  With the increased level of distributed generation and demand response comes
the need for associated mechanisms that can perform well in the face of
increasingly complex deregulated energy market structures. Using Lagrangian
duality theory, we develop a decentralized market mechanism that ensures that,
under the guidance of a market operator, self-interested market participants:
generation companies (GenCos), distribution companies (DistCos), and
transmission companies (TransCos), reach a competitive equilibrium. We show
that even in the presence of informational asymmetries and nonlinearities (such
as power losses and transmission constraints), the resulting competitive
equilibrium is Pareto efficient.
