Deregulation in electricity markets requires fast and robust optimization tools for a secure and efficient operation of the electric power system. In addition, there is the need of integrating and coordinating operational decisions taken by different utilities acting in the same market. Distributed Energy Management Systems (DEMS) may help to fulfill these requirements. The design of a DEMS requires detailed simulation results for the evaluation of its performance. To simulate the operation of a DEMS from the optimization standpoint, a general purpose distributed optimization software tool, DistOpt, is used, and its capabilities are extended to handle power system problems. The application to the optimal power flow problem is presented. Index Terms-Deregulation, distributed energy management systems (DEMS), distributed optimization. I. INTRODUCTION T HE deregulation and opening of competitive forces in the market are causing a deep restructuring of the electric power industry, affecting its organization and the operation of power systems. From the point of view of the organization, many structures are possible, and the choice strongly depends on historical, political, and economical issues [1]. Nevertheless, some common elements can be found in all the restructuring models being proposed, namely, the Independent System Operator (ISO) granting for a nondiscriminatory access to the transmission network and system reliability, power brokers, generation companies, and distribution companies, just to name some of them. The operation of power systems is strongly affected by restructuring [2], [3]. In a vertically integrated utility all technical and economical issues of the power system operation are considered together, and all the operational decisions are centrally assumed. It is not so in a deregulated environment, where the operational decisions can be classified into two categories [3]. Ones taken by the marketplace parties (such