Bargaining local compensation payments for the installation of new power transmission lines

Abstract This paper analyzes transmission system operator (TSO)-host community negotiations over an efficient and socially-optimal compensation payment for the installation of new electric power transmission lines. We consider that the TSO has an incentive to negotiate over a transfer that will become a function of final demand. We thus develop a bargaining game within a vertical relationship framework to include the distribution system operator (DSO) and the end-users at the downside of the bargaining problem. We determine the equilibrium of the game, for three negotiation protocols (sequential, bilateral, and multilateral) as an alternative to the non-cooperative situation. We show that when the number of municipalities involved in the process is higher than 5, the multilateral bargaining procedure is the most profitable for all agents, including the municipalities. Inversely, when the number of municipalities is lower than 5, different cases can arise. A single municipality will prefer the non-cooperative outcome while municipalities will prefer the sequential case when there are 2 or the bilateral case when there are 3 or 4. However, from the TSO standpoint and for the society, multilateral negotiations are always the best outcome.