Understanding the Market Part 1: Bilateral Markets and ISO/RTOs

Breaking into electricity trading is hard for a lot of reasons. Companies in the market are not household names. There is a dramatic amount of competition for these jobs. And then there is understanding the industry itself.

Most people do not sit around thinking about how the electricity they use every minute is monitored in real time by teams of professionals working around the clock to ensure that supply meets demand - much less understand what it means to “trade electricity.”

The practical realities of electricity trading only make things harder. From cryptic market names to regional quirks, the industry’s terminology and mechanisms can overwhelm newcomers fast.

So let’s start with the basics: What do energy professionals mean when they distinguish between ISO markets and bilateral markets?

Electricity, by its nature, must be produced the instant it’s consumed. When you flip a light switch, the electricity you use impacts the grid immediately. While a single home might seem like a drop in the ocean, all those little demands add up—and big consumers like data centers or aluminum smelters make waves that grid operators notice in real time.

Most consumers never think about the impact of their usage. But behind the scenes, generators are constantly managing their assets and interacting with the spot market to determine how the next unit of electricity will be generated.

Those decisions—what resource to turn on, off, ramp up, scale down, whether to buy from the market, or sell from your own unit—are all part of what’s known as the spot market.

And at the heart of the spot market is a key concept: dispatch. Dispatching power is how grid operators ensure that supply meets demand precisely, by determining which resources to run and when.

Who makes these dispatch decisions—and how they’re made—is what separates bilateral markets from ISO markets.

In bilateral markets, individual utilities (like your local power company) make dispatch decisions on their own. Teams of traders, plant operators, and internal system operators coordinate to meet their system’s needs. The information used to make those decisions—prices, offers, operational constraints—is largely private and stays between the parties involved in the trade.

Now contrast that with ISO markets. In these regions, utilities give up a significant degree of operational control to an Independent System Operator (ISO)—also called a Regional Transmission Operator (RTO). The ISO acts as a neutral third party, running the grid independently of the companies that produce or consume power.

Here’s how it works: each utility submits bids to the ISO, telling it how much energy their units can produce and at what price. Then the ISO runs a centralized dispatch optimization—often every five minutes—factoring in all the submitted bids along with current grid conditions and system constraints.

The ISO selects the most cost-effective resources first, dispatching more expensive units only when needed. This system ensures efficiency and fairness while providing transparent, near real-time pricing that’s publicly visible and updated frequently.

The result? ISO markets are highly transparent. Participants can see how prices form, watch conditions change throughout the day, and understand exactly how their units fit into the bigger picture. In contrast, bilateral markets rely on private agreements and opaque pricing. Dispatch strategies are internal and not visible to outsiders.

For someone new to energy trading, understanding this distinction is fundamental. ISO markets offer visibility, centralized price discovery, and a standardized way to interact with the grid. Bilateral markets, on the other hand, are more bespoke, less transparent, and more relationship-driven.

Both systems exist today. ISO markets dominate in regions like California (CAISO), the Midcontinent (MISO), Texas (ERCOT), and the Northeast (PJM, NEISO, NYISO). Meanwhile, regions like the Southeast and Northwest lean heavily on bilateral trading.

Ultimately, whether you’re working in an ISO or bilateral environment shapes everything: your daily workflow, the kind of analysis you do, and the type of trading career you build.