Spot Markets in Electric Power Network: Theory

  • Hung-po Chao
  • Stephen Peck
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 18)


The movement toward market competition in the U.S. began in the 1970’s with some capital intensive network-based industries such as transportation, energy, and telecommunications. The potential for increased competition in the electric power industry has long been discussed. Back when interconnected systems took shape after the innovation of high voltage transmission, the electric power system exhibited notable characteristics of natural monopoly. In general, as a network system becomes bigger and better connected, die number of potential options available to customers increases, and the pressure for greater reliance on market mechanisms grows stronger. In the 1990’s, as competitive forces sweep across the electric power industry around the world, access and pricing policy for transmission will play a pivotal role in shaping future market structure and performance. However, pricing for the electric power transmission system is complicated by some unique characteristics of the electric power network. An electric power grid differs technologically from other types of network in that power flows must observe Kirchoffs laws. This gives rise to the ‘loop flow’ phenomenon, creating widespread externalities in die markets for electric power, whose complexity only grows with the size of the system. Therefore, it is commonly assumed that horizontal integration of transmission is necessary to coordinate resource allocation efficiently. Joskow and Schmalensee (1983) point out the fundamental importance of the externality problem in evaluating alternative proposals for restructuring.


Power Flow Competitive Equilibrium Transmission Capacity Spot Market Trading Rule 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Chao, Hung-po and Stephen Peck (1996) “A Market Mechanism for Electric Power Transmission”, Journal of Regulatory Economics, July, Vol. 10, No. 1.Google Scholar
  2. Chao, Hung-po and Stephen Peck (1997) “An Institutional Design for an Electricity Contract Market with Central Dispatch”, Energy Journal, January.Google Scholar
  3. Coase, R. (1960), “The Problem of Social Cost”, The Journal of Law and Economics 3, October, pp. 1–44.CrossRefGoogle Scholar
  4. Elgerd, O.I. (1982) Electric Energy Systems and Theory, 2nd ed. New York: McGraw-Hill Book Company.Google Scholar
  5. Gale, David (1960), “The Theory of Linear Economic Models,” The University of Chicago Press, Chicago, Illinois.Google Scholar
  6. Graves, Frank (1995), “A Primer on the Economics of Electric Power Flow”, EPRI TR-104604, Electric Power Research Institute, Palo Alto, CaliforniaGoogle Scholar
  7. Hogan, William (1992), “Contract Networks for Electric Power Transmission,” Journal of Regulatory Economics, Vol. 4, pp. 211–242, September.CrossRefGoogle Scholar
  8. Hogan, William (1993), “Electric Transmission: A New Model for Old Principles”, The Electricity Journal}, MarchGoogle Scholar
  9. Joskow, Paul and Richard Schmalensee (1983), Markets for Power, The MIT Press, Cambridge, Massachusetts.Google Scholar
  10. Schweppe, Fred C. (1980), “Homeostatic Utility Control”, Technical Paper, MIT Energy Lab.Google Scholar
  11. Schweppe, F.C., M.C. Caramanis, R.D. Tabors and R.E. Bohn (1988) Spot Pricing of Electricity, Kluwer Academic Publishers: Norwell, MA.CrossRefGoogle Scholar
  12. Wu, F., P. Varaiya, P. Spiller and S. Oren (1994), “Folk Theorems on Transmission Access: Proofs and Counter Examples”, Program on Workable Energy Regulation (POWER), University of California.Google Scholar

Copyright information

© Springer Science+Business Media New York 1999

Authors and Affiliations

  • Hung-po Chao
  • Stephen Peck

There are no affiliations available

Personalised recommendations