One size may not fit all: Welfare benefits and cost reductions with optional differentiated household electricity rates

Farhad Daruwala, Frank T. Denton and Dean C. Mountain

Resource and Energy Economics, 2020, vol. 61, issue C

Abstract: We consider optional time-of-use (TOU) pricing for residential consumers, offered by a publicly regulated electricity supplier, as an alternative to a single TOU or flat rate structure. An equilibrium model explores and quantifies the effects of such pricing on welfare, consumption, and production costs. The supplier offers to each household a menu of possible rate structures obtained by maximizing a collective welfare function subject to three restrictions: Pareto efficiency, incentive compatibility, sufficiency of supplier revenue to cover costs. Simulations based on realistic calibration of the model demonstrate that optional pricing can increase overall consumer welfare and reduce average cost.

Keywords: Optional differentiated time-of-use rates; Pareto efficiency; Incentive compatibility; Welfare benefits; Electricity utility; Consumer demand (search for similar items in EconPapers)
JEL-codes: D11 D12 D58 D61 D82 L94 Q41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:61:y:2020:i:c:s0928765519302039

DOI: 10.1016/j.reseneeco.2020.101160

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