The study aims at the optimal generation capacity reserve and sitting in power system planning. The generator models consider minimum and maximum output level for energy and different kinds of reserves, ramping rate limits, minimum, up and down times, incremental energy costs and start-up and shut-down costs. Contingency reserves are the front line in the defense of bulk-power system against loss of supply caused by major generation or transmission outages. They are provided by generating units. That can increase their output (or in some cases, by interruptible loads that can decrease their consumption) rapidly. The augmented Lagrangian relaxation method enhanced by decomposition and coordination technique avoids oscillations associated with piece-wise linear cost functions with advent of competition markets confronts each producer with the problem of optimally allocating his energy/capacity so as to maximize his profits. The optimal capacity allocation in multi-auction electricity market under certainty multiplicity of auctions in electricity market the non-trivial constraint imposed technical and biding rules. Make the problem of crucial importance and difficult to model and solve. The method can also be used for determining the optimal policy of physically allocating generating and output among different markets.