and how suppliers hedge wholesale exposure

Wholesale electricity has both spot markets (5-minute and hourly real-time prices) and forward markets (hedge instruments for delivery 1 month to 5 years ahead). Retail suppliers buy forwards to hedge their fixed-rate offers — when you sign a 12-month locked contract, the supplier has typically already locked equivalent forward purchases to back the offer.

Forward curves reflect market expectations of future wholesale prices, plus risk premiums for uncertainty. The shape of the forward curve (contango vs backwardation) tells supplier procurement teams when to lock for customer offers and when to wait. Customers can see forward-curve estimates through CME futures (NYMEX HE for PJM, NYISO Zone J, etc.).

For commercial customers above 1 MW, layered procurement (50 to 70 percent locked block plus 30 to 50 percent index) lets you participate in both stability and downside if wholesale falls during the contract term. The commercial-rfp-guide covers the layered structure.