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Market Redesign and Technology Upgrade

Skip Navigation LinksPUC > Energy > Federal and Regional Energy Policy > California's Wholesale Market Design and Operations > Market Redesign and Technology Upgrade > Virtual Bidding

Virtual Bidding

Under CAISO’s Market Restructuring and Technology Upgrade (MRTU ), FERC ordered CAISO to implement virtual, or convergence, bidding within one year from the start of MRTU.  Virtual bidding is a market activity in which virtual bids for energy supply and demand are made in the Day Ahead market. These virtual bids are not intended for actual consumption or delivery in real time.  According to CAISO, virtual bidding improves market performance by (1) increasing the number of competitors and bids in the Day-Ahead market, (2) improving Day-Ahead and Real-Time price convergence and (3) reducing market power. 

The CPUC Position

The CPUC initially opposed the implementation of virtual bidding on the grounds that it occurs within the framework of a purely financial market, a characteristic reminiscent of that which contributed to the western energy crisis. The CPUC now supports virtual bidding on the condition that it will be accompanied by sufficient market power mitigation and also be implemented initially at the Load Aggregation Point (LAP) level and not at the more granular nodal level. A gradual introduction of virtual bidding between fewer points would be less complicated and easier to track than to introduce virtual bidding at many more nodes. Additionally, the CPUC argued in favor of CAISO’s approach to separate physical bids (bids that will actually be delivered) from virtual bids. This is expected to facilitate market monitoring and timely resolution of any market manipulation or other adverse market effects that may arise from virtual bidding.

Last Modified: 12/4/2008

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