This Small Business Innovation Research Phase I project will conduct theoretical research and develop a prototype software tool (COMPEL) for stimulating strategic behavior of generating companies in competitive power markets. We will use the Klemperer-Meyer Supply Function Equilibria (SFE) theory; which has been applied to power markets in England (Green and Newbery) and in the U.S. (Rudkevich et al). The U.S. electric industry is being deregulated in many states. In deregulated markets, prices will be set by market-forces and generating companies will have to compete for market share and revenues. Existing decision support tools, designed for regulated markets and based on least-cost optimization approaches, will not be suitable to simulate the operation of deregulated markets because they do not accurately capture the impacts of competition. COMPEL will be such a tool. The objectives of this Phase I project are to advance the application of the SFE theory in modeling strategic behavior of sellers in competitive generation markets and to develop prototype software for easy application of this theory. Prospective users of COMPEL include regulatory agencies, power buyers, generating companies, financial institutions, researchers and consulting companies. Potential commercial applications are enormous.
