| Risks evading and enviroment protection are basic problems confronted with mordern electricity markets worldwide. They are also the major concerning of electricity market regulation. This paper firstly introduces the background of electricity market regulation, demonstrates the economics fundamental of regulation, and summarizes the characteristic and principle of modern electric regulation. On the basis of theoretic preparation, the paper then focuses on two basic regulatory issues, Generation Price Regulation and External Cost Internalization.Price cap is a simple product of competitive electricity market. As a matter of fact, price capping didn't suppress the price spikes and evade the market risks effectively. The paper integrates price limit with dynamic profit-adjusting mechanism for the first time, and proposes a new price ceiling method, Profit Capping. Furthermore, on appraising two popular regulation models (ROR and RPI-X), by means of introducing Franchise Auction to generation inverstment, the paper suggests a new regulation model, Profit Capping Model (PCM), which offers a package solution to electricity price regulation.External Cost is one of the most important reasons resulting in market failures, so internalizing external cost is another task of this paper. Currently there are two kinds of generation dispatch models under trial operation in China, which are electricity market and energy-saving generation dispatch. The paper demonstrates the combination trend of the two generation dispatch models, firstly presents the theory of Energy Right Trading and pricing, and proposes a new electricity market mechanism with internalization of external cost. Through the sample calculations and analyses on East China electric power market, the new mechanism will realize joint optimization of energy-saving, emission reduction and economic benefit, and it can approach the minimization of social overall cost.
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