Document Type

Working Paper

Publication Date


Working Paper Number

WP #12012, June 2012 revised April 2013


U.S. Day-Ahead Markets (DAMs) for wholesale electric power managed by Independent System Operators (ISOs) encompass more than 60% of U.S. generating capacity. The current design of these DAMs encourages a focus on decisions that minimize immediate net costs without explicit consideration of pre-DAM and post-DAM decision opportunities. This study proposes a practical DAM reformulation that enables a coupled consideration of past, current, and future energy/reserve procurement processes. The key innovation is the inclusion of ISO-determined virtual supply offers and virtual demand bids into the DAM power balance equations that permit the ISO to plan to satisfy next-day balancing needs by an efficient mix of energy/reserve cleared before, during, and subsequent to the DAM. The proposed reformulation is illustrated for three types of DAMs: a day-ahead energy market; a co-optimized day-ahead energy/reserve market; and a stochastic co-optimized day-ahead energy/reserve market.

JEL Classification

D40, L1, Q40, D4, D8, G1, Q4

File Format



28 pages

File Function

Latest revision: 25 April 2013 (First version: June 2012)

Included in

Economics Commons