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Although reform of electric supply industry has taken place worldwide for about two decades, vigorous price variation in power markets remains one of the crucial problems to be resolved. Transmission network operating in natural monopoly environment requires stringent regulation but it should also be fair to allow the network company recover its costs and have rational benefits. In this paper, a purchase price cap method is proposed for achieving this objective. It includes development of a heuristic approach for setting up an adequate price cap for generation companies with due consideration on appropriate regulatory framework. The proposed approach gives a promising theoretical backup for adopting the purchase price cap as one of the measures to control the market prices in the Zhejiang provincial power market which is being operated as a single buyer market model.