Benefit allocation after the merger of electricity markets

Abstract

The restructuring of the power industry has the objective of increasing the industry's efficiency. The increases in efficiency sometimes have not been realized to the extent possible due to the opposition of some stakeholders to the merger of electricity markets. A clear example is the failed attempt to merge the PJM, NYISO and ISO-NE markets in 2001-2002. In this paper, we propose and investigate a benefit allocation scheme based on cooperative game theory that allows each player to benefit from the merger. The scheme is a temporary solution useful in the transition from the separate markets to the merged market. An illustrative example is provided.