ISO Net Surplus Extraction in Restructured Wholesale Power Markets

Hongyan Li and Leigh Tesfatsion ()

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: This study uses dynamic 5-bus and 30-bus test cases to explore the social efficiency implications of the net surplus (congestion rents) collected and redistributed by ISOs in restructured wholesale power markets with grid congestion managed by locational marginal pricing (LMP). Demand price sensitivity and generator learning capabilities are taken as treatment factors. A key finding is that ISO net surplus substantially increases as the price-sensitivity of demand is reduced and the learning capabilities of generators are increased, conditions resulting in greater economic capacity withholding and a possible wastage of resources. A practical implication is that a more transparent public oversight of all net surplus extractions and uses in wholesale power markets operating under LMP would be publicly prudent because these extractions are not structurally well-aligned with social efficiency objectives. Related work can be found at: http://www.econ.iastate.edu/tesfatsi/AMESMarketHome.htm

Keywords: Restructured wholesale power markets; ISO net surplus (congestion rents); multi-agent learning; demand-bid price sensitivity; AMES Wholesale Power Market Test Bed (search for similar items in EconPapers)
JEL-codes: C6 D4 D6 L1 L3 Q4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp
Date: 2009-07-18
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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:13092

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