The general trend in the world economy to substitute markets and competition for economic regulation, and the heightened international consciousness for energy efficient resource utilization motivate this study of the technical and economic feasibility of deregulating electric power transmission networks. The project focuses on the development of computer coordinated market mechanisms for the generation and transmission of electrical energy and for the building and exchange of capacity rights in the power network. Previous related work by the investigators has attracted the attention of various government agencies in New Zealand, England, France, Poland, Norway, Hungary and the United States. A useful byproduct of this grant is computer software for hands-on laboratory demonstration experiment to better inform non-technical decision makers of the potential advantages of institutional reform. The approach taken to defining the structure and property rights in the deregulated form of this industry is based on two fundamental concepts that are at the core of a deregulation scenario. The first is central economic dispatch (regional or national) of energy in pipeline or transmission networks. An economic dispatch center uses optimization algorithms that compute prices and allocations so as to maximize system surplus as revealed in the dispersed location-specific bids of all agents. The idea is to combine the coordination advantages of centralization with the informational advantages of decentralized ownership. Decentralization cannot alone serve well the needs of competition in markets that have the complex interdependencies that characterize power networks. The second concept at the core of a restructure is cotenancy or joint ownership of capacity rights to "natural monopoly" elements of the network, and the opportunity to exchange these rights as agents' circumstances change. The research methodology is that of the controlled laboratory experiment. The laboratory is used as a test bed to examine the performance and equilibrium properties of price- allocation mechanisms far too difficult to model formally as noncooperative games.
