California ISO Board of Governors Approves Convergence Bidding

FOLSOM, Calif.--(Business Wire)--
Today the California Independent System Operator Corporation (ISO) Board of
Governors unanimously approved adding convergence bidding in the ISO market in
early 2011.

Convergence bidding allows market participants to better manage price
fluctuations that can occur between the day-ahead and real-time markets. It is
used in most competitive energy markets in the United States because it reduces
risk and provides market liquidity. Reducing the price differential between
market time frames provides a variety of benefits, including:

* Increased liquidity which helps mitigate market power
* Lower cost to serve load through a more efficient day-ahead unit commitment
* Ability to hedge against real-time market exposure stemming from forced
generation outages
* Improved grid operations because the day-ahead market better reflects
real-time conditions
* May be used to account for anticipated intermittent generation in the
day-ahead market

Convergence bids are financial; they do not represent physical energy or load.
If cleared in the day-ahead market, they are settled at day-ahead prices and
then automatically liquidated with the opposite position at real-time prices.
For example, a virtual supply bid would be an offer to sell energy at the
day-ahead price and buy the same amount back at the real-time price. A virtual
demand bid would be just the opposite. Generators and utilities that are also
bidding to buy and sell physical energy can use these strategies to reduce the
risk of being caught on the wrong side of price fluctuations between the day
ahead and real time.

Market participants that do not represent physical load or generation can
participate in convergence bidding as a way to potentially make a profit if they
bid wisely. But they also assume some risk, relieving physical load and
generation from some of their risk. The ISO proposal is the result of an
extensive stakeholder process.

California ISO Media Hotline |888.516.6397

151 Blue Ravine Road | Folsom, California 95630 | www.caiso.com

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The California ISO operates the state`s wholesale transmission grid, providing
open and non-discriminatory access supported by a competitive energy market and
comprehensive planning efforts. Partnering with more than 90 client
organizations, the ISO is dedicated to the continual development and reliable
operation of a modern grid that operates at the least cost to the benefit of
consumers. The ISO bulk power market allocates space on transmission lines,
maintains operating reserves and matches supply with demand. Recognizing the
importance of global climate change, the ISO welcomes new, advanced technologies
that will help meet the energy needs of 30 million Californians efficiently and
cleanly. The ISO is a nonprofit public benefit corporation.

California ISO
Stephanie McCorkle
smccorkle@caiso.com
or
Gregg Fishman
gfishman@caiso.com
or
Media Line
888-516-NEWS

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