Retail electricity competition
Name
2004-009.pdf
Size
235.86 KB
Format
Adobe PDF
Checksum (MD5)
5a2634ac67659f71b9e1fe439ee3ee0a
Author(s)
Joskow, Paul L.
Tirole, Jean
Date Issued
2004
Publisher
MIT Center for Energy and Environmental Policy Research
Series/Report no.
MIT-CEEPR (Series) ; 04-009WP.
Abstract
We analyze a number of unstudied aspects of retail electricity competition. We first explore the implications of load profiling of consumers whose traditional meters do not allow for measurement of their real time consumption, when consumers are homogeneous up to a scaling factor. In general, the combination of retail competition and load profiling does not yield the second best prices given the non price responsiveness of consumers. Specifically, the competitive equilibrium does not support the Ramsey two-part tariff. By contrast, when consumers have real time meters and are billed based on real time prices and consumption, retail competition yields the Ramsey prices even when consumers can only partially respond to variations in real time prices. More complex consumer heterogeneity does not lead to adverse se1ection and competitive screening behavior unless consumers have real time meters and are not rational. We then examine the incentives competitive retailers have to install one of two types of advanced metering equipment. Competing retailers overinvest in real time meters compared to the Ramsey optimum, but the investment incentives are constrained optimal given load-profiling and retail competition. Finally, we consider the effects of physical limitations on the ability of system operators to cut off individual customers. Competing retailers have no incentive to determine the aggregate value of non-interruption of consumers in the zones they serve, preferring instead to free ride on other retailers serving consumers in the same zones.
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