February 4, 2005
All rights reserved to Shmuel Oren, UC Berkeley
PSERC
Price
Reversals in New England Under Sequential
Auction
1.1. Operating Reserves Market Flaws: TMSR, TMNSR, TMOR.
During June and July the ISO identified design flaws in the
operating reserve markets of Ten Minute Spinning Reserve (TMSR), Ten Minute
Non-Spinning Reserve (TMNSR), and Thirty Minute Operating Reserve (TMOR). The operating reserve design flaws resulted
in markets that are not workably competitive. In a competitive market, higher
quality goods should command higher prices.
In the operating reserves markets prices did not appear to be
reflective of costs and lesser quality reserves received higher prices. For example, Thirty Minute Operating Reserve
(“TMOR”) is less useful than Ten Minute Non-Spinning Reserve (“TMNSR”), Ten
Minute Spinning Reserve (“TMSR”), or Energy.
However, at times, TMOR prices exceeded the prices for all three of the
other products.