IEEE TRANSACTIONS ON SYSTEMS, MAN, AND CYBERNETICS—PART C: APPLICATIONS AND REVIEWS, VOL. 34, NO. 3, AUGUST 2004 245 Introduction of Independent Players in a Centrally Planned Market: Decision Support by Long-Term Production Costing S. Roy, Senior Member, IEEE Abstract—This paper presents long-term production costing as an important decision tool that can be used to assess entry of exoge- nous players within an otherwise centrally planned, natural mo- nopolistic market. The ex-monopolist emerges as the dominant participant of the restructured market, and continues to play a decisive role in price determination. In doing so, it can apply long-term production costing methods to decide the extent to which entry of independent players should be permissible. On the other hand, the independent entrants can use production costing to weigh their gains in view of the price decided by the ex-monopolist or the policy maker. The specific case of an energy market is examined through a suit- ably formulated long-term production costing model. A case study shows that transfer of some of the generating units to indepen- dent power producers (IPPs) can lead to considerable reduction of production cost and fuel heat consumption associated with utility owned generation. Further, if the choice of generating units to be transferred to IPPs is made with suitable care, then the marginal cost of utility generation can be reduced significantly; thereby low- ering the price of electricity. Index Terms—Decision making, decision support systems, en- ergy management, linear programming, production management. NOMENCLATURE Sets: The set of line types in an electricity market. Set of all production units (power generation units). A subset of , consisting of all production units (power generation units) that are to be retained by the ex-monopolist following structural changes. , Subsets of , consisting of production units (power generation units), whose ownership is to be transferred to the th and th exogenous players (IPPs in the context of an electricity market), respectively. Subset of in an electricity market, consisting of power generation units that belong to the th utility within the ex-monopolist. Subset of in an electricity market, consisting of power generation units that are to be retained by the th utility following structural changes. Manuscript received July 8, 2001; revised January 7, 2003. This paper was recommended by Liping Fang. The author is with the Department of Electrical Engineering, Indian Institute of Technology, Delhi 110016, India (e-mail: roys@ee.iitd.ernet.in). Digital Object Identifier 10.1109/TSMCC.2004.829290 Subset of in an electricity market, consisting of power generation units that belong to a central pool within the ex-monopolist. Subset of in an electricity market, consisting of power generation units that are to be retained by a central pool following structural changes. Set of member utilities within the ex-monopolist in an electricity market. Constants and exogenous parameters: Number of constraints for production costing by ex-monopolist. Number of constraints for production costing by the th exogenous player. Total number of production units, or power gen- eration units (cardinal number of ). Number of production units, or power generation units, to be retained by the ex-monopolist (car- dinal number of ). , Number of production units, or power generation units, to be divested to the th and th exogenous players (cardinal number of , ). In an electricity market, the number of power gen- eration units that belong to the th utility within the ex-monopolist (cardinal number of ). In an electricity market, the number of power generation units that are to be retained by the th utility following structural changes (cardinal number of ). In an electricity market, the number of power gen- eration units that belong to a central pool within the ex-monopolist (cardinal number of ). In an electricity market, the number of power gen- eration units that are to be retained by a cen- tral pool following structural changes (cardinal number of ). Selling price required to be set to maximize profit for the ex-monopolist (subscript 0) or th exoge- nous player (subscript ). Variables: Availability factor of the th unit in an electricity market. Convex, monotonically increasing cost of pro- duction for the th production unit, function of the concerned production variable. (Likewise, gener- ation cost for the th power generation unit.) 1094-6977/04$20.00 © 2004 IEEE