Bushnell, James

Operations Research Vol. 51 no. 1 (January 2003)

This paper presents a modeling framework for analyzing competition between multiple firms that each possess a mixture of hydroelectric and thermal generation resources. Based upon the concept ofa Cournot oligopoly with a competitive fringe, the model characterizes the Cournot equilibrium conditions ofa multiperiod hydrothermal scheduling problem. Using data from the western United States electricity market, this framework is implemented as a mixed linear complementarity model. The results show that some firms may find it profitable to allocate considerably more hydro production to off-peak periods then they would under perfect competition. This strategy is a marked contrast to the optimal hydroschedules that would arise ifno firms were acting strategically. These results highlight the need to explicitly consider profit-maximizing behavior when examining the impact ofre gulatory and environmental policies on electricity market outcomes.