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Minghua Chen - One of the best experts on this subject based on the ideXlab platform.
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e-Energy - Stay or Switch: Competitive Online Algorithms for Energy Plan Selection in Energy Markets with Retail Choice
Proceedings of the Tenth ACM International Conference on Future Energy Systems, 2019Co-Authors: Jianing Zhai, Sid Chi-kin Chau, Minghua ChenAbstract:Energy markets with Retail Choice enable customers to switch energy plans among competitive Retail suppliers. Despite the promising benefits of more affordable prices and better savings to customers, there appears subsided participation in energy Retail markets from residential customers. One major reason is the complex online decision-making process for selecting the best energy plan from a multitude of options that hinders average consumers. In this paper, we shed light on the online energy plan selection problem by providing effective competitive online algorithms. We first formulate the online energy plan selection problem as a metrical task system problem with temporally dependent switching costs. For the case of constant cancellation fee, we present a 3-competitive deterministic online algorithm and a 2-competitive randomized online algorithm for solving the energy plan selection problem. We show that the two competitive ratios are the best possible among deterministic and randomized online algorithms, respectively. We further extend our online algorithms to the case where the cancellation fee is linearly proportional to the residual contract duration. Through empirical evaluations using real-world household and energy plan data, we show that our deterministic online algorithm can produce on average 14.6% cost saving, as compared to 16.2% by the offline optimal algorithm, while our randomized online algorithm can further improve cost saving by up to 0.5%.
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Stay or Switch: Competitive Online Algorithms for Energy Plan Selection in Energy Markets with Retail Choice
arXiv: Data Structures and Algorithms, 2019Co-Authors: Jianing Zhai, Sid Chi-kin Chau, Minghua ChenAbstract:Energy markets with Retail Choice enable customers to switch energy plans among competitive Retail suppliers. Despite the promising benefits of more affordable prices and better savings to customers, there appears subsided participation in energy Retail markets from residential customers. One major reason is the complex online decision-making process for selecting the best energy plan from a multitude of options that hinders average consumers. In this paper, we shed light on the online energy plan selection problem by providing effective competitive online algorithms. We first formulate the online energy plan selection problem as a metrical task system problem with temporally dependent switching costs. For the case of constant cancellation fee, we present a 3-competitive deterministic online algorithm and a 2-competitive randomized online algorithm for solving the energy plan selection problem. We show that the two competitive ratios are the best possible among deterministic and randomized online algorithms, respectively. We further extend our online algorithms to the case where the cancellation fee is linearly proportional to the residual contract duration. Through empirical evaluations using real-world household and energy plan data, we show that our deterministic online algorithm can produce on average 14.6% cost saving, as compared to 16.2% by the offline optimal algorithm, while our randomized online algorithm can further improve cost saving by up to 0.5%.
Bernie Neenan - One of the best experts on this subject based on the ideXlab platform.
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Killing Two Birds with One Stone: Can Real-Time Pricing SupportRetail Competition and Demand Response?
2006Co-Authors: Galen Barbose, Ranjit Bharvirkar, Charles R. Goldman, Nicole Hopper, Bernie NeenanAbstract:As Retail Choice states reach the end of their transitional, rate-cap periods, state regulators must decide what type of default supply service to provide to customers that have not switched to a competitive Retail supplier. In a growing number of states, regulators have adopted real-time pricing (RTP) as the default service for large commercial and industrial (C&I) customers. Although this trend is driven chiefly by policy objectives related to Retail competition, default service RTP may have the added benefit of stimulating demand response. To evaluate the potential role of RTP as a means to both ends--Retail market development and demand response--we conducted a comprehensive review of experience with default RTP in the U.S. and examined the emergence of RTP as a product offering by competitive Retail suppliers. Across the ten utilities with default RTP in place in 2005, between 5% and 35% of the applicable load remained on the rate. Based on interviews with competitive Retailers, we find evidence to suggest that a comparable amount of load in these states has switched to hourly pricing arrangements with competitive Retailers. Many customers on default or competitive hourly pricing are paying prices indexed to the real-time spot market, and thus have no advance knowledge of prices. Because the price responsiveness of customers under these conditions has yet to be formally analyzed, and relatively few efforts have been undertaken to help these customers become price responsive, the actual demand response impacts from hourly pricing in Retail Choice states remains largely an open question. However, we find that policymakers and other stakeholders in Retail Choice states have various strategies at their disposal to capture the potential demand response benefits from hourly pricing, while simultaneously supporting Retail competition.
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Killing Two Birds with One Stone: Can Real-Time Pricing Support Retail Competition and Demand Response?
Lawrence Berkeley National Laboratory, 2006Co-Authors: Galen Barbose, Ranjit Bharvirkar, Charles R. Goldman, Nicole Hopper, Bernie NeenanAbstract:Killing Two Birds with One Stone: Can Real-Time Pricing Support Retail Competition and Demand Response? Galen Barbose, Ranjit Bharvirkar, Charles Goldman, and Nicole Hopper, Lawrence Berkeley National Laboratory Bernie Neenan, Neenan Associates ABSTRACT As Retail Choice states reach the end of their transitional, rate-cap periods, state regulators must decide what type of default supply service to provide to customers that have not switched to a competitive Retail supplier. In a growing number of states, regulators have adopted real-time pricing (RTP) as the default service for large commercial and industrial (C&I) customers. Although this trend is driven chiefly by policy objectives related to Retail competition, default service RTP may have the added benefit of stimulating demand response. To evaluate the potential role of RTP as a means to both ends – Retail market development and demand response – we conducted a comprehensive review of experience with default RTP in the U.S. and examined the emergence of RTP as a product offering by competitive Retail suppliers. Across the ten utilities with default RTP in place in 2005, between 5% and 35% of the applicable load remained on the rate. Based on interviews with competitive Retailers, we find evidence to suggest that a comparable amount of load in these states has switched to hourly pricing arrangements with competitive Retailers. Many customers on default or competitive hourly pricing are paying prices indexed to the real-time spot market, and thus have no advance knowledge of prices. Because the price responsiveness of customers under these conditions has yet to be formally analyzed, and relatively few efforts have been undertaken to help these customers become price responsive, the actual demand response impacts from hourly pricing in Retail Choice states remains largely an open question. However, we find that policymakers and other stakeholders in Retail Choice states have various strategies at their disposal to capture the potential demand response benefits from hourly pricing, while simultaneously supporting Retail competition. Introduction Real-time pricing (RTP) has a long and varied history in the U.S. 1 Over the past two decades, more than 70 vertically-integrated utilities in traditional, regulated markets have offered RTP as an optional alternative to their standard rates, on either a pilot or permanent basis. In terms of the demand response impacts, experience with optional RTP in regulated markets has been somewhat mixed. Although various studies have conclusively shown that many participating customers do reduce their load in response to high hourly prices – some significantly so – only a small fraction of optional RTP programs have attracted a sufficient number of participants for the associated load response to have any meaningful impact on system operations or planning (Barbose, Goldman & Neenan 2004). Real-time pricing is a type of Retail electricity rate whereby consumers are charged prices that vary over short time intervals, typically hourly, and are notified of these prices no more than several days in advance.
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RTP as an Optional Service: It's Alive, But Is It Well? - eScholarship
2006Co-Authors: Charles R. Goldman, Galen Barbose, Bernie NeenanAbstract:RTP as an Optional Service: It’s Alive, But Is It Well? Charles Goldman and Galen Barbose (Lawrence Berkeley National Laboratory) Bernie Neenan (Neenan Associates, a UtiliPoint Company) I. Introduction Economists have advocated for real-time pricing (RTP) of electricity on the basis of the gains in economic efficiency that would result from charging customers the contemporaneous marginal cost of supplying electricity instead of the average cost. 1 In recent years, RTP has also become the subject of interest in a variety of policy contexts, including integrated resource planning initiatives, ongoing efforts to improve efficiency and reliability in competitive electricity markets, and implementation of default service in states with Retail Choice. Most experience with RTP has been as an optional service, that is, a self-selecting alternative to the standard utility service. By our count, approximately 70 utilities in the U.S. offered an optional RTP program at some point over the past 20 years. However, many programs are now defunct. In 2003, 47 utilities in the U.S. were still offering an optional RTP program, on either a pilot or permanent basis (see Figure 1). In addition, 10 utilities in states with Retail Choice currently offer RTP as the default service for large customers that are not under contract with a competitive supplier. Another two utilities have received regulatory approval to do so in the next few years. 2 Although the results of a few optional RTP programs have been publicized, the vast majority of programs have operated in relative obscurity. 3 To provide a wider perspective on utility and customer experience with RTP, we surveyed 43 optional RTP programs offered in 2003. 4, 5 We interviewed RTP program managers and other utility staff, and reviewed publicly available sources, including key regulatory documents and program evaluations. Based on this research, we identified trends related to RTP program history and outlook, program design and implementation, customer participation, and participant price response. The results are both surprising and instructive. We conclude that RTP is indeed alive but is not prospering as well it could. Thus, we offer a number of recommendations for policymakers and utilities that are considering optional RTP as a strategy for developing price responsive demand. II. A Brief History of RTP A. RTP programs have been introduced in response to a range of market and regulatory conditions. The RTP programs in our survey were introduced over a 20-year period spanning three semi-distinct eras (see Figure 2). The first wave of RTP programs emerged in the mid-to-late- 1980s, when several utilities developed RTP pilots to test its viability and potential impact as a novel demand side management (DSM) strategy. 6 The second wave came in the mid-1990s, when many utilities, primarily located in the Southeast and Midwest, introduced RTP programs. It coincided with a period of heightened concerns about uneconomic bypass from on-site generation, and anxiety about the competitive consequences of what appeared to be impending Retail market restructuring. Responding to these pressures, utilities saw RTP as a way to retain and recruit large customers by offering them: early access to market prices, the opportunity to expand their loads without incurring additional demand charges, and more control over their
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The Role of Demand Response in Default Service Pricing
The Electricity Journal, 2006Co-Authors: Galen Barbose, Charles Goldman, Bernie NeenanAbstract:THE ROLE OF DEMAND RESPONSE IN DEFAULT SERVICE PRICING Galen Barbose and Chuck Goldman, LBNL Bernie Neenan, Neenan Associates Dynamic Retail electricity pricing, especially real-time pricing (RTP), has been widely heralded as a panacea for providing much-needed demand response in electricity markets. However, in designing default service for competitive Retail markets, demand response often appears to be an afterthought. But that may be changing as states that initiated customer Choice in the past 5-7 years reach an important juncture in Retail market design. Most states with Retail Choice established an initial transitional period, during which utilities were required to offer a default or “standard offer” generation service, often at a capped or otherwise administratively-determined rate. Many Retail Choice states have reached, or are nearing, the end of their transitional period and several states have adopted an RTP-type default service for large commercial and industrial (C&I) customers. Are these initiatives motivated by the desire to induce greater demand response, or is RTP being called upon to serve a different role in competitive markets? Surprisingly, we found that in most cases, the primary reason for adopting RTP as the default service was not to encourage demand response, but rather to advance policy objectives related to the development of competitive Retail markets. However, we also find that, if efforts are made in its design and implementation, default RTP service can also provide a solid foundation for developing price responsive demand, creating an important link between wholesale and Retail market transactions. This paper, which draws from a lengthier report, describes the experience to date with default RTP in the U.S., identifying findings related to its actual and potential role as an instrument for cultivating price responsive demand [1]. For each of the five states currently with default RTP, we conducted a detailed review of the regulatory proceedings leading to its adoption. To further understand the intentions and expectations of those involved in its design and implementation, we also interviewed regulatory staff and utilities in each state, as well as eight of the most prominent competitive Retail suppliers operating in these markets which, together, comprised about 60-65% of competitive C&I sales in the U.S. in 2004 1. Overview of default RTP service in the U.S. RTP is currently the default service for the largest C&I customers of eleven investor-owned utilities (IOU) in the U.S. and is planned or proposed for fifteen others (see Table 1). In most cases, it has been implemented through a regulatory process whose central purpose was to establish the “post-transition” supply service for individual utilities or all utilities in a state, following the expiration of standard offer rate caps and/or utility contracts with generators to supply customers that have not switched. These regulatory processes have typically been guided by a set of broad statutory mandates (e.g., that default service be “market-based”) and involved a large number of stakeholders attempting to address and resolve a wide range of issues. Based on our interviews with stakeholders involved in these proceedings and from our review of the regulatory record, itself, it is evident that adoption of RTP as the default service has been motivated largely by goals related to Retail market development. What makes RTP an attractive candidate in this regard? First, RTP encourages switching by motivating customers that do not want to face hourly spot market prices to seek out hedged supply contracts with competitive suppliers. Second, RTP avoids the
Steven L. Puller - One of the best experts on this subject based on the ideXlab platform.
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Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market
American Economic Journal: Economic Policy, 2017Co-Authors: Ali Hortaçsu, Seyed Ali Madanizadeh, Steven L. PullerAbstract:Many jurisdictions around the world have deregulated utilities and opened Retail markets to competition. However, inertial decisionmaking can diminish consumer benefits of Retail competition. Using household-level data from the Texas residential electricity market, we document evidence of consumer inertia. We estimate an econometric model of Retail Choice to measure two sources of inertia: (1) search frictions/inattention, and (2) a brand advantage that consumers afford the incumbent. We find that households rarely search for alternative Retailers, and when they do search, households attach a brand advantage to the incumbent. Counterfactual experiments show that low-cost information interventions can notably increase consumer surplus.
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Efficient Retail Pricing in Electricity and Natural Gas Markets
American Economic Review, 2013Co-Authors: Steven L. Puller, Jeremy WestAbstract:A long line of research investigates whether the Retail prices of electricity and natural gas send proper signals about scarcity in order to induce efficient consumption. Historically, regulated utilities have not designed tariffs that set marginal prices equal to marginal costs. Currently, some jurisdictions are opening the Retail sectors to competition via "Retail Choice." These new regimes replace imperfect regulation with imperfect competition as the process by which Retail tariffs are formed. We discuss the challenges in evaluating the efficiency of tariffs and present evidence of how pricing has changed in markets with Retail Choice.
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Power to Choose? An Analysis of Choice Frictions in the Residential Electricity Market
2012Co-Authors: Ali Horta, Steven L. PullerAbstract:Many jurisdictions around the world that have deregulated formerly regulated utilities, such as electricity and natural gas, have opened Retail markets to competition and allowed customers to choose their Retail provider. However, inertial decisionmaking can diminish consumer benefits of this policy. Using household-level data from the Texas residential electricity market, we document evidence of inertial decisionmaking – a majority of households continue to purchase power from the incumbent despite the fact that switching to a new entrant Retailer would reduce electric bills by around 8%. We estimate an econometric model of decisionmaking to measure the size of two sources of inertia: (1) consumer inattention, and (2) a brand advantage that consumers afford the incumbent. We find that both sources of inertia are prevalent. Households that buy from the incumbent consider alternative Retailers in less than 2% of months. Even when they search for alternative providers, consumers attach a substantial brand advantage to the incumbent that discourages switching to a lower-priced Retailer, despite the fact that the power is technically identical. However, this brand advantage diminishes substantially over time and becomes relatively small after several years of Retail Choice. Using the parameters of our model to conduct counterfactual experiments, we find that a low-cost information intervention has the potential to increase consumer surplus. These findings suggest that careful market design to address inertia during the transition to Retail competition can substantially benefit consumers. ∗Hortacsu: University of Chicago and NBER, hortacsu@uchicago.edu; Madanizadeh: University of Chicago, seyedali@uchicago.edu; Puller: Texas A&M University and NBER, puller@econmail.tamu.edu. We thank the University of Chicago Energy Initiative and EI@Haas for generous financial support. We are grateful for assistance with data and institutional questions from Kelly Brink, Robert Manning, Calvin Opheim, and Jess Totten. We thank Tim Brennan, Severin Borenstein, Nancy Rose, Catherine Wolfram and numerous seminar participants for very useful comments.
Jianing Zhai - One of the best experts on this subject based on the ideXlab platform.
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e-Energy - Stay or Switch: Competitive Online Algorithms for Energy Plan Selection in Energy Markets with Retail Choice
Proceedings of the Tenth ACM International Conference on Future Energy Systems, 2019Co-Authors: Jianing Zhai, Sid Chi-kin Chau, Minghua ChenAbstract:Energy markets with Retail Choice enable customers to switch energy plans among competitive Retail suppliers. Despite the promising benefits of more affordable prices and better savings to customers, there appears subsided participation in energy Retail markets from residential customers. One major reason is the complex online decision-making process for selecting the best energy plan from a multitude of options that hinders average consumers. In this paper, we shed light on the online energy plan selection problem by providing effective competitive online algorithms. We first formulate the online energy plan selection problem as a metrical task system problem with temporally dependent switching costs. For the case of constant cancellation fee, we present a 3-competitive deterministic online algorithm and a 2-competitive randomized online algorithm for solving the energy plan selection problem. We show that the two competitive ratios are the best possible among deterministic and randomized online algorithms, respectively. We further extend our online algorithms to the case where the cancellation fee is linearly proportional to the residual contract duration. Through empirical evaluations using real-world household and energy plan data, we show that our deterministic online algorithm can produce on average 14.6% cost saving, as compared to 16.2% by the offline optimal algorithm, while our randomized online algorithm can further improve cost saving by up to 0.5%.
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Stay or Switch: Competitive Online Algorithms for Energy Plan Selection in Energy Markets with Retail Choice
arXiv: Data Structures and Algorithms, 2019Co-Authors: Jianing Zhai, Sid Chi-kin Chau, Minghua ChenAbstract:Energy markets with Retail Choice enable customers to switch energy plans among competitive Retail suppliers. Despite the promising benefits of more affordable prices and better savings to customers, there appears subsided participation in energy Retail markets from residential customers. One major reason is the complex online decision-making process for selecting the best energy plan from a multitude of options that hinders average consumers. In this paper, we shed light on the online energy plan selection problem by providing effective competitive online algorithms. We first formulate the online energy plan selection problem as a metrical task system problem with temporally dependent switching costs. For the case of constant cancellation fee, we present a 3-competitive deterministic online algorithm and a 2-competitive randomized online algorithm for solving the energy plan selection problem. We show that the two competitive ratios are the best possible among deterministic and randomized online algorithms, respectively. We further extend our online algorithms to the case where the cancellation fee is linearly proportional to the residual contract duration. Through empirical evaluations using real-world household and energy plan data, we show that our deterministic online algorithm can produce on average 14.6% cost saving, as compared to 16.2% by the offline optimal algorithm, while our randomized online algorithm can further improve cost saving by up to 0.5%.
Jay Zarnikau - One of the best experts on this subject based on the ideXlab platform.
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Retail Competition, Advanced Metering Investments, and Product Differentiation: Evidence From Texas
Future of Utilities Utilities of the Future, 2016Co-Authors: Varun Rai, Jay ZarnikauAbstract:Retail electricity service can differ with respect to attributes such as reliability of service, environmental impact, value-added services, and payment options. Does a competitive Retail sector foster the diverse pricing and service offerings required to satisfy the heterogeneous needs of consumers? This question is explored by comparing product and service offerings in areas of Texas opened to competition to those offered by monopoly providers in areas not opened to Retail Choice. Competition, supplemented with a state-mandated investment in advanced metering infrastructure (AMI), has led to greater Choices of rates and products, consistent with an initial rationale for market reform in Texas.
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Has electric utility restructuring led to lower electricity prices for residential consumers in Texas
Energy Policy, 2006Co-Authors: Jay Zarnikau, Doug WhitworthAbstract:This paper analyzes the determination of residential electricity prices in the competitive Electric Reliability Council of Texas (ERCOT) market. This analysis suggests that electricity restructuring in Texas has not yet resulted in lower prices for the majority of residential energy consumers in areas open to competition. Contrary to common expectations, residential electricity costs for consumers at a typical (1000 kWh per month) consumption level have increased at a greater rate in the areas of Texas offering Retail Choice than in the areas of the State where Retail competition has not been introduced.
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Texas: The Most Robust Competitive Market in North America1
Electricity Market Reform, 2006Co-Authors: Parviz Adib, Jay ZarnikauAbstract:This chapter describes the much more successful experience of the Texas market, widely acknowledged as the most “robust” competitive market in North America. The restructuring of Texas' Electric Reliability Council of Texas (ERCOT) market benefited from a confluence of positive factors, including a phased approach where the restructuring of the wholesale market preceded the Retail Choice, ample generating capacity at the outset of Retail competition, and an intrastate market where a single state-level regulatory authority wielded near-exclusive jurisdiction over the implementation of the state's plan. The competitive electricity market within the ERCOT has avoided the market meltdown suffered in California. After 10 years under the restructured wholesale market and more than 3 years of experience with Retail competition in Texas, it is far too early to determine whether the new market structure will remain viable in the long term. A number of challenges, however, remain as Texas seeks to implement more efficient means of managing transmission congestion and ensuring resources adequacy. Some of the key features of the market structure are presently being reexamined, including educating consumers about their Choices, managing transmission congestion in an efficient manner, which minimizes subsidies and sends appropriate price signals, and ensuring long-term resource adequacy.