Price dynamics in a network of decentralized power markets

In this paper, we model the dynamic behavior of prices in a network of inte rconnected, but decentralized, electric power markets-an architecture very different from the centralized exchanges and power pools currently being im plemented by many state regulators. We estimate dynamic equations of unregu lated, wholesale power prices at spot markets scattered over an eleven-stat e trading region. The results indicate that this decentralized system of po wer and transmission trading produces prices that are efficient and dynamic ally stable over this vast network. Price convergence in the power market i s similar to what has been observed in the recently deregulated natural gas market.