Competitive procurement of ancillary services by an independent system operator

This paper discusses the competitive procurement of ancillary services by an independent system operator (ISO). The paper assumes the existence of an underlying market for energy and explains why this energy market must be accompanied by a market for ancillary services. These services include operating reserves and automatic generation control (AGC) both of which may require generators that are infra-marginal in the energy market to choose between supplying energy or ancillary services. The paper discusses the design of an auction for these services that has formed the basis for the California ISO´s ancillary services market. The paper also discusses the real-time dispatch of ancillary services