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We propose an ISO model for coordinating transmission expansion planning with competitive generation capacity planning in electricity markets. The purpose of the model is a holistic simulation of generation and transmission capacity expansion in the market environment. The solution represents an iterative process for simulating the interactions among GENCOs, TRANSCOs, and the ISO, which might be terminated by the ISO based on a pre-specified stopping criterion. The proposed model adopts a joint energy and transmission auction market and a capacity mechanism. The joint auction market enables competition to occur among generation and transmission resources. The capacity mechanism offers incentives for market participant investments that reflect the locational values of additional capacity. Transmission capacity expansion decisions are made by merchant transmission lines that recover their capacity investments through transmission marginal pricing and capacity payments. Transmission network security is reflected in the proposed competitive resource planning model. The examples illustrate a coordinated planning of generation and transmission in restructured power systems.