Journal of Regulatory Economics

, Volume 15, Issue 2, pp 123-140

First online:

Price Dynamics in a Network of Decentralized Power Markets

  • Arthur S. De VanyAffiliated withInstitute of Mathematical Behavioral Science, University of California at Irvine Department of Economics
  • , W. David WallsAffiliated withThe University of Hong Kong School of Economics & Finance

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In this paper, we model the dynamic behavior of prices in a network of interconnected, but decentralized, electric power markets—an architecture very different from the centralized exchanges and power pools currently being implemented by many state regulators. We estimate dynamic equations of unregulated, wholesale power prices at spot markets scattered over an eleven-state trading region. The results indicate that this decentralized system of power and transmission trading produces prices that are efficient and dynamically stable over this vast network. Price convergence in the power market is similar to what has been observed in the recently deregulated natural gas market.