Data-Driven Clustering and Feature-Based Retail Electricity Pricing with Smart Meters

N. Bora Keskin (), Yuexing Li () and Nur Sunar ()
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N. Bora Keskin: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Yuexing Li: Carey Business School, Johns Hopkins University, Baltimore, Maryland 21202
Nur Sunar: Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599

Operations Research, 2025, vol. 73, issue 5, 2636-2660

Abstract: We consider an electric utility company that serves retail electricity customers over a discrete-time horizon. In each period, the company observes the customers’ consumption and high-dimensional features on customer characteristics and exogenous factors. A distinctive element of our work is that these features exhibit three types of heterogeneity—over time, customers, or both. Based on the consumption and feature observations, the company can dynamically adjust the retail electricity price at the customer level. The consumption depends on the features: there is an underlying structure of clusters in the feature space, and the relationship between consumption and features is different in each cluster. Initially, the company knows neither the underlying cluster structure nor the corresponding consumption models. We design a data-driven policy of joint spectral clustering and feature-based pricing and show that our policy achieves near-optimal performance; that is, its average regret converges to zero at the fastest achievable rate. This work is the first to theoretically analyze joint clustering and feature-based pricing with different types of feature heterogeneity. Our case study based on real-life smart meter data from Texas illustrates that our policy increases company profits by more than 100% over a three-month period relative to the company policy and is robust to various forms of model misspecification.

Keywords: Stochastic; Models; spectral clustering; feature-based dynamic pricing; data-driven analysis; retail electricity; smart meter; lasso regularization; exploration-exploitation (search for similar items in EconPapers)
Date: 2025
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