TY - JOUR T1 - The Impact of heterogeneity in consumer characteristics on the design of optimal time-of-use tariffs JF - Energy Y1 - 2022 A1 - Murali,Karthik A1 - Choi,Dong Gu KW - Supply Chain AB - Unlike commercial and industrial sectors where they have been successfully deployed, the rollout of voluntary Time-of-Use (TOU) tariffs in the residential sector has been tepid. One cause for this limited penetration of TOU tariffs in the residential sector is the difficulty in offering appropriate price incentives to a consumer class that is heterogeneous in its demographics and preferences. In this paper, we develop a parsimonious game-theoretic model to shed light on the optimal pricing problem from the utility's perspective when its consumers vary in their electricity consumption scheduling preferences as well as their willingness or flexibility to shift consumption in response to price incentives offered by the utility. Using this model, we generate structural insights into the role of the two types of consumer heterogeneity on the design and potential of voluntary TOU tariffs. We also show how our model and insights can be used to evaluate the current state and potential of TOU tariffs in two U.S. states. U2 - a U4 - 202063841280 ID - 202063841280 ER - TY - JOUR T1 - The Impact of heterogeneity in consumer characteristics on the design of optimal time-of-use tariffs JF - Energy Y1 - 2022 A1 - Murali,Karthik A1 - Choi,Dong Gu KW - Supply Chain AB - Unlike commercial and industrial sectors where they have been successfully deployed, the rollout of voluntary Time-of-Use (TOU) tariffs in the residential sector has been tepid. One cause for this limited penetration of TOU tariffs in the residential sector is the difficulty in offering appropriate price incentives to a consumer class that is heterogeneous in its demographics and preferences. In this paper, we develop a parsimonious game-theoretic model to shed light on the optimal pricing problem from the utility's perspective when its consumers vary in their electricity consumption scheduling preferences as well as their willingness or flexibility to shift consumption in response to price incentives offered by the utility. Using this model, we generate structural insights into the role of the two types of consumer heterogeneity on the design and potential of voluntary TOU tariffs. We also show how our model and insights can be used to evaluate the current state and potential of TOU tariffs in two U.S. states. VL - 254 UR - https://doi.org/10.1016/j.energy.2022.124248 CP - B U2 - a U4 - 202063841280 ID - 202063841280 ER - TY - JOUR T1 - Why have Voluntary Time-of-Use Tariffs Fallen Short in the Residential Sector? JF - Production and Operations Management Y1 - 2020 A1 - Murali,Karthik A1 - Choi,Dong Gu A1 - Lim,Michael Kim A1 - Thomas,Valerie KW - Supply Chain AB - We investigate the causes behind the underwhelming adoption of voluntary Time-of-Use (TOU) tariffs in the residential electricity market. TOU tariffs are deployed by utilities to better match electricity generation capacity with market demand by giving consumers price incentives to reduce their consumption when electricity demand is at its peak. However, consumers in residential electricity markets are heterogeneous in their consumption preferences. Hence, utilities face a trade-off when deploying voluntary TOU tariffs---to provide aggressive price incentives that will only appeal to consumers with flatter profiles or milder incentives to appeal to a larger proportion of the market. Using a game-theoretic model, we identify the key factors that determine the viability of voluntary TOU tariff deployment. On the supply side, the gap between wholesale prices in the peak and off-peak periods determines how much the utility stands to benefit by inducing demand response. On the demand side, heterogeneity within target consumer sets determines how much demand response the utility can induce with a certain price incentive. We show that misaligned incentives between utilities and regulators lead to underwhelming TOU tariff adoption compared to the socially desirable level, and that this under-adoption is worse when consumption preferences are uniformly distributed. We also evaluate the degree of cross-subsidization across tariff structures to identify their implications for equity among the different consumer types, and find that low levels of voluntary TOU adoption are less equitable than the default tariffs. VL - 29 UR - https://doi.org/10.1111/poms.13126 CP - 3 U2 - a U4 - 184214296576 ID - 184214296576 ER - TY - JOUR T1 - Why have Voluntary Time-of-Use Tariffs Fallen Short in the Residential Sector? JF - Production and Operations Management Y1 - 2019 A1 - Murali,Karthik A1 - Choi,Dong Gu A1 - Lim,Michael Kim A1 - Thomas,Valerie KW - Supply Chain AB - We investigate the causes behind the underwhelming adoption of voluntary Time-of-Use (TOU) tariffs in the residential electricity market. TOU tariffs are deployed by utilities to better match electricity generation capacity with market demand by giving consumers price incentives to reduce their consumption when electricity demand is at its peak. However, consumers in residential electricity markets are heterogeneous in their consumption preferences. Hence, utilities face a trade-off when deploying voluntary TOU tariffs---to provide aggressive price incentives that will only appeal to consumers with flatter profiles or milder incentives to appeal to a larger proportion of the market. Using a game-theoretic model, we identify the key factors that determine the viability of voluntary TOU tariff deployment. On the supply side, the gap between wholesale prices in the peak and off-peak periods determines how much the utility stands to benefit by inducing demand response. On the demand side, heterogeneity within target consumer sets determines how much demand response the utility can induce with a certain price incentive. We show that misaligned incentives between utilities and regulators lead to underwhelming TOU tariff adoption compared to the socially desirable level, and that this under-adoption is worse when consumption preferences are uniformly distributed. We also evaluate the degree of cross-subsidization across tariff structures to identify their implications for equity among the different consumer types, and find that low levels of voluntary TOU adoption are less equitable than the default tariffs. U2 - a U4 - 184214296576 ID - 184214296576 ER -