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Eliminating the Flaws in New England's Reserve Markets

New England’s wholesale electricity market has been in operation, since May 1, 1999. When the market began it was understood that the rules were not perfect (Cramton and Wilson 1998). However, it was decided that it was better to start the market with imperfect rules, rather than postpone the market for an indefinite period. After several months of operation, we now have a sense of the extent market imperfections have resulted in observed problems. Here we study the three reserve markets—ten-minute spinning reserve (TMSR), ten-minute non-spinning reserve (TMNSR), and thirty-minute operating reserve (TMOR); we also discuss the closely related operable capability (OpCap) market. The paper covers the first four months of operation from May 1 to August 31, 1999. It is based on the market rules and their implementation by the ISO, and the market data during this period, including bidding, operating, and settlement information. Since that data are confidential, we have presented only aggregate information in the tables and figures that follow. Although this paper will cover only the reserves markets, we have studied the data from the energy, AGC, and capacity markets as well. Since all of the NEPOOL markets are interrelated, one cannot hope to understand one market without having an understanding of the others.

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Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 00flaws.

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Length: 58 pages
Date of creation: 11 Mar 2000
Date of revision: 11 Mar 2000
Handle: RePEc:pcc:pccumd:00flaws
Note: Working Paper
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Economics Department, University of Maryland, College Park, MD 20742-7211

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  1. Frank A. Wolak & Robert H. Patrick, 2001. "The Impact of Market Rules and Market Structure on the Price Determination Process in the England and Wales Electricity Market," NBER Working Papers 8248, National Bureau of Economic Research, Inc.
  2. Hirst, Eric & Kirby, Brendan, 1998. "Operating reserves and bulk-power reliability," Energy, Elsevier, vol. 23(11), pages 949-959.
  3. Peter Cramton & Robert Wilson, 1998. "A Review of ISO New England's Proposed Market Rules," Papers of Peter Cramton 98mdi, University of Maryland, Department of Economics - Peter Cramton.
  4. Bunn, Derek W. & Larsen, Erik R., 1992. "Sensitivity of reserve margin to factors influencing investment behaviour in the electricity market of England and Wales," Energy Policy, Elsevier, vol. 20(5), pages 420-429, May.
  5. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
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